JUNE 2022

Ahmedabad Chartered Accountants Journal

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

Volume : 46 Part : 03 June, 2022

CONTENTS

To Begin with

- Freedom............................................................................. CA. Ashok Kataria..................... 143

Editorial ............................................................................................CA. Rutvij P. Shah.......................144
From the President............................................................................ CA. Sarju Mehta.........................145

Articles

Problem of Rising NPAs in Banks.........................................................CA. P. N. Shah............................146

What is a Trust ?..................................................................................CA. Ajit C. Shah..........................148

Income vs. Capital Receipt under Income Tax Act, 1961..................... CA. Nitin R. Soni.........................151

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia....................154
From the Courts.................................................................................. CA. Jayesh Sharedalal............... 155
Tribunal News.....................................................................................CA. Yogesh G. Shah &

CA. Aparna Parelkar.................. 158
Unreported Judgements...................................................................... CA. Sanjay R. Shah....................164
Controversies.......................................................................................CA. Kaushik D. Shah....................167
Judicial Analysis.................................................................................. Adv. Tushar Hemani......................169

FEMA & International Taxation

PE and Taxability of Interest Income.................................................. CA. Dhinal A. Shah &
CA. Karan Sukhramani...............175

FEMA Updates....................................................................................CA. Savan Godiawala..................177

Indirect Taxes

GST and VAT Judgments and Updates................................................ CA. Bihari B. Shah &
CA. Vishrut R. Shah.....................178

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara................180
GujRERA Corner..................................................................................CA. Manan Doshi.........................183
Allied Laws Corner............................................................................. Adv. Ankit Talsania.......................186
Capital Markets.................................................................................. CA. Karan P. Vora........................188

From Published Accounts ................................................................ CA. Pamil H. Shah..................... 193

From the Government ......................................................................CA Ashwin H. Shah &
CA. Kunal A. Shah........................195

IT Corner...........................................................................................CA. Rushabh Shah..................... 196

Association News.............................................................................. CA. Jay B. Parekh &
CA. Mayur H. Modha..................198

ACAJ Crossword Contest......................................................................................................................200

Ahmedabad Chartered Accountants Journal June, 2022 141

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

1. Admission Fees Basic GST Total
2. Annual Membership Fees 500 90 590
a. If Paid Prior to june 30 of each financial year :
i. In case of membership (of ICAI) for a period of less than or equal to five years 600 - 600
ii. In case of membership of (ICAI) for a period more than five years, 750 - 750
b. If paid after june 30 of each financial year :
i. In case of membership (of ICAI) for a period of less than or equal to five years, 720 - 720
ii. In case of membership of (ICAI) for a period of more than five years 900 - 900

3. Life Membership Fees 4000 720 4720
i. In case of membership (of ICAI) for a period of less than or equal to five years 7500 1350 8850
ii. In case of membership of (ICAI) for a period more than five years

4. Brain Trust Membership Fees 144 944
a. Individual Membership Fees 180 1180
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 360 2360

*** 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]

142 Ahmedabad Chartered Accountants Journal June, 2022

FREEDOM CA. Ashok Kataria
[email protected]

What is ‘freedom’? The question may seem to be and excessive indulgence in sensual enjoyments
very simple but do we really know the answer or leads to sorrow and misery. This is not freedom
ever try to understand its true meaning. Most of us but a licentious enjoyment.
believe that ‘freedom’ means able to do whatever
one feels like doing, without any shackles or Contrary to the unrestricted enjoyment, one can be
restrictions. The essential nature of a human being disciplined and enjoy the world in a better way.
is to be absolutely free but whether it’s a correct Intelligent self restrain increases the enjoyment.
approach? Such an intelligent self restrain makes human being
free. He does not entangle himself with the material
Freedom is the foundation of a happy life. If objects and in fact enjoys a sustained and a long
‘freedom’means living life as per one’s own choice lasting happiness without any dependence on the
without any restrain, everyone is exercising his free world.
will but somehow does not appear to be satisfied
and happy. People seem or rather pretend to be Religion is a medium whereby a person attains
happy but the truth is far from the reality. Why is it freedom. Religion warns human beings to be
so that in this era of technological advancements disciplined and regulates their lives so that they are
where almost everything has become possible upon not victimized by the senses and do not develop a
a touch of a button, the mind is far away from sense of monotony but rather enjoy life to the fullest.
serenity? Despite sitting amidst a mountain of
wealth and prosperity, man lives a life of worry, Lord Krishna says to Arjuna in verse 62 and 63
anxiety and dissatisfaction. of the Chapter 2 of Bhagwad Geeta that
“Thinking about sense objects brings an
Over the years there has been a continuous attachment towards them. Attachment breeds
evolution of human life. This life is often referred desire, and desire leads to anger, which in turn
to as anubhav dhara, stream of experiences. If the leads to delusion. When you are deluded, you
experiences in life are good, life is good and if the lose your memory and with the loss of memory,
experiences are bad, the life seems to be bad. the power or discrimination is destroyed; with
Experience occurs when an individual, subject, has the destruction of discrimination, your Self itself
a contact with the world. With technological is lost.”
advancements the emphasis has shifted on
improving the objects and there is today a race to If we indulge in sense gratification without
enjoy more and more of these worldly objects so as exercising our choice of action, it is a bondage and
to have a satisfied and a happy life. As the sense not freedom. Man becomes slave to his senses. To
objects of the world are attractive and alluring, the be free we need to practice intelligent self restraint
individual falls prey and gets indulgent. Getting where mind is not lingering on the object of desire.
intoxicated with the pleasure arising from such
indulgence is the next step of the downfall. After Not doing what you feel like doing is freedom.
this, the journey of the demise of a human being Swami Chinmayananda.
starts. The indulgence increases day by day until
one loses one’s energy, health and all. Uncontrolled ❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 143

Editorial

CA. Rutvij Shah
[email protected]

Recently CBDT issued a press release about direct tax collections for the year 2021-22. According to this
data, net direct tax collection during the year stood at 13.63 lakh crores. This is 48.40% increase as
compared to earlier year. Further advance tax collection stood at 6.63 lakh crores. This is 40.75% increase
as compared to earlier year. Ministry of Finance also published data about tax revenues in 2021-22 which
included both direct and indirect taxes. According to these figures, the revenue collection has surpassed
the Union Budget estimates by almost 22%. As against Budget Estimates of expected revenue collection
of Rs. 22.17 lakh crores, actual revenue collection stood at 27.07 lakh crores. This is a growth of 34%
over earlier year’s revenues. Direct tax collection has grown by 48.40% and indirect tax collection has
grown by 20% as compared to last year. This robust revenue growth has been propelled by rapid economic
recovery after successive waves of COVID. It signifies the fact that our country has successfully faced
the challenges thrown by COVID pandemic and has come out of it with flying colours.

Gross collection in direct taxes stood at 15.50 lakh crores which has risen from 12.05 crores in last year.
If we analyse the mode of collection of these taxes for last 2 years then it will throw up interesting facts.

Mode of Collection Collection Year 2021-22 Collection Year 2020-21

Advance Tax Rs. in lakh crores % Rs. in lakh crores %
TDS 6.62 42.76% 4.95 41.08%
Self Asst. Tax 6.87 44.30% 5.45 45.23%
Regular Asst. Tax 1.34 8.67% 1.07 8.88%
DDT 0.55 3.56% 0.42 3.49%
Other 0.08 0.13 1.08%
Total 0.04 0.48% 0.03 0.25%
Refund Issued 15.50 0.23% 12.05 100.00%
1.87 100.00% 2.61

TDS and TCS contributes majority part of tax collection in both these years. It contributes 44 - 45 % of
total direct tax collection. This can be one of the driving factors for Government which is introducing
new provisions of TDS in last few years.Only 8 to 9% of tax is paid as self-assessment tax which means
that most of the assessees are regular in discharging their tax liability by way of Advance Tax. Regular
assessment tax contributes about 3 to 4 % of total collection. This shows efficiency and robustness of
processing of ITRs. Refund amounts to 12% of gross tax collection in FY 2021-22. Whereas in FY
2020-21 it amounted to almost 21% of gross tax collection of that year.

❉❉❉

144 Ahmedabad Chartered Accountants Journal June, 2022

From the CA. Sarju Mehta
President [email protected]

Dear Members,

I am happy to share that the entire TEAM 2022-23 has got the ball rolling from day one with
great support from all of you.

Our thrust on updating the knowledge amongst the fraternity continues and we have witnessed
great success to Direct Tax Home Refresher Course - 3 jointlyorganized with Country’s other
7 CA Associations. Keynote Speakers to this Knowledge Series, Respected Shri Sunil Talati ,
Past President, ICAI and HonourableShri G. S. Pannu, President of the Income Tax Tribunal
of India and all other eminent speakers imparted very good knowledge during this entire
series.

Also, 51st RRC at Udaipur and First Brain Trust Meeting held during the month covering
important topics were well appreciated by all the members.

At this point I am happy to share that our Published Book,”Specimen Financial Statements as
per Revised Schedule III (Division I – Non IND AS) to the Companies Act, 2013" giving a
very easy to understand glimpse of the effect of recent changes that have been introduced
recently, have been praised by all the users.

While, we go on updating the Knowledge, it is equally important for us to concentrate on the
professional challenges that our fraternity is facing in Technology Driven area of practice
and therefore Team 2022-23 has initiated and working upon how the technology can be best
adopted and put to use in optimum manner in our professional work and very soon we will be
starting series of IT support studies at our Association.

Apart from knowledge gaining and technological updation, I promise you all, activities in
areas of fellowship amongst members and their families through various cultural programs
and sports activities in coming time once we conclude our coming hectic schedule of income
tax and audit assignments.

CA. SARJU MEHTA

❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 145

Problem of Rising CA. P. N. Shah
NPAs in Banks [email protected]

In recent years the Non-performing Assets (NPAs) format of financial statements and audit report was
of Banks in India are rising. Many frauds and given. It appears that this system of obtaining the
scams are also reported in our Banks. The root prescribed audited statements and audit report was
cause for this situation appears to be weak internal followed for some years and thereafter it was not
control in the Banks. In some Banks, it appears insisted by the Banks.
that after the loan is granted to a company or a non-
corporate borrower, the Bank is not vigilant about After the introduction of Tax Audit under Section
the financial health of the borrower over the period 44AB of the Income tax Act, the Income tax
of the loan. As a result of this, the Bank does not Department is collecting information about
take steps in time either to strengthen the security compliance with various sections of the Income tax
cover or recall the loan. If the borrower pays Act for making assessment under the Income tax
interest/installment in time, the Bank does not Act in cases of Corporate and non-corporate
classify the debt as NPA. It is necessary to ensure assessees in Form 3CA, 3CB and 3CD prescribed
that the financial health of the borrower is good under the Income tax Act. Form 3CD is being
even if it pays the interest in time. amended from time to time as the Income-tax Act
is amended. It is reported the Tax Audit Reports
The Reserve Bank of India (RBI) had considered have greatly assisted the Tax Department in making
this issue in the context of Non-Corporate Bank assessments.
Borrowers in 1977. At that time audit of accounts
of non-corporate entities was not compulsory. By Considering the acute problem of rising NPAs in
a Circular dated 22.12.1977, the RBI advised Banks recent years, time has come for RBI to consider the
to consider the issue of getting accounts of non- question of introducing the system of obtaining a
corporate borrowers audited if the loan to such an special audit report from the auditors of corporate
entity was Rs. 10 Lakhs or more. This matter was and non-corporate borrowers who are enjoying
discussed with the Institute of Chartered credit facilities of Rs. 50 Lakhs or more from the
Accountants (ICAI). The Finance Act, 1984, banking system. This special audit report with
introduced the concept of Tax Audit under the audited accounts should be filed by the corporate
Income tax Act for all assessees having turnover or or non-corporate borrowers while availing the
gross receipts exceeding Rs.40 Lakhs from F.Y. credit facility and thereafter every year. This will
1984-85. In this context the RBI also issued a enable the Bank to know the state of financial health
Circular on 12.04.1985 directing all Scheduled of the borrower and take remedial steps in time.
Banks to ensure that all non-corporate borrowers
enjoying working capital limits of Rs. 10 Lakhs The format of this special audit report can be
and above from the banking system get their finalized by RBI in consultation with ICAI. This
accounts audited by Chartered Accountants. In special audit report can be on the same lines as Form
this context ICAI, in consultation with RBI, issued 3CA, 3CB and 3 CD prescribed under the Income
a Guidance Note on Audit of Non-corporate Bank tax for Tax Audit. Broadly stated this special audit
Borrowers in June, 1985. In this guidance note the report can include the following information for use
of the lending Bank.

146 Ahmedabad Chartered Accountants Journal June, 2022

Problem of Rising NPAs in Banks

i) Particulars of Loans taken by the borrower x) Whether the bank borrower is complying with
entity from others, including one or more banks the requirements of the applicable laws such a
and the rate of interest paid. Companies Act, Income tax Act, Goods and
ServicesAct, FEMA etc., and whether the taxes
ii) Particulars of Loans and advances given to due are regularly paid. If there are any arrears
various parties, including related parties, and of statutory dues, details thereof, with period
rate of interest charged. of delay and reasons for such delay should be
given.
iii) Details of transactions of sale, purchase or
supply of services to related parties. The auditor xi) Whether the auditor has conducted physical
shall state whether these transactions are at verification of inventories, Investments, fixed
Arm’s Length prices assets etc., of the bank borrower and, if so,
details of discrepancies noticed should be
iv) Particulars relating to (a) Actual production (b) stated.
Actual production as a percentage to rated
capacity (c) Sales quantity (d) Cost of goods xii) Whether the Bank borrower has defaulted in
sold / cost of production (e) Gross Margin etc. repayment of dues to the Financial Institutions,
Banks or Debenture Holders. If so, the period
v) Age wise classification of Inventory of raw- and amount of the default to be reported.
materials, stores and finished goods (a) for more
than two years (b) between 1 year and two years xiii) Whether any fraud on or by the Bank borrower
(c) between 6 months and one year and (d) has been noticed or reported during the year.
below 6 months. If so, the nature and the amount involved to be
reported.
vi) Age wise classifications of sundry debtors, bills
receivable, export bills receivable, loans and xiv)Whether the bank borrower meets with concept
advances given to others etc., for the periods of a “Going Concern”.
stated in (v) above.
The above information may be given by the auditor
vii) In order to enable the bank to ascertain the once a year within 4 to 6 months after the end of
financial health of the borrower the auditor the financial year with the audited financial
should give information of the accounting statements. In larger cases, when the credit facility
ratios such as (a) Current Ratio, (b) Acid Test by bank is Rs.50 Cr. or more, the bank can call for
Ratio, (c) Raw Materials – Turnover Ratio (d) audited financial statements with the above audit
Finished Goods – Turnover Ratio, (e) report every quarter.
Receivables – Turnover Ratio (f) Return on
Investments, (g) Interest Cover Ratio, (h) Net Another area in which bank should have updated
Margin Ratio, (i) Capital Turnover Ration (j) information is about the value of the security such
Debt Equity Ratio etc. as Inventories, investments, mortgage of land
buildings, machinery etc. Sometimes authentic
viii)Cash Flow Statement in the cases of Non- information is not collected at periodic intervals.
corporate borrowers. Therefore, in the format of the special audit report,
the auditor can be asked to give present market
ix) Whether the funds obtained from lending bank value of these assets which are offered as security
have been utilized for the purpose for which to the Bank.
they have been given by the bank. If the auditor
finds that these funds are diverted for the In some cases the Banks obtain personal guarantees
purposes other than those for which they are of directors, promoters, partners, proprietors etc.
obtained from the bank, he will have to give Sometimes a corporate guarantee is obtained from
details of diversion of such funds. He should
also comment about the recoverability of such Continued to page 166
funds which are diverted.

Ahmedabad Chartered Accountants Journal June, 2022 147

What is a Trust ?

“A Trust” is not defined in the Income Tax Act CA. Ajit C. Shah
but they are relatable in the law sphere as an [email protected]
argument that hands over a property to or is vested
in a person, to use or dispose it off for the benefit of Trusts are classified in two categories:
another person. As per section 3 of the Indian · Public
Trust Act, 1882. · Private

“A trust isan obligation annexed to ownership of Public Trust:Public trust is the one whose
property, and arising out of a confidence reposed beneficiaries include general public at large or a
in and accepted by the owner, or declared and sizeable portion of it. A public trust is further
accepted by him for the benefit of another, or of categorized into:
another and the owner.”
(a) Public charitable trust
To explain it in a simpler way, trust is the transfer
of property by the owner to someone else for the (b) Public religious trust
benefit of a third person, along with or without
himself or a declaration by an owner, to hold the Public trust is known as non-profit charitable
property not for him and another. For charitable organization or non-governmental organization.
welfare activities, the exemption was granted in
section 11, 12and 13of the Income Tax Act 1961. Private trust: A private trust is one whose
Section 2(15) of the Income Tax Act defines the beneficiaries are individuals or families. A private
term “charitable purpose”. This Section was trust is further categorized in to:
amended in 2015 and as per amended Section the
expression “charitable purpose” has been defined - Private specified trust: In this case beneficiaries
under section 2(15) of the act to include: and shares both are determined.

(a) Relief of the poor - Private discretionary trust: Where both or either
of the beneficiaries and their shares are
(b) Education indeterminate.

(c) Yoga What is Public Religious Trust?

(d) Medical Relief The Income Tax Act 1961 makes a distinction
between trust for charitable purposes and those for
(e) Preservation of environment and preservation religious purposes, though both are entitled to
of monuments or places or objects of artistic or exemption under section 11 of the Act. Unlike the
historic interest term ‘charitable purpose’, the term ‘religious
purpose’ has not been defined in the Act but it
(f) Advancement of any other object of general would include the advancement, support or
public utility. propagation of a religion and its tenets.

Black law’s dictionary defines “religion” as:

“A system of faith and worship usually involving
belief in a supreme being and usually containing a
moral and ethical code; especially such a system
recognized and practiced by a particular church,
sect or denomination”

148 Ahmedabad Chartered Accountants Journal June, 2022

The Supreme Court, in the case of The What is a Trust ?
Commissioner, Hindu Religious Endowment,
Madras Vs. Shri Laxmindra Tirtha Swamiar of also held that raising of moral conditions of people
Shri Shirur Mutt AIR 1954 SC 282 has defined is a charitable purpose being the advancement of
religion as:”Religion means a system of beliefs and an object of general public utility.
doctrines which are regarded by those who profess
that religion as conducive to their spiritual In the case of CIT Vs. Kusumgar (K.H.) (1988)
wellbeing. A religion is not merely an opinion, 169 ITR 370 (Bom), it was held that the object to
doctrine or belief. It has its out-word expression in impart education and promotion of study and
acts as well. Religion may not be theistic.” practice Jain Religion amongst students of
ashrams, gurukuls etc. and also among all persons
Religion therefore is not merely the philosophy, but without distinction of sex, caste, creed, place or
also the practices of a particular sects. All religions, religion was not a religious object but a charitable
in a sense, teach the philosophy of life. It is one.
generally accepted that a trust created for imparting
teachings on moral and spiritual upliftment and for However, one needs to distinguish between a
showing a way of life, would be a charitable trust religious activity and an act of charity on a particular
even if the teachings are based on scriptures of a religious day. If the act in itself is primarily a
particular religion. charitable one (e.g. where the charity is performed
without regards to caste, creed or religion of the
A charitable trust created after 1st April, 1962 recipient), then it would not become religious
would lose exemption on account of section merely because it was performed on a particular
13(1)(b), if it is for benefit of any particular religious occasion.
religious community or caste. But a religious trust
by definition would be for benefit of a given It may be noted that the conditions for exemptions
religious community. Thus, trusts for the of public religious trust under sections 11,12 and
establishment and worship of idols and 13 are the same as those for public charitable trust
performance of religious festivals would be exempt and therefore the conditions would apply with equal
under section 11, though they may be for the force to public religious trusts also.
benefit of a particular religious community or caste.
However, it may be noted a charitable trust will Under Income Tax Act 1961, there are only 3
not lose exemption merely because a discretion is sections that pertains to Charitable and Religious
given to the trustees to give preference, other Trusts, i.e. Sections 11, 12 and 13.
things being equal, to the members of a particular
religious community or caste as per principles laid As per section 2(15), charitable purpose includes
down by supreme court. Further a religious trust relief of the poor, education, yoga, medical relief,
may be public or private. Section 13(1)(a) excludes preservation of environment (including watersheds,
from exemption a private religious trust, which forest and wild life) and preservation of monuments
does not ensure for the benefit of public. or places or objects of artistic or historical interest,
and the advancement of any other object of general
Acts to promote unity and brotherhood and bring public utility.
complete development on all aspect of life of
members of a particular community were considered However, the advancement of any other object of
as charitable object. The court also held that general public utility shall not be treated as
economic, physical, intellectual as well as spiritual charitable purpose, if it involves the carrying on of
well-being would be a charitable purpose. It was any activity in the nature of trade, commerce or
business or any activity of rendering any service in
relation to any trade, commerce or business, for a
cess or fee or any other consideration, irrespective
of the nature of use or application or retention, of

Ahmedabad Chartered Accountants Journal June, 2022 149

What is a Trust ? In order to prove that a donation is towards the
corpus of a trust, it would be advisable to obtain a
the income from such activity [Proviso to Sec. specific letter from the donor or take a signature of
2(15)]. the donor in receipt mentioning that this donation
shell form part of the corpus fund for specific
Income of Religious Trusts: purpose or object of the trust. The trust should
specify it to be a donation towards corpus of the
For computing total income of the Trust, all the trust and entries in books of account must be
sums received by the trust, being revenue receipts, properly passed so as to credit the amount to Trust
from its assets whether movable or immovable are Fund or other fund for capital objects.
considered to be the income of the Trust.
Accordingly, all the donations, voluntary Any income which-
contributions, interest, dividends, income from
property(rent), any income earned through - is applied for purposes other than charitable or
activities of the trust etc. are considered as income religious purposes or ceases to be accumulated
in the hands of trust (Section 12). However, or set apart,
voluntary donations with a specific direction that
they shall form part of the corpus of the trust are - ceases to remain deposited in any prescribed
capital receipts and hence not included in the total form or mode,
income of Trust. In case a trust loses exemption
under Section 11 of the Act, because of non - not utilized for the purpose of which it is
compliance with the conditions of registration or accumulated or set a part or paid/credited to
other conditions as per Section 13, then corpus any other trust or institution registered u/s12AB
donation received will be considered as income or institution referred in section 10(23C) shall
and tax will be levied on the same. Further, income be deemed to be the income of the trust and
which though received by trust is includible in the accordingly liable to tax.
hands of any other person for tax purposes shall
not be included in the income of the trust. For However, the circumstances are beyond the control
example, where property is settled in trust but the of the trust the assessing officer may allow the trust
settlement is by way of revocable transfer, then, to apply such income for other charitable or religious
the income arising out of such property is purposes which are in conformity with the objects
chargeable in the hands of the settler (trustee) under of the trust.
section 61 of the Act and not in the hands of the
trust. Any business income derived by the trust is taxable
and benefit of Section 11 is not available in respect
What is Corpus Donations? of such income. However, in case where the
business carried out by the trust is incidental to the
The term “Corpus” indicate the capital of a trust. attainment of the objective of the trust and separate
Any amounts which represent the capital of a trust books of accounts business are maintained by the
would constitute its corpus. The corpus would trust in respect of such business this benefit of
include funds of a capital nature, by whatever name exemption u/s 11 is available.
called, such as Building Fund, as well as funds for
the capital expenditure of the trust. Any donation ❉❉❉
made for a capital purpose or with a direction that
the donation be kept intact and only interest earned
on the investment of such donation be utilized for
the objects of the trust, would be a donation towards
the corpus of the trust.

150 Ahmedabad Chartered Accountants Journal June, 2022

Income vs. Capital Receipt
under Income Tax Act, 1961

Oxford Meaning of Income: - “the money that a CA. Nitin R. Soni
person, a region, a country, etc. earns from work, [email protected]
from investing money, from business, etc.”
Basic concept for income is that some earnings
Merriam Webster Meaning of Income: - “a gain must be generated to you based on your skill (labour
or recurrent benefit usually measured in money that or intellectual), Asset, investment etc.
derives from capital or labour”.
Concept of Income
Definition of Income as per Income Tax Act,
1961:- Income is defined under section 2(24) which All receipts are not assessable to tax. All receipts
is mentioned as below:- by an assessee cannot necessarily be deemed to be
income of the assessee for the purpose of income-
“Income” includes— tax and the question whether any particular receipt
will form part of income or not depends on the
(i) Profits and gains; nature of the receipt and the true scope and effect
of the relevant taxing provision applicable for the
(ii) Dividend; year in which such income is accrue or received or
deemed to accrue or receive. [Mehboob Productions
(iii) the value of any perquisite or profit in lieu of (P) Ltd. v CIT (1977) 106 ITR 758 (Bom)]. The
salary taxable under clauses (2) and (3) income-tax authorities cannot assess all receipts and
of section 17; bring them to tax. They can assess only those
receipts that amount to income based on taxation
(iv) the value of any benefit or perquisite, whether provision laid down under Income Tax Act, 1961.
convertible into money or not, obtained from a Therefore, before they assess a receipt and bring
company either by a director or by a person them to tax, they must conclude that income is what
who has a substantial interest in the company, is defined under the Act. Material finding must be
or by a relative of the director or such person, there to conclude income byAO. [Lal Chand Gopal
and any sum paid by any such company in Das v CIT (1963) 48 ITR 324 (All)].
respect of any obligation which, but for such
payment, would have been payable by the Concept of Capital Receipt:-
director or other person aforesaid;
Based on FAQs issues by income tax Department,
(v) any sum chargeable to income-tax under they have explained the difference between revenue
clauses (ii) and (iii) of section 28 or section receipts and capital receipts which is mentioned as
41 or section 59; below:-

(vi) any capital gains chargeable under section 45; “Receipts can be classified into two kinds: A)
Revenue receipt, B) Capital receipt.
(vii)the profits and gains of any business of insurance
carried on by a mutual insurance company or Revenue receipts are recurring in nature like salary,
by a co-operative society, computed in profit from business, interest income, etc.
accordance with section 44 or any surplus taken
to be such profits and gains by virtue of Capital receipts are generally of isolated nature like
provisions contained in the First Schedule; receipt on account of sale of residential building,
personal jewellery, etc. “
So basically, definition of income covers all heads
of income from where income can be generated. Further “The general rule under the Income-tax
Law is that all revenue receipts are taxable, unless

Ahmedabad Chartered Accountants Journal June, 2022 151

Income vs. Capital Receipt under Income Tax Act, 1961

they are specifically granted exemption from tax to tax unless exempted otherwise. Capital receipts
and all capital receipts are exempt from tax, unless are normally exempt. However, certain capital
there is a specific provision for taxing them.” receipts have been specifically included in the
definition of income based on specific provisions for
Under Income Tax Act, 1961 Capital Receipts are which government want taxpayers to pay tax.
not specifically defined so as to bind the scope of
such receipts. Further, References can be laid down As the Act does not define the terms “capital
over judgments which have been enumerated to receipts” and “revenue receipts”, one has to depend
remove the intricacies which are mentioned at a upon natural meaning of the concepts as well as
further stage. Distinction between what are revenue the decided cases.
receipts and what are capital receipts must be
conceptually understood to avoid litigation. Basic element of difference between a capital and
Revenue Receipts comes from a regular source revenue is that former is a fund while latter is a flow.
which occurs with a definite time interval and have
some degree of regularity and there is no uncertainty Some Important case laws are referred in at last so
as to collectability. as to give overview of decisive factors require to
distinguish between revenue and capital receipt.
For instance, the Act specifically makes the profit
arising from the sale of certain capital assets also Some examples on which tax is levied though they
subject to tax under certain circumstances as income are capital receipts:-
under the head Capital Gains subject to fulfilment
of asset to be a capital asset as defined under Section - Gift of immovable property or gift of movable
2(14) of Income Tax Act, 1961. The winnings from property shall be taxable in certain cases if the
lotteries, crossword puzzles, races, card games, etc. same is received from unrelated persons.
which do not arise from any definite source and do [Section 56(2)(vii)];
not have the element of regularity have also been
specifically clarified to be ‘Income’ under the Act. - Shares acquired by a firm or a closely held
In the same way, interest from Savings Account is company without consideration or for
taxable under the Head “Income from Other inadequate consideration shall be taxable in
Source” as it has element of regularity about receipt certain cases [Section 56(2)(viia)];
but not to amount as it would depend on the balance
in savings Bank Account. - Compensation for modification/termination of
services [Section 17(3)(i)];
Further, illegal money earned from the sources
which is prohibited is also income and subject to - Voluntary contributions received by a trust/
tax just like legal income. This doesn’t mean that institution created wholly or partly for charitable
government is legalizing the illegal income. It simply or religious purposes or by certain other
means that whatever is earned, it should get offer specified institutions [Section 2(24)(iia)].
to the government irrespective of its earning source.
Such incomes have higher rates of taxes and no (Above is only illustrative list and not exhaustive
deduction is allowed. list).

A capital receipt is generally exempt from tax unless Some examples of revenue receipts which are
it is expressly taxable under section 45. [Cadell exempt:-
Weaving Mills Co. Pvt Ltd v CIT (2001)]. On the
other hand, there are certain receipts which are though - Income from Agriculture. [Exempt under
revenue receipts but do not form part of total income. Section 10].

Concept of Revenue Receipt vs Capital Receipt:- - In the case of a person being a partner of a firm
which is separately assessed as such, his share
Charging of tax on total income is empowered in in the total income of the firm.
Section 4. Normally, revenue receipts are chargeable
- Daily allowance received by any person by
reason of his membership of Parliament or of
any State Legislature or of any Committee
thereof.

(Above is only illustrative list and not exhaustive list).

152 Ahmedabad Chartered Accountants Journal June, 2022

Income vs. Capital Receipt under Income Tax Act, 1961

If one observes the definition of Income minutely, part of capital whether circulating or fixed
then the definition starts with word “Includes”. This capital. A receipt on part of circulating capital
depicts that the definition of income mentioned is is revenue receipt; whereas a receipt on account
inclusive in nature and not an exhaustive list which of fixed capital is capital receipt.
restricts the revenue of government. The law makers
while drafting the law has taken into consideration - P.H. Divecha v. CIT[1963] 48 ITR 222(SC)-
not to restrict the scope of income so as to have a This cases explains that payer’s motive is not a
open hand on tax as a part of revenue. The Supreme decisive factor to determine receipt as a revenue
Court in CIT v Karthikeyan (G.R.) [(1993) 201 or capital in nature.
ITR 866 (SC)] has held that the purpose of the
inclusive definition is not to limit the meaning but - CIT v. Canara Bank Ltd, [1967] 63 ITR 328
to widen its net, and the several clauses therein are (SC).-Realised gain on currency rate fluctuation
not exhaustive of the meaning of income; even if a shall be treated as capital receipt if held as
receipt did not fall within the ambit of any of the investment otherwise it is a revenue receipt.
clauses, it might still be income if it partakes of the
nature of income. - Chowringhee Sales Bureau Private Limited v.
Calculation of Income :- CIT [1961] ITR 542 (SC) –Head under which
Income includes two main concepts:- the receipt is booked is irrelevant but the true
i) Gross Total Income nature and the quality of receipt is decisive
ii) Total Income factor which will form the nature of receipt.

Section 14 of Income Tax Act, 1961:- . Save as - CIT V. Karnavati Club Ltd. [2010] 4 ITR
otherwise provided by this Act, all income shall, Tribunal Ahd. :- One time membership fee/
for the purposes of charge of income-tax and enrolment fees/Entrance Fees (non-refundable)
computation of total income, be classified under the is a capital receipt.
following heads of income:—
A. - Salaries. - H. S. Ramchandra Rao vs. CIT (Supreme
B. - Income from house property. Court) :- Amount received by assesse for
C. - Profits and gains of business or profession. relinquishing secretary ship of educational
D. - Capital gains. society cannot be treated as a capital receipt.
E. - Income from other sources. The question of the principle of capital asset
being invoked does not arise. The receipt is
Section 80B:- “Gross total income” means the total assessable as income from other sources.
income computed in accordance with the provisions
of this Act, before making any deduction under this - The Peerless General Finance And Investment
Chapter; Co Ltd vs. CIT (Supreme Court) :- The primary
liability and onus is on the Dept to prove that a
Total Income: - The total income of an assessee is certain receipt is liable to be taxed. Deposits
computed after deducting from the gross total collected by a finance company are capital
income, all deductions permissible under Chapter receipts and not revenue receipts. The fact that
VIA of the Income-tax Act i.e. deductions under the deposits are credited to the profit and loss
sections 80C to 80U. account is irrelevant. The true nature of the
receipts have to be seen and not the entry in
Hence, Income Tax to be paid on total income (i.e. the books of account
after considering deduction as mentioned in Chapter
VIA). - Bhojison Infrastructure Pvt. Ltd vs. ITO (ITAT
Ahmedabad) :- he “right to sue” which arises
Some Important Case Laws for determination on breach of a development agreement is a
of Revenue and capital receipts. “personal right” and not a “capital asset” which
- John Smith v. Moore [1992] 12 TC 266 (HL) can be transferred. Consequently, the damages
received for relinquishment of the “right to sue”
– This case have distinguished the receipt on is a non-taxable capital receipt

❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 153

Glimpses of Advocate Samir N. Divatia
Supreme Court [email protected]
Rulings
In case of standard form contracts which comprise
8 Principle of res judicata – Applicability of forms with heavily printed terms against
individuals and not read and understood most often,
Principles of res judicata and constructive res resulting in grave implications. Where there is an
judicata have been applied to the exercise of the ambiguity in the contract of insurance or doubt, it
writ jurisdiction, including public interest litigation has to be construed contra proferentem rule i.e.
yet the courts have been circumspect in denying when words are to be construed resulting in two
relief in matters of grave public importance, on a alternative interpretations then, the interpretation
strict application of procedural rules – While which is against the person using or drafting the
determining its applicability in the writ jurisdiction, words or expressions which have given rise to the
the Court must be conscious that grave issues of difficulty in construction applies.
public interest are not lost in the woods merely
because a petition was initially filed and dismissed It may be noted that insurance contracts are special
without a substantial adjudication on merits. “Heard contracts based on the general principles of full
and finally decided” – Issue not decided on merits disclosure in as much as the person seeking
in previous proceedings cannot operate as res insurance is bound to disclose all material facts
judicata. relating to the risk involved.

National Confederation of Officers Association of When the insured himself unaware of any such
Central Public Sector Enterprises and Others vs condition prior to treatment, repudiation of claim
on the premises that the insurance policy did not
UOI (2022) 4 SCC 764 covered pre-existing conditions to be rejected.

9 Contract of Insurance/Policy – Manmohan Nanda vs United India Insurance
Obligation to disclose material facts
10 Co. (2022) 4 SCC 582.
In relation to the duty of disclosure on the insured, Administrative Law – Natural Justice
any fact which would influence the judgment of a
prudent insurer and not a particular insurer is a It is to make noticee understand the precise case set
material fact – the test is whether the circumstances up against him which he has to meet. This would
in question would influence the prudent insurer and require statement of imputations detailing out
not whether it might influence him. The basic test alleged breaches and defaults noticee has
hinges on whether the mind of a prudent insurer committed so that he gets an opportunity to rebut
would be affected, either in deciding whether to the same. Another requirement is that the nature of
take the risk at all or in fixing the premium by action proposed to be taken for such breach.
knowledge of a particular fact if it had been
disclosed. Therefore, the fact must be one affecting State of Orissa vs Panda Infra Project Ltd.
the risk. (2022) 4 SCC 393

❉❉❉

154 Ahmedabad Chartered Accountants Journal June, 2022

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

Sec. 153-C: Validity of Notice. Held:

21 6th Sense Infrastructure Pvt. Ltd. v/s. Pr. When the law mandated a particular thing to be
DIT done in a particular manner, it had to be done in
(2021) 436 ITR 90 (Mad) that manner. The final assessment order under
section 144C read with section 143(3) had been
Issue: passed without jurisdiction. Once the case was
remitted back to the Assistant Commissioner /
When can a notice u/s 153-C be said to be a valid Transfer Pricing Officer, it was incumbent on their
notice? part to have passed a draft assessment order under
section 143(3) read with section 92CA(4) and
Held: Section 144C(1). They could not bypass the
statutory safeguards prescribed under the Act and
The notes placed on record made it clear that as on deny the assessee the right to file an application
June 2019, there had been no recording of before the Dispute Resolution Panel. [The final
satisfaction by the Investigating Officer and thus order was quashed and the case was remitted back
the issuance of notice under section 153C on June to the Assistant Commissioner to pass a draft
14, 2019 was erroneous. On facts it was found that assessment order].
subsequently a notice dated 30/09/2019 was issued
on which date the satisfaction note was drawn by 23 Faceless assessment: Undue haste.
the assessing officer. However the issuance of the Blue Square v/s. National Faceless Asst.
invalid notice dated June 14, 2019 did not Centre
compromise the assessment proceedings as, the (2021) 436 ITR 118 (Delhi)
invalid notice did not exist in the eyes of the law
and must thus be ignored. The provisions of section Issue:
282 deal with service of notice in general terms and
section 282A with the authentication of notices for Undue haste unnecessary in faceless assessment.
service by electronic means. The challenge to the
notice date 30/09/2019 u/s 153C was rejected. Held:

International Transaction: Draft There had been an undue haste by the National
Faceless Assessment Centre in passing the order
22 Assessment Order. under section 143(3) read with section 144B, as it
Durr India Private Limited v/s. Asst. did not even wait for completion of the time frame
CIT allowed in its order, dated April 20, 2021, for the
(2021) 436 ITR 111 (Mad) assessee to file a response. The order also contained
a factual error as the date of notice was incorrectly
Issue: shown as March 16, 2021. The National Faceless
Assessment Centre could have given a little leeway
Necessity of draft assessment order in the case of
international transactions.

Ahmedabad Chartered Accountants Journal June, 2022 155

From the Courts requests had been made for personal hearing by
the assessee, none of which were considered.
to the assessee for filing objections, in view of the Irrespective of whether the statutory scheme as
short time gap between the date when the notice encapsulated under section 144B was framed or
cum draft assessment order was served on the not, the system has to be transparent, and the persons
assessee on April 20, 2021, and the deadline administering it have to remain accountable. The
provided therein to file objections tillApril 23, 2021. final order passed under section 143(3) read with
The National Faceless Assessment Centre was to section 144B was set aside.
proceed further from the stage of the notice-cum
draft assessment order. Accordingly the assessment 26 Set off of C/F Loss against: Income from
order under section 143(3) read with section 144B, business calculated under another head.
the notice of demand under section 156 and the Nandi Steels Ltd v/s. Asst. CIT
notice for initiation of penalty proceedings under (2021) 436 ITR 238 (Karn)
section 274 read with section 271AAC(1) were set
aside. Issue:

CIT and Tribunal must follow decision Carried forward business loss is to be setoff against
business income under another head?
24 of High Courts.
Anjuman -E- Himayat -E- Islam v/s. Held:
Asst. DIT
(2021) 436 ITR 139 (Mad) Express mention of one thing implies the exclusion
of another. Section 72(1) of the Income Tax Act,
Issue: 1961 employs the expression computation “under
the head ‘profit and gains or profession’”, whereas,
Whether CIT and Tribunal are bound to follow section 72(1)(i) does not use the expression “under
decision of High Courts? the head”. Thus, the Legislature has consciously
left it open that any income from business though
Held: classified under any other head can still be entitled
to the benefit of set off.
If the judgments and Orders of the High Courts are
applicable to the facts and circumstances of a case Faceless assessment: Sec. 144-B.
pending before the Commissioner (Appeals), he
must follow them without any deviation. Similarly, 27 Gurgaon Realtech Ltd v/s. National
the Tribunal must also follow the judgements and faceless Assessment Centre
orders of the High Courts. (2021) 436 ITR 280 (Delhi)

Faceless assessment and personal Issue:

25 hearing. How is the assessment order under faceless
Sanjay Aggarwal v/s. National Faceless assessment scheme to be passed?
Centre
(2021) 436 ITR 180 (Delhi) Held:

Issue: That according to the Central Board of Direct
Taxes’ Notification dated March 31, 2021, after
In faceless assessment, whether demand of personal April 1, 2021, the assessment order could only be
hearing, if made is to be granted? passed in consonance with the provisions of
section 144B. Therefore, the order, dated April 15,
Held: 2021 passed under section 143(3) read with

It was incumbent upon the Department to have
accorded a personal hearing to the assessee. Several

156 Ahmedabad Chartered Accountants Journal June, 2022

section 143(3A) and 143(3B), the notice of From the Courts
demand issued under section 156 and the notice
issued under section 274 read with section 270A 29 Applicability of Sec. 14A when there is
for initiating penalty proceedings were to be set no taxable income.
aside. The Department should proceed with the CIT v/s. Tamilnadu Road Development
assessment process by following the procedure (2021) 436 ITR 323 (Mad)
prescribed under section 144B. A notice cum draft
assessment was to be issued and a personal Issue:
hearing was to be accorded if there was variation
in income. Applicability of Sec. 14A when there is no taxable
income?
Vouchers Voluminous: Books audited.
Held:
28 CIT v/s. Karnataka Power Corporation
Ltd. (No.2) The provisions of section 14A of the Income tax
(2021) 436 ITR 292 (Karn) Act, 1961 read with rule 8D of the Income Tax
Rules, 1962, will have no applicability if there is
Issue: no exempt income.

Since books of account were audited and vouchers Charitable Trust: Exemption: Hostel Fee
being voluminous, can the non-production of
vouchers before AO result in disallowance? 30 D.N. Pushpa Devi Charitable Trust v/s.
Addl. CIT
Held: (2021) 436 ITR 406 (All)

That the Tribunal was correct in directing the Issue:
Assessing Officer to accept the claim in respect of
the expenses claimed by the assessee’s employees Hostel Fee charged by a residential college is
and other agencies by accepting the explanation business income?
offered by the assessee that its books of account
were audited and that the vouchers were Held:
voluminous to be produced before the Assessing
Officer. The Commissioner (Appeals) had obtained Having regard to the object and purpose for which
a remand report and the books of account of the the institution in question had been established by
assessee had been audited. A finding of fact that the trust and the mandate of the Dental Council of
been recorded by the Tribunal which was not India in the gazette notification of the year 2007,
perverse. its activity in maintaining the hostel by charging
hostel fee (for its maintenance and providing mess
facility) was an integral part of the main activity
“education of the assessee”. The hostel and mess
facility sub served the main object and purpose of
the trust and were an inseparable part of its academic
activity. The hostel fee could not be said to be
income derived from the “business” of the trust.

❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 157

Tribunal
News

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

Abhay Kumar Mittal v. DCIT v. 136 the assessee and she has repaid the loan from the
redemption of mutual funds and liquidation of
13 taxmann.com 78 (Del) fixed deposits. As per Tribunal there is no bar on
Assessment Year:2013-14, Order dated: the part of the assessee to extend loan from his
8th February 2022 known sources of income to his wife. Similarly,
there is no bar on the assessee’s wife to repay the
Basic Facts loan from her own mutual funds and fixed
deposits. Further the assessee has paid house rent
Assessee claimed to have paid rent to his wife. and the recipient, the assessee’s wife has declared
During assessment proceedings, theAO noticed that the same under the head ‘income from house
assessee’s wife, in fact, had no independent source property’ in her returns which has been accepted
of income to make the investment in the FDR’s and by the revenue. The house has been registered in
the major share was also funded by the assessee. In the name of assessee’s wife. As per the Tribunal,
these circumstances, it was held by the AO that the the CIT(A)’s observation that the assessee has got
rental income earned by wife of assessee was liable meager income hence he cannot afford to purchase
to be clubbed in the hands of the assessee since it a house was not acceptable since the sources for
was proved that the investment to purchase the purchase of the house in the hands of assessee’s
property was in fact made without having any wife are proved rather never doubted. Further the
independent source of income. Accordingly, AO CIT(A) contention that the husband cannot pay
clubbed the rental income after allowing deduction rent to the wife is devoid of any legal implication
under section 24A in the hands of the assessee. On supporting any such contention. Accordingly in
appeal, the CIT(A) confirmed the addition holding view the entire facts of the case, the appeal of the
that the claim of the assessee that the investment had assessee was allowed.
been made in the house property by his wife from
her own independent resources, was not found to be 14 DCIT v. Amit Intertrade (P.) Ltd. 137
acceptable.Assessee is in appeal before the Tribunal Taxmann.com 488 (Ahd)
Assessment Year: 2007-08, Order dated:
Issue 28th February 2022

Whether there is no bar on assessee to extend Basic Facts
loan to his spouse from known sources of income
or on spouse to repay same from liquidation of The assessee is a private company and engaged in
her own assets the business of Civil Construction. The assessee
during the year under consideration has shown
Whether since sources for purchase of house in unsecured loan from M/s JP Iscon Ltd. The assessee
hands of assessee’s wife were proved, assessee and M/s JP Iscon Ltd., had common shareholders
could not have been denied HRA exemption for namely Shri Jateen Gupta andAmit Gupta who were
rent paid to wife holding shares in the following ratio:

Held

The Tribunal found that the assessee’s wife who
has low returned income but received loan from

158 Ahmedabad Chartered Accountants Journal June, 2022

Name of company Shareholding of Jateen Gupta Tribunal News
Shareholding of Amit Gupta
No. 253 of 2015. After considering the
JP Iscon Ltd. 22.63% 22.38% decision of the Bombay High Court in the case
of CIT v. Impact Containers Private Limited
Amit Intertrade Pvt Ltd 50% 50% & ors rendered in I TA No. 114 of 2012 and
the decision of the Delhi High Court in the
As per the assessee, the provisions of section case of CIT v. Ankitech Pvt. Ltd. reported in
2(22)(e) are applicable on the shareholder only 340 ITR 14 (Delhi) and on interpreting section
whereas assessee company is not holding any share 2(22)(e), in para 4 has observed and held as
in M/s JP Iscon Ltd. Hence, the provisions of under:
section 2(22)(e) are not applicable in its case.
However, the AO treated the above unsecured loan “4. Shri Bhatt, learned Counsel appearing
as deemed dividend under the provision of section on behalf of the revenue has as such
2(22)(e) of the Act, by observing that both parties tried to justify the decision of the Delhi
are closely held company and having common Court in the case of Ankitech Pvt. Ltd.
shareholders holding more than 20% share in each (supra) and has vehemently submitted
company i.e., the assessee company and JP Iscon that the Delhi High Court has not
Ltd. At the same time, there was also sufficient considered the third category i.e.
reserve and surplus. Accordingly, the AO made shareholder in the assessee Company
addition under section 2(22)(e) of the Act to the holding not less than 10% of the voting
total income of the assessee. The assessee carried power in the Company from whom the
the matter before the learned CIT (A) who deleted loan or advance is taken. However, on
the addition made by the AO considering section 2(22)(e) of the Act,
we are not at all impressed with the
Issue: aforesaid. If the contention on behalf of
the revenue is accepted, in that case, it
Whether deemed dividend under section will be creating the third category/class,
2(22)(e) can only be assessed in hands of person which is not permissible. What is
who is a shareholder of lender company and provided under section 2(22)(e) of the
not in hands of a person other than shareholder Act seems to be that the assessee
company must be a shareholder in the
Held Company from whom the loan or
advance has been taken and should be
On perusal of above provision, the Tribunal holding not less than 10% of the voting
inferred that the provision of section 2(22)(e) of power. It does not provide that any
the Act can only be invoked in case of shareholder shareholder in the assessee-company
who is holding substantial interest. The provision who had taken any loan or advance from
of section 2(22)(e) of the Act nowhere talks about another company in which such
taxing an entity/company who is not a shareholder shareholder is also a shareholder having
in lender company but shareholder of such substantial interest, section 2(22)(e) of
company holding substantial share in lender the act may be applicable.
company. In this regard the tribunal relied on the
judgment of Hon’ble Jurisdictional High court in 5.1 Considering the aforesaid decision of the
case of Pr. CIT v. Mahavir Inductomelt (P.) Ltd. Division Bench of this Court and the facts
[Tax Appeal No. 891 of 2016, dated 12-1-2017] narrated herein above, more particularly,
where in similar facts the Hon’ble court held as considering the fact that the assessee was not
under: shareholder of Mahavir Rolling Mills Pvt. Ltd.
to whom loan was given, it cannot be said
’50. Identical question came to be considered by
the Division Bench of this Court in Tax Appeal

Ahmedabad Chartered Accountants Journal June, 2022 159

Tribunal News Held

that the learned Tribunal has committed any In this respect the Tribunal referred to the decision
err or in deleting the addition made by the of Mumbai ITAT in case of ITO (IT) v. Faustac
Assessing Officer on deemed dividend.”’ Cordeiro [2012] 24 taxmann.com 193/53 SOT 522.
The Mumbai ITAT had held that the date of arrival
The Tribunal found that the assessee company is should be excluded since it was not a complete day.
not holding any shares or rights of M/s. JP Iscon The Tribunal further relied on the Banglore ITAT
Ltd. Thus, considering the above judgment of in case of Manoj Kumar Reddy v. ITO
Hon’ble jurisdictional court in case of Mahavir (International Taxation) [2009] 34 SOT 180. The
Inductomelt (P.) Ltd. (supra), the Tribunal held that relevant part of Bangalore ITAT decision was
AO was not justified in invoking the provision of reproduced in the order as
section 2(22)(e) of the Act in its case. The learned
CIT(A) rightly deleted the addition made by the When one has to compute the period for which an
AO. assessee is in India, one has to start the counting
from a particular day and to end the same with
Pradeep Kumar Joshi v. ITO 133 specific day. The period is to be counted from the
date of arrival of the assessee in India to the date
15 taxmann.com 283 (Ahd) he leaves India. Thus, the words ‘from’ and ‘to’
Assessment Year: 2010-11 are to be inevitably used for ascertaining the
Order dated: 27 October 2021 period though these words are not mentioned in
the statute. Section 9 of the General Clauses Act
Basic Facts is as under —

The assessee is a non-resident Indian. The issue “(1) In any (Central Act) or Regulation made
raised by the Revenue on the basis of verification after the commencement of this Act, it shall
of the passport submitted by the assessee relates be sufficient, for the purpose of excluding
to the status of the assessee as “Resident” on the the first in a series of days or any other
basis of calculation of days of stay in India. It has period of time to use the word “from”, and,
been claimed by the assessee that he stayed in India for the purpose of including the last in a
during the year under consideration for 175 days series of days or any other period of time,
whereas the case of the Revenue is that the to use the word “to”.
assessee stayed in India for 184 days. According
to the assessee consideration of both the date of (2) This section applies also to all (Central Acts)
arrival and date of departure from India as stayed made after the third day of January 1868. and
in India as made by the Revenue is not correct. to all Regulations made on or after the
Rather it has been decided that only date of fourteenth day of January, 1887.”
departure should be considered as “stay in India”.
On this aspect the assessee relied upon the 3.25 As per the General Clauses Act, the first day
judgment passed by the Authority for Advance in a series of a day is to be excluded if the
Rulings, vide an order dated 8-2-1996 in Petition word from is used. Since for computation of
No. 7 of 1995, In re [1997] 90 Taxman 62/223 the period, one has to necessarily import the
ITR 462 (AAR - New Delhi). The CIT(A) held word ‘from’ and, therefore, accordingly, the
against the Assessee. The Assessee is before the First day is to be excluded.
Tribunal.
Accordingly, the Tribunal based on the ratio laid
Issue down by the Honb’le Bangalore Bench held that
the date of arrival needs to be excluded in counting
Whether while counting days of stay in India the days of stay in India in the case of the assessee.
for considering status of ‘resident’, day of
arrival has to be excluded

160 Ahmedabad Chartered Accountants Journal June, 2022

GE BE Private Limited V DCIT TS-416- Tribunal News

16 ITAT-2022 (Bang) Corporation of India report in 187 ITR 688, we
Assessment Year: 2015-16, admit the above ground.”
Order dated: 23rd May 2022 …………………………………..
………………………………… “Dividend
Basic Facts Distribution Tax: We have already admitted this
issue. First time this ground has been raised before
The assessee had raised additional ground of appeal, us and Ld. AO had no occasion to examine this
seeking applicability of DTAA rate for the tax to issue. In the interest of justice, we remit this issue
be paid u/s 115O as Dividend Distribution tax and to be decided in accordance with law.”
thereby seeking refund of the excess tax which it
had already paid u/s 115O of the Act. For its prayer Accordingly, this ground of the appeal in the
for admission of the additional ground of appeal, assessee was also remitted back to the file of the
the assessee contended that in its case against the AO for fresh consideration in accordance with law.
draft assessment order, the objections were filed
before the Dispute Resolution Panel (“DRP”), Transocean Offshore International
whereafter the final assessment order has been
passed, which is the subject matter of the present 17 Ventures Ltd v. DCIT (International
appeal before Tribunal. From that perspective, the Taxation) 136 taxmann.com 351 (Del)
Tribunal is the first appellate authority for the Assessment Year: 2012-13 & 2013-14,
assessee. Since the DRP is not an appellate authority Order dated: 28th January 2022
as it is only an extended arm for completion of
assessment proceedings. Therefore, since the first Basic Facts
appeal lies with this Tribunal, the additional ground
is raised before in this appeal. The assessee received interest income on income
tax refund in the relevant year under consideration.
Issue The AO has held that the interest income received
by the appellant on account of income tax refund is
Whether for levy of the dividend distribution taxable at Maximum Marginal Rate of 40 per cent.
tax on the dividend distributed rate can be The assessee submitted that being a tax resident of
considered at 5% in terms ofArticle 10 of Double United States of America, it is entitled to benefits
Taxation Avoidance Agreement DTAA between of the DTAA between India and United States. The
India and Mauritius instead of 16.995% interest received on the income-tax refund was
charged in terms of section 115-0 of the Act.” chargeable in terms of Article 11 of the Indo-US
DTAA. Under the Act, the assessee was liable to
Held be taxed on the amount under the residuary head
and not under the business head. In view thereof,
The Tribunal referred to the decision of Bangalore the indebtedness cannot be said to be effectively
Tribunal in the case of M/s. Robert Bosch connected with the business carried on by the PE.
Engineering and Business Solutions Pvt. Ltd. in Since the domestic law was equally applicable to
IT(TP)A No.608 & 445/Bang/2016 dated the assessee, therefore, it cannot be said, that the
2.2.2022. The Tribunal in that case had held: - “We indebtedness was connected with the PE of the
note that above admission of additional grounds is assessee. And the PE was not the creditor of the
necessary for computing the correct income in the income-tax department. It was further mentioned
hands of assessee. It is also noted that no new facts that a debt-claim in respect of which interest was
are required to be looked into for adjudicating the paid will be effectively connected with the PE and
same. These grounds are purely legal in nature. will form part of its business assets, if the economic
Therefore, respectfully the decision of Hon’ble ownership of the debt-claim, was allocated. IT was
Supreme Court in case of National Thermal Power departments stand that the assessee was carrying
Co. Ltd. Vs. CIT reported in 229 ITR 383 and Jute on business through its Permanent Establishment

Ahmedabad Chartered Accountants Journal June, 2022 161

Tribunal News under the treaty. Further as per Tribunal Article VII
deals with taxation of business profits and also
in India and since interest income was not covered provides for mechanism to compute the profits of
by the provision contained in section 44BB of the the business. Paragraph no. 4 relieves the source
Act, it was to be taxed as business income. Since State from the rigors of paragraphs nos. (1) and (2)
the interest had not arisen out of the business in case the interest is found to be effectively
transactions, and it was received in the course of connected with the PE, even if it is not in the nature
the business of the PE and, therefore, there was a of business income of the assessee but is effectively
direct nexus of the indebtedness with the assets of connected with the PE. If interest is the business
the business. If the assessee opted to be taxed under income as a matter of fact, such income falls
the DTAA, the classification of income was not automatically within the ambit of article VII without
required to be done under the five heads. In fact, even taking recourse of paragraph no. 4. Therefore,
no head of income had been prescribed under the this paragraph contemplates a different condition
treaty. Therefore, it cannot be said that the provisions upon whose satisfaction interest becomes taxable
contained in paragraph no. 2 of Article XI were under Article VII. It is an accepted canon of
analogous to the provisions contained in the Act interpretation that no part of the statute should be
regarding computation of income under the rendered null and void by interpretation. Therefore,
residuary head. The expression used was to the some meaning has to be placed on the contents of
effect that indebtedness was effectively connected this paragraph. Interest income need not be
with the PE and not that the interest income was necessarily business income in nature for
effectively connected with the PE. establishing the effective connection with the PE
because that would render provision contained in
Issue paragraph 4 of Article XI redundant Thus, there
may be cases where interest may be taxable under
Whether interest on income tax refund is not the Act under the residuary head and yet be
effectively connected with PE and hence, it is effectively connected with the PE. The bank interest
taxable as per provisions in Para No. 2 of article in this case is an example of effective connection
XI of Indo-US DTAA between the PE and the income as the indebtedness
is closely connected with the funds of the PE. After
Held referring to Article 11 of the Treaty, the Tribunal
concluded that interest on income tax refund is not
The Tribunal noted that as per the provisions of effectively connected with the PE either on the basis
sec. 90(2), in a case where the provisions of the of asset-test or activity-test. Hence, it was taxable
DTAA apply to an assessee, the provisions of this as per the provisions in the Para No. 2 of article XI
Act shall apply to the extent they are more beneficial of Indo-US DTAA.
to that assessee. The application of the provision
can be made after ascertaining- (i) tax payable by Textron India (P.) Ltd. v. DCIT 135
the assessee under the DTAA, and (ii) tax payable
by the assessee under the Act. The provisions of 18 Taxmann.com 364 (Bang)
treaty or Act will apply based on the lower tax Assessment year: 2011-12,
required to be paid under either of the two. As per Order Dated: 4th January 2022
the Tribunal the tax payable on interest under the
treaty would be 15%, the same would be lower than Basic Facts
the tax payable under the Act. Accordingly, an
automatic conclusion can be drawn, without The assessee is a subsidiary of Textron Atlantic
exercise of any option, that assessee should get the Inc., USA (Textron US) and Textron Inc., USA.
benefit under the DTAA. No other consideration The assessee undertakes contract engineering
is material for this purpose as ultimately what is to design services (EDS) for its Associated
be seen is whether the provisions of the Act are
more beneficial to the assessee or not. Accordingly,
it was held that the assessee is entitled to the benefit

162 Ahmedabad Chartered Accountants Journal June, 2022

Enterprises (AEs). The assessee also renders Tribunal News
Marketing Support Services (MSS) to its AEs.
During the year under consideration, the assessee filed with competent authority of United States of
had entered int four types of international America and India. The MAP resolution letter was
transactions with its AEs. In respect of also filed alongwith the letter. The assessee
Engineering Design Services (EDS) and accordingly withdrew the grounds relating to
Marketing Support services (MSS), the TPO made engineering design and software development
transfer pricing adjustment. The assessee filed services in so far as it is related to USA related
objections before DRP objecting to the proposals transactions. Under MAP, CBDT, had determined
made by the AO in the draft assessment order. The the margin at 15.85% for USA related transactions
Transfer pricing adjustments were confirmed by under EDS entered during the year relevant to the
DRP except with regard to the objection relating assessment year 2011-12. The assessee submitted
to error in margin computation and Risk that the USA related transactions constituted
adjustment. The DRP restored both the issues to 96.30% of the total turnover in the engineering
the file of AO/TPO to examine them. In respect design services segment. Accordingly, the MAP
of Risk adjustment, the Ld. DRP guided the AO/ rate of 15.85% agreed for USA related transactions
TPO with the decision rendered in the case of Dy. may also be applied to non-USA related
CIT v. Hellosoft India (P.) Ltd. [2013] 32 transactions, since the non-USA related transaction
taxmann.com 101/57 SOT 4 (Hyd. - Trib) by ITAT constituted only 3.70% of the turnover. IT was also
Hyderabad, wherein risk adjustment of 1% was pointed out that the similar prayer was accepted by
allowed. The Assessee is before the ITAT. the Tribunal in the assessee’s own case in
assessment year 2008-09, wherein the non-USA
Issue: related transaction constituted 16% of the total
turnover in order passed in Textron India (P.) Ltd.
Whether since USA related transactions v. Dy. CIT [IT (TP) Appeal No. 5 (Bang.) of 2014,
constituted 96.30 per cent of total turnover of dated 25-1-2019]. Accordingly, following the
EDS segment for which margin was agreed to decision rendered by the coordinate bench in AY
be 15.85 per cent under MAP resolution, same 2008-09, the Tribunal directed the AO/TPO to adopt
rate was to be adopted for non-USA related the margin of 15.85% to non-USA related
transactions under EDS segment transactions also under engineering design services
segment.
Held
❉❉❉
The assessee filed a letter before the Tribunal stating
that the assessee has settled the issue relating to
transfer pricing adjustment made in respect of “USA
related transactions” under Engineering design and
software development services (EDS) through
Mutual Agreement Procedure (MAP) application

Ahmedabad Chartered Accountants Journal June, 2022 163

Unreported
Judgements

CA. Sanjay R. Shah
[email protected]

In this issue, we are giving gist of recentAhmedabad PAN: AASPL8911B (Respondent)
Tribunal decision in the case of Shilpaben R. (Applicant)
Luhana, relating to penalty u/s.271AAB, which is
in respect of the undisclosed income found during Assessee by : Shri Viranch Modi &
the course of search u/s.132 of the Act. The Revenue by Mr. Yesha Shah, A.Rs.
provisions of section 271AAB relating to penalty
where search has been initiated were applicable for : Shri R.R. Makwana, Sr. DR
the searches initiated u/s.132 on or after 01.07.2012
but before the date on which Taxation Laws Date of hearing : 26-04-2022
(SecondAmendment) Bill, 2016 received the assent
of the President, and therefore, it is not applicable Date of pronouncement : 30-05-2022
for the searches carried out after that period.
However, under the provisions of section Gist Only
271AAB(1A), the said provisions are applicable
for the searches carried out u/s.132 after the date Facts of the case:
on which Taxation Laws (Second Amendment)
Bill, 2016 received the assent of the President, and 1. This appeal was filed by the assessee against
hence, is applicable today. the order of the Commissioner of Income Tax
(Appeals)-12, Ahmedabad, wherein a penalty
to the tune of Rs.1,42,500/- was upheld by him
u/s. 271AAB of the Act.

Since the provisions of section 271AAB(1) and 2. In this case, search u/s.132 of the Act was
271AAB(1A) are pari materia in all other respects, carried out in the Dhanjimama group of cases
the decision rendered u/s.271AAB(1) would be on 03.07.2012. Consequent to the search
applicable for section 271AAB(1A), and therefore, action, proceedings under section 153A of the
the present decision would be useful even under Act were initiated in the case of the assessee
the provisions of section 271AAB(1A). for Assessment Year 2007-08 to 2012-13.
Accordingly, notice under section 153A of the
We hope the readers would find the same useful. Act was issued on 06.09.2013, in response to
which, the assessee filed return of income for
Annexure Assessment Year 2012-13 declaring total
income of Rs.88,390/-. The assessment under
In the Income Tax Appellate Tribunal section 153A r.w.s. 143(3) was completed on
Ahmedabad “B” Bench 23.01.2015 at the total income of Rs.5,63,390/
-. Penalty proceedings under section 271AAB
Before Shri P. M. Jagtap, Vice President of the Act were initiated on addition of
And Rs.4,75,000/- on account of unexplained cash
credits. The assessee filed quantum appeal
Shri Siddhartha Nautiyal, Judicial Member against such additions but subsequently
withdrew the same.
ITA No.1337/Ahd/2019
Assessment Year: 2012-13

Shilpaben R. Luhana Vs. The DCIT, 3. The AO during the course of penalty
proceedings observed that the assessee had
Godhra, Panchmahal. Vadodara.

164 Ahmedabad Chartered Accountants Journal June, 2022

Unreported Judgments

deposited various amounts in her bank assessment proceedings on the assessee were
accounts for which she had no plausible conducted as a consequence to search
explanation. The AO further observed that this proceedings on Dhanjimama group.
addition in the assessment could only be
possible due to the strenuous exercise carried 6. The Tribunal further discussed the provisions
out by the Department in the cases of of 271AAB(1) and also explanation attached
Dhanjimama Group, and therefore, the real to the said section which defines the term
income of the assessee was unearthed only due ‘undisclosed income’. It was also observed that,
to search proceedings. The AO, therefore, no incriminating documents were found against
imposed penalty under section 271AAB(1)(c) the assessee during the course of search carried
of the Act to the tune of Rs.1,42,500/- @ 30% out on Dhanjimama group. The unexplained
of Rs.4,75,000/- on the assessee, which was cash credits were discovered only during the
confirmed by C.I.T.(Appeals), holding that the course of assessment carried out on the
said money having not been disclosed before assessee. This unexplained cash credits had no
the date of search falls in the ambit of nexus with any documents found or statement
“undisclosed income”, and therefore, the made during the course of search and the same
assessee is liable for penalty under section was independent of any statement or
271AAB of the Act. incriminating material found during the course
of search.
4. In the appeal before Tribunal, the assessee
contended that the instant case does not fall in 7. The Tribunal further referred to the decisions
the ambit of section 271AAB of the Act, since of Patna Tribunal in the case of Shri Bhagwan
for invoking the said section, the undisclosed Gupta vs. ACIT – 125 taxmann.com 306 and
income should have been unearthed/seized Chandra Suresh Kothari vs. DCIT – 135
during this course of search proceedings and taxmann.com 275 (Nagpur-Trib) and held as
also the AO should have asked about the same under:
during statement recorded under section 132(4)
of the Act. In the search conducted on the “5.4 Thus, on a reading of the relevant
Dhanjimama group, in the statement recorded statutory provisions and the
u/s 132(4), additional income was declared interpretation of section 271AAB, it is
pertaining to various persons, but the assessee’s seen that section 271AAB of the Act is
name did not figure. Thus, the unexplained a separate code in itself and it operates
income of Rs.4,75,000/-, by way of cash credit, independent of the assessment
was identified only during the course of proceedings. For initiation of the penalty
assessment proceedings, and not during search proceedings therefore, the provisions of
proceedings, which is a prerequisite for section 271AAB are self-contained and
imposing penalty under section 271AAB of the are not dependent upon commencement
Act. The DR relied upon the order of or finalization of the assessment
C.I.T.(Appeals). proceedings. That having said, in case
penalty has not been initiated on basis
Held: of undisclosed income found during
search proceedings, impugned order of
5. The Tribunal, after considering rival Assessing Officer imposing penalty on
contentions, observed that, in this case, the assessee under section 271AAB, in our
unexplained cash credit of Rs.4,75,000/- were view, does not pass the mandate of
not discovered/unearthed during the course of provisions of section 271AAB of the
search on Dhanjimama group, but were Act. A perusal of the assessment order
unearthed during the course of assessment reveals that theAssessing Officer has not
proceedings on the assessee, albeit the mentioned anything about unearthing of

Ahmedabad Chartered Accountants Journal June, 2022 165

Unreported Judgments Dhanjimama group of cases on
03.07.2012, which could have formed
any undisclosed income in respect of the the basis of addition of Rs.4,75,000/-,
assessee, during search action carried out in our considered view, penalty could
in the Dhanjimama group of cases on not have been imposed under section
03.07.2012. The income unearthed/ 271AAB of the Act only on the basis of
discovered by the Assessing Officer addition on account of cash credits u/s
during the course of assessment 68 of the Act found during the course of
proceedings was independent and assessment proceedings. Therefore, in
unconnected with the information found our view, Ld. CIT(Appeals) has erred
during the course of search action in fact and law in confirming action of
carried out in the Dhanjimama group of the assessing officer imposing penalty
cases. Therefore, while the same may under section 271AAB of the Act, in the
be relevant for assessment of the income instant set of facts.
under section 68 and also for the levy of
penalty under section 271(1)(c) of the 6. In the result, the appeal of the assessee
Act, however, so far as penalty under is allowed.”
section 271AAB of the Act is
concerned, the foundation thereof is ❉❉❉
independent of assessment proceedings.
Therefore, in the instant set of the facts,
since no incriminating material was
found during research carried out on

Continued from page 147 Article : Problem of Rising NPAs in Banks

a group Company. The Banks collect information borrowers. Such information received by the bank
about the net worth of these guarantors at the time at periodical intervals will enable the bank to take
of giving the loan. However, in some cases the remedial steps before an account becomes NPA.
information about the net worth of such guarantors This type of audit report at periodical intervals can
is not updated at periodical intervals. In cases where also bring to the notice of the bank whether the
the credit facility enjoyed by the borrower is more borrowed funds are used for the purpose for which
than Rs. 5 Cr. It can be provided that the auditor they are given and that there is no diversion of funds.
giving the above special audit report should verify Further, the banks will also be able to ascertain
the net worth of the guarantors and give information whether the value of the security provided by the
about such net worth in the audit report. If the net borrower is adequate or there is need to call for
worth of the guarantors is falling below the net worth further security. If ICAI is able to convince the
reported earlier, the Bank can insist on additional RBI about the utility of this type of special audit
security. report by Chartered Accountants, the Banking
Industry will benefit and we will be able to solve
In this article suggestion about special audit report the problem of rising NPAs in Banks to a large
by auditors of bank borrowers is made with a view extent.
that the officers of the lending bank get authentic
information about the financial health of the bank ❉❉❉

166 Ahmedabad Chartered Accountants Journal June, 2022

Controversies

CA. Kaushik D. Shah
[email protected].

Issue debt or part thereof is written off or of an earlier
previous year, or represents money lent in the
Whether the advances in course of business which ordinary course of the business of banking or
are written off in the books of accounts are money-lending which is carried on by the assessee.
allowable as a deduction from total income to the
assessee? In view of the above sections, it can be interpreted
that the assessee cannot take the deduction of the
Proposition bad debts which are not incidental to the regular
business activity of the assessee as well such debts
According to section 36(1)(vii) of the Income-tax or part thereof written off which has not been taken
Act, 1961, any bad debts in respect of the business into account in computing the income of the
carried on by the assessee in the relevant previous assessee in the relevant previous year.
year, written off as irrecoverable in the accounts
of the assessee for the previous year should be In case of Principal Commissioner of Income Tax
allowed as deduction provided the debt has been v. RJD Impex (P.) Ltd., The appellant-revenue
taken into account in calculating the income of argued that trading of goods for which the debts
the previous year or any earlier previous year. It is are stated to be incurred is not even covered in the
proposed that the assessee is eligible to claim the main objects of the company and is not the regular
deduction of bad debts in course of the business business activity of the company. It was further
w.r.t section 36(1)(vii) read with section 36(2) of argued that bad debts are admissible as deduction,
the Income-tax Act,1961 whether or not it is only if they are taken into account in computing
incident to the regular business activity of the the total income of the assessee of the previous year
assessee and whether or not there are any trading in which it was written off. It was found that most
transactions in respect of such business in the of the amount claimed as bad debts were not taken
relevant financial year. into account in computing the income of the
assessee for the relevant year. Previously the
View against the proposition assessing officer had also disallowed such
deduction on the grounds that such bad debts were
Extract of the relevant provision is as under: not incidental to the regular business activity of the
assessee.
According to section 36(1)(vii) of the Income-tax
Act, 1961, Subject to the provisions of sub-section View in favour of the Proposition
(2), the amount of any bad debt or part thereof which
is written off as irrecoverable in the accounts of the According to section 36(2)(i) no such deduction
assessee for the previous year shall be allowed as shall be allowed unless such debt or part thereof
deduction. has been taken into account in computing the
income of the assessee of the previous year in which
According to section 36(2)(i) of the Income-tax the amount of such debt or part thereof is written
Act, 1961, no such deduction shall be allowed off or of an earlier previous year which is carried
unless such debt or part thereof has been taken into on by the assessee.
account in computing the income of the assessee
of the previous year in which the amount of such

Ahmedabad Chartered Accountants Journal June, 2022 167

Controversies It further noted that there may not be any trading
transaction of these products in the current year,
It is construed in such a way that bad debt should but the business of the assessee had not come to
be incidental to such income which has been taken halt. No doubt, the criminal complaints filed by the
into account in computing the total income of the assessee against persons who allegedly and
assessee. Such income may be incidental to the fraudulently obtained advances, had not reached
regular business activity of the assessee or not but finality and these persons were on bail granted by
it should be taken into account in computing the High Court and, thus, there was remote possibilities
total income of the assessee. of recovery, assessee had right to claim reasonably
foreseeable business loss; Tribunal was justified in
Moreover such income may pertain to the relevant allowing assessee’s claim of bad debts.
previous year or any earlier previous year. Hence
if there are no transactions in respect of certain While the judgement can act as a guiding principle,
business in a relevant previous year it should not it is important that deduction for bad debts should
be construed that such business has come to a halt. be in respect of business or trade of the assessee
whether it is incidental it’s the regular business
In case of Principal Commissioner of Income Tax activity or not. Secondly such deduction should be
v. RJD Impex (P.) Ltd., the Tribunal held that the claimed only if they are taken into account in
assessee did in fact trade in processed agricultural computing the total income of the assessee of the
produce which wasn’t his regular business activity, previous year in which it was written off. However
bad debts were in course of trading. The Tribunal no transaction in any previous year; shall not be
found, as a matter of fact, that the losses were wholly deemed to be a closure of the business.
incidental to the business carried on by the assessee.
It further noted that there may not be any trading Hence, even after the decision, the issue is still
transactions of these products in the current year, highly debatable because tax payers can take undue
but the business of the assessee has not come to a benefit of income tax by wrongly claiming the
halt. Accordingly relief was granted to the assessee. deduction for bad debts which are not in the course
of trading of the assessee.
Summation
In view of above, in my humble opinion, assessee
Decision taken by Gujarat High Court in case of is eligible to claim deduction for the advances which
Principal Commissioner of Income Tax V. RJD are written off in the course of business under
Impex (P.) Ltd. has set benchmark for the key section 36(1)(vii) of theAct provided such deduction
matter of controversy. is supported by proper reports/justification.

The High Court has categorically held that even ❉❉❉
though the losses were not incidental to the regular
business activity of the company however the
assessee did in fact trade, in connection with which
the advances in the business were made, and it was
in the course of trading that, the business loss of
making unrecoverable advances were incurred.

168 Ahmedabad Chartered Accountants Journal June, 2022

Judicial
Analysis

Advocate Tushar Hemani
[email protected]

Once Resolution Plan is approved under the assessment and therefore, the Petitioner has been
provisions of IBC, all claims which are not a part called upon to submit its return under the
of the Resolution Plan, shall stand extinguished provisions of the IncomeTaxAct,1961.The claim
and no person will be entitled to initiate or itself has been disclosed subsequent to the
continue any proceedings in respect to a claim, approval of the Resolution Plan and therefore, it
which is not a part of the Resolution Plan. could not have been raised before the Resolution
Professional under the CIRP proceedings. Thus,
Murli Industries LimitedVs. ACIT – according to Mr. Bhattad, such statutory claim is
maintainable even after the approval of the
10 Bombay High CourtMANU/MH/4310/ Resolution Plan. In fact, he has raised a
2021 MANU/MH/4310/2021 (Writ preliminary objection of maintainability of the
Petition Nos. 2948 and 2965 of 2021, Petition by contending that once notice under
Decided On: 23.12.2021) Section 148 is issued, a proper course of action
for the noticee is to file its returns and if he so
3. The question involved in the Petition is; desires, then to seek reasons for issuing notice.
After which, the Respondent No. 1 - Assessing
“Whether the Authorities of the Income Tax Officer is bound to furnish reasons as sought by
Department can issue notice under Section 148 the noticee. On receipt of such reasons, the noticee
of the Income Tax Act, 1961 to a Corporate is entitled to file objections for issuance of notice.
Debtor, calling upon it to submit a return in the After the objections are filed, Respondent No. 1 -
prescribed form for the assessment year falling Assessing Officer is bound to dispose of the same
prior to the date of approval of Resolution Plan by passing a speaking order. The aforesaid
under Insolvency and Bankruptcy Code, 2016 argument has been made in view of the law laid
on the ground that Respondent No. 1 -Assessing down by the Hon’ble Supreme Court in the case
Officer had a reason to believe that the income of GKN Driveshafts (India) Ltd.Vs. Income-Tax
chargeable to tax of the Corporate Debtor has Officer, reported in MANU/SC/1053/
escaped assessment within the meaning of 2002MANU/SC/1053/2002 : 2002 (125)
Section 147 of the Income Tax Act, 1961?” Taxman 963 SC.Accordingly, it is argued by the
learned counsel for the Respondent Nos. 1 and 2
xxx… that the alternate and only remedy for the Petitioner
is to seek reasons for issuance of notice from the
8. There is no dispute that the claim raised through Respondent No. 1 -Assessing Officer and
the impugned notice was not a part of the thereafter, to file objections.
Resolution Plan. However, Shri Bhattad, learned
counsel for the Respondent Nos. 1 and 2, has 9. We are unable to accede to the submissions
come up with a defense that the claim raised made by Mr. Bhattad, learned counsel for
through the impugned notice could not be a part Respondent Nos. 1 and 2, raising preliminary
of the Resolution Plan inasmuch as the claim was objections, the reasons for which will follow
not crystallized at that time. According to him, in the later part of the judgment.
the notice has been issued under Section 148 of
theAct on the ground that the income chargeable
to tax for the assessment year 2014-15 has escaped

Ahmedabad Chartered Accountants Journal June, 2022 169

Judicial Analysis

10. Coming back to the core issue as to whether the Resolution Plan. Such inference could
the impugned notice could have been issued further be substantiated on the ground that the
by the Respondent No. 1 -Assessing Officer provisions of the IBC (Section 238 of IBC)
subsequent to approval of the Resolution Plan, have an overriding effect, if there is any
the answer is traceable in Ghanashyam Mishra’s inconsistency with any of the provisions of the
case (supra). The Hon’ble Supreme Court while law for the time being in force, including the
dealing with the batch of matters relating to Income Tax Act, 1961. The Hon’ble Apex
CIRP proceedings, framed the following Court has also held that section 31 of the
important questions. amended Act will have retrospective effect.

xxx… 19. Having said so, it is now crystallized that the
claims which were not a part of the Resolution
17. A careful reading of the above findings, would Plan including recoverable statutory dues, shall
show that even a claim in respect of dues arising stand extinguished upon approval of the
under any law for the time being in force, Resolution Plan.
including claims under the Income Tax Act,
1961 which is payable to the Central 20. In the present case, the Income Tax Department
Government or the State Government, would had, on 07.06.2017, raised claims to the tune
come within the ambit of Operational Creditors. of Rs. 50,23,770/-. The said claim was fully
Further, the claim of operational creditors will and finally settled at Rs. 4,00,000/- in terms of
also include a claim of statutory authority like the Resolution Plan. The impugned notice does
Income Tax Department on account of money not disclose any reason as to why the claim
receivable pursuant to an imposition by a raised through the impugned notice has not
statute. The Hon’ble Supreme Court has also been included in the aforesaid claim before RP
upheld the view taken by the Rajasthan High Of course, there could be a case where the
Court holding that the demand notices issued statutory authority was precluded from raising
by the Central Goods and Service Tax claim in the CIRP proceedings because of fault
Department, for a period prior to the date on attributable to the Corporate Debtor, viz; where
which NCLT has granted its approval to the the assessment of previous year has been
Resolution Plan, are not permissible in law. The escaped because of suppression of fact by the
concluding remarks of the Hon’ble Apex Court assessee and that the suppressed fact has been
are that, on the date of approval of the noticed subsequently by the Assessing Officer
Resolution Plan by the Adjudicating Authority, leading to issuance of notice under Section 148
all such claims which are not a part of the of the Act subsequent to approval of the
Resolution Plan, shall stand extinguished and Resolution Plan. However, impugned notice
no person will be entitled to initiate or continue being silent on this point, this Court is unable
any proceedings in respect to a claim, which is to gather the reasons for not raising the claim
not a part of the Resolution Plan. The expression earlier before the Resolution Professional or the
‘that no person will be entitled to initiate any Adjudicating Authority.
proceedings’ would include the proceedings in
the nature of notice issued under Section 148 21. We may add here that the Explanation to
of the Income Tax Act, 1961. Section 147 of the Income Tax Act, 1961
creates a deeming fiction of cases where the
18. As we understand from the above rulings, the income chargeable to tax has escaped
aim and object of IBC is to revive the Corporate assessment. Clause (a) deals with a situation
Debtor by putting quietus to the claims against where no return of income has been furnished
it. Providing certainty to the Resolution by the assessee although his total income
Applicant of “no” claims in future against the exceeded maximum amount which is not
Corporate Debtor appears to be the essence of chargeable to income tax. Clause (b) deals with

170 Ahmedabad Chartered Accountants Journal June, 2022

a situation where a return of income has been Judicial Analysis
furnished by the assessee but no assessment
has been made and it is noticed by theAssessing The Sirpur Paper Mills Limited and Ors.
Officer that the assessee has understated the
income or has claimed excessive loss, 11 Vs. Union of India and Ors. Telangana
deduction, allowances or relief in the return. High Court MANU/TL/0061/2022
There are other Clauses also that would indicate MANU/TL/0061/2022 (W.P. No. 25827
the reasons for escaping the assessment. The of 2019, Decided On: 18.01.2022)
point is, once the public announcement is made
under the IBC by the Resolution Professional 2. By filing this petition under Article 226 of the
calling upon all concerned, including the Constitution of India, petitioners seek quashing
statutory bodies, to raise claim, it would be of notices dated 22.09.2019, 21.10.2019 and
expected from all the stakeholders to diligently 30.10.2019 issued by respondent Nos. 2 and 3
raise their claim. The Income Tax authorities for the assessment year 2017-18 as being illegal
in that sense, ought to have been diligent to and non-est and further seek a direction to the
verify the previous years’ assessment of the said respondents not to reopen their claims
Corporate Debtor as permissible under the law which were settled in insolvency proceedings.
and to raise the claim in the prescribed form
within time before the Resolution Professional. xxx…
In the present case, the Income Tax Authorities
failed to do so and therefore, the claim stood 69. From the above, it is evident that Income Tax
extinguished. authorities are seeking information for the
purpose of making assessment for the
22. As stated earlier, there could be a contingency assessment year 2017-18 as the return of the
where statuary claim is raised after the approval corporate debtor (petitioner No. 1) has been
of the Resolution Plan, owing to receipt of taken up for scrutiny under CASS. The
information of the Corporate Debtor having assessment year 2017-18 (previous year 2016-
suppressed certain facts while filing returns of 17) covers the period prior to approval of the
the previous years, which then could not be a resolution plan by the Tribunal on 19.07.2018.
part of the Resolution Plan. To counter such a Clause 7.5(c) as extracted and discussed above,
situation, the statutory authorities will have to bars all notices to initiate any proceeding against
explore the possibility of raising such claims the corporate debtor in relation to the period prior
before the Resolution Professional or to the date of the Tribunal’s order, clarifying that
Adjudicating Authority, as the case may be, by such notices would stand abated.All assessment
requesting to make certain provisions for proceedings relating to the period prior to the
payment of statutory claims in the Resolution completion date would stand terminated with all
Plan. Whether to accept such claim is a matter consequential liabilities being abated. That apart,
that should be left to the COC, the Resolution as per paragraph No. 17.7(c) of the resolution
Professional or the Adjudicating Authority. plan, the corporate debtor is entitled to carry
However, in absence of any such claim having forward the unabsorbed and accumulated losses
been made and dealt with by the Resolution and to utilize such amounts to set off future tax
Professional and in absence of any provision obligations.
to settle such claim in the Resolution Plan, such
claim could not be raised subsequently. In that 70. From the tone and tenor of the impugned notices
sense, the Petitioner is correct in contending what is evident is that respondents are seeking
that the impugned notice could not have been to pass assessment order under Section 143(3)
issued by the Assessing Officer. of the Act since the case of petitioner No. 1 was
selected for limited scrutiny under CASS.
However, the period of the assessment order
would be a period covered by the resolution plan.
We have already noticed that petitioner No. 1
through the resolution professional had filed

Ahmedabad Chartered Accountants Journal June, 2022 171

Judicial Analysis the same would prevail over the claims of the
Income Tax Department and such claims which
return of income prior to order of the Tribunal are outside the resolution plan for the period
approving the resolution plan. When arithmetical covered by the resolution plan would stand
mistake was pointed out by the Income Tax extinguished. The impugned notices seek to
Department, post such approval, petitioner No. initiate assessment proceedings under Section
1 carried out the correction and submitted revised 143(3) of the Act for a period which is squarely
return lowering the figure of loss sustained by covered by the resolution plan as approved by
petitioner No. 1. Such a revised return cannot the Tribunal.
be construed as a fresh return filed by the
petitioner No. 1 since it is a continuation of the 73. In the circumstances, impugned notices dated
return of income filed earlier. In view of Clause 22.09.2019, 21.10.2019 and 30.10.2019 being
7.5(c) of the resolution plan, as approved by the wholly unsustainable in law are hereby set aside
Tribunal and in view of the decisions of the and quashed.
Supreme Court in Committee of Creditors of
Essar Steel India Limited MANU/SC/1577/ 12 Oasis Textiles Ltd. Vs. DCIT–
2019MANU/SC/1577/2019 : (2020) 8 SCC Ahmedabad–Trib., MANU/IB/0130/
531 (supra) and Ghanashyam Mishra MANU/ 2022 MANU/IB/0130/2022 ITA No. 87/
SC/0273/2021MANU/SC/0273/2021 : (2021) Ahd/2019, Decided On: 25.03.2022
9 SCC 657 (supra), the claim of the Income Tax
Department which is outside the resolution plan 7. We have heard both the parties and also gone
would stand extinguished. through the materials placed before us. When
we confronted the above letter of Shri Umesh
71. Insofar carry forward of losses and adjustments Ved, former OL along with relevant annexures
against future profits are concerned, the same to the Ld. Departmental Representative, he has
is provided by Clause 17.7(c) of the resolution not disputed factum of the matter, or the present
plan. However, as and when such carry legal status of the assessee-company as being
forward and set off is claimed by the petitioner a non-existent entity. This being so, issue for
in future, i.e. beyond the period covered by the our adjudication is about maintainability of
resolution plan, the Income Tax Department appeal of the assessee-company before the
would be entitled to verify such claim and pass ITAT and enforceability of tax demand raised
appropriate order. But for the period covered by the Department in the impugned order
by the resolution plan, it cannot carry out any against the assessee-company which was
scrutiny or carry out assessment in respect of ceased to exist in the eye of law, by virtue of
the corporate debtor. To that extent, the the company being dissolved as per the order
impugned notices cannot be justified. of the National Company Law Tribunal (in
short hereinafter “NCLT”) order.
72. Regarding reliance placed by learned standing
counsel on Section 79 of the Act, in our view 8. Hon’ble Supreme Court in the case of
the same is misplaced. The said provision as it Ghanasham Mishra & Sons P. Ltd. Vs.
stood prior to its substitution with effect from Edelweiss Asset Reconstruction Company Ltd.
01.04.2020 would not be applicable as it relates in Civil appeal No. 8129 of 2019 has held that-
to the future consequences of carry forward and
set off of losses of a company where change in xxx…
the shareholding takes place pursuant to a
resolution plan approved under the IBC. What 9. In this connection, it is imperative upon us to
the resolution plan provides and which is in extract relevant observation of the Hon’ble
conformity with the law laid down by the Supreme Court in the case of Ghanshyam
Supreme Court is that on and from the date of Mishra & Sons Vs. Edelweiss Asset
approval of the resolution plan by the Tribunal, Reconstruction (supra) contained in para-130
and 132 of the judgments, which are as follows:

172 Ahmedabad Chartered Accountants Journal June, 2022

10. In light of the above, if we examine the facts of Judicial Analysis
the case on hand, assessment year involved is
2015-16, and the AO has passed the assessment “The provisions of this Code shall have effect,
order on 27.12.2017, and the appellate order notwithstanding anything inconsistent
thereupon was passed on 27.12.2018. While therewith contained in any other law for the
NCLT has passed Resolution plan on time being in force or any instrument having
22.11.2017, and in the absence of any Resolution effect by virtue of any such law”.
Plan, it was ordered to be liquidated vide order
dated 22.11.2017. On completion of liquidation 8. The provisions of the Insolvency and
process, assessee-company was dissolved by the Bankruptcy Code, 2016 thus are given
NCLT vide order dated 30.6.2020. The claim overriding effect and as held by the Hon’ble
of the Department was prior to the date of Supreme Court while disposing in the case of
Resolution Plan approved by the NCLT, and Pr. CIT v. Monnet Ispat& Energy Ltd. [Petition
therefore, the present income tax proceedings is for Special Leave to Appeal (C) No(s). 6483
hit by section 31(1) of Insolvency and of 2018, dated 10-8-2018], it is obvious that
Bankruptcy Code, 2016, which has overriding the Insolvency and Bankruptcy Code, 2016
effect vis-a-vis. the Income Tax Act, 1961. All going by section 238 will override anything
these events are within the knowledge of the inconsistent contained in any other enactment,
Income Tax Department, as the OL of assessee- including the Income-tax Act, 1961. A
company has intimated the Department from reference in this regard was made by the
time to time in writing, but no action has been Hon’ble Supreme Court to their Lordships
taken by the Department. Once a company is earlier decision in the case of Dena Bank v.
dissolved it becomes a non-existent party and BhikhabhaiPrabhudas Parekh & Co. 2000
therefore no action can be brought in its name. taxmann.com 2145, wherein it was clarified
Therefore, in view of overriding effect of IBC that Income-tax dues, being in the nature of
code to the Income Tax proceeding, we hold crown debts, do not take precedence over
that Revenue is not entitled to recover the claim, secured creditors, who are private persons.
if any arising from the present proceedings for
Asst. year 2015-16, as the same is not part of 9. In the case of Swiss Ribbons (P.) Ltd. v. Union
the resolution plan. of India [2019] 101 taxmann.com 389/152
SCL 365, Hon’ble Supreme Court held that
11. In the result, the entire proceedings including the core objective of the Code is to readapt the
the appeal have become infructuous and the corporate debtor monetarily and for that
same is liable to dismissed as infructuous. purpose to protect the corporate debtor’s assets
from further dilution. But to fully accomplish
13 Palogix Infrastructure (P.) Ltd. v. ACIT the said purpose, the creditors must be barred
[2022] 135 taxmann.com 73 (Kolkata - from bringing up belated claims against a
Trib.) successful resolution applicant striving to
resurrect the corporate debtor. Elaborating
7. The issue involved in the additional ground further, their Lordships observed that if the
raised by the assessee relates to the effect of Government Departments are just going to
the order delivered by the National Company bring up their claims after the company is
Law Tribunal, Kolkata Bench on 12-2-2018 transferred over to a successful resolution
approving the resolution plan on the applicant, then intent with which the Code was
proceedings in the case of the assessee for AY incorporated will never be achieved.
2010-11, which is involved in the present
appeal. The said order is passed under the 10. In the case of Ghanashyam Mishra & Sons (P.)
Insolvency and Bankruptcy Code, 2016, Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.
section 238 of which reads as under :— [2021] 126 taxmann.com 132/166 SCL 237, it
was held by the Hon’ble Supreme Court that a
bare reading of section 31(1) of the Code is

Ahmedabad Chartered Accountants Journal June, 2022 173

Judicial Analysis liabilities, if any, should be deleted and should
be considered to be not payable by the company
enough to establish that once the resolution plan by virtue of the order of the adjudicating
receives the assent of adjudicating authority, it authority. Furthermore, all notices proposing to
shall be binding on all the respective entities, initiate any proceedings against the company in
including corporate debtor and its employees, relation to the period prior to the date of
members, creditors, guarantors and other adjudicating authority order and pending on that
stakeholders. The said section 31 was date, shall be considered deleted and should not
subsequently amended in 2019 to clarify that be proceeded against. Post the order of the
the term “other stakeholders” include Central adjudicating authority, no reassessment/revision
Government, State Government, and other or any other proceedings under the provisions
local bodies, and this amendment has been held of the Income-tax Act should be initiated on the
by the Courts as having retrospective effect company in relation to period prior to acquisition
being clarificatory and declaratory in nature. of control by the resolution applicant over the
Company pursuant to this plan shall stand
11. Keeping in view the legal position emanating extinguished by virtue of order of the National
from the discussion made above in the light of Company Law Tribunal and the assessee-
judicial pronouncements of the Hon’ble Supreme company should not be liable to pay against such
Court, it is thus clear that the order passed by demand.
the National Company Law Tribunal under
section 31 of the Insolvency and Bankruptcy 12. Since the present appeal involving AY 2010-11
Code, 2016 has overriding effect over anything relates to the period prior to the acquisition of
inconsistent contained in the Income-taxAct and control by the Resolution Applicant over the
it shall be binding on all the respective entities company pursuant to this plan, all dues under
including other stakeholders, which include the provisions of the Income-tax Act, 1961
Central Government, State Government and including taxes, duty, penalties, interest fines,
other Local Bodies. As per the said order cesses, etc. shall stand extinguished by virtue of
delivered in the case of the assessee-company the order of the National Company Law Tribunal
affirming the Resolution Plan, all dues under the and all proceedings including the appellate
provisions of the Income-taxAct including taxes, proceedings pending on the date of the order of
duty, penalties, interest, fines, cesses, unpaid tax the National Company Law Tribunal including
deducted at source/tax collected at source, the present proceedings relating to the prior
whether admitted or not, due or contingent, period to the date of order shall stand
whether part of above claim of income tax extinguished and all consequential liabilities, if
authorities or not, whether part of tax due any, should be deleted and should be considered
diligence finding or not, asserted or unasserted, to be not payable by the Company. In the light
crystallized or uncrystallized, known or known, of the order of the National Company Law
secured or unsecured, disputed or undisputed, Tribunal (NCLT) dated 12-2-2018 passed in
present or future, in relation to any period prior assessee’s case, we deem it fit to restore the case
to the acquisition of control by the resolution for the assessment year under consideration
applicant over the company pursuant to this plan before us to Assessing Officer for taking
shall extinguished by virtue of the order of the necessary action in accordance with law.
adjudicating authority and the company should
not be liable to pay any amount against such 13. In the result, the appeal of the assessee is treated
demand. Further, all assessments or other as allowed for statistical purposes as indicated
proceedings pending in case of the company, above.
on the date of the order of the adjudicating
authority relating to the period prior to that date, ❉❉❉
shall stand terminated and all consequential

174 Ahmedabad Chartered Accountants Journal June, 2022

PE and Taxability of
Interest Income

CA. Dhinal A. Shah CA. Karan Sukhramani
[email protected] [email protected]

Mere existence of a permanent establishment in Issues
the source jurisdiction cannot be reason enough
to invoke the taxability of an interest income - Whether the interest income on loans in the
under Article 7(1) unless such an income is form ofsuppliers credit given to Indian parties
directly or indirectly attributable to such a is taxable at special rates as per Article 11(2) of
permanent establishment. the India-Japan DTAA merely because the
assessee had a PE in India during the said time.
DCIT (Int’l Tax) vs. Marubeni Corporation,
Japan (ITA No.10/Mum/2022) (Mumbai Trib.) - Whether interest income on loans in the form
ofsuppliers credit given to Indian parties is
Facts taxable at special rates as per Article 11(2)of
the India-Japan DTAA in a situation where the
- The assessee is a company, incorporated and Indian parties from whom the assessee has
fiscally domiciled inJapanand having a received interest income are also the clients of
permanent establishment (PE) in India. the assessee in India with whom contracts were
executed through the PE in India.
- During the relevant year, it has earned income
from various streams of income from its India Ruling
operations including income from interest on
supplierscredit on sale of goods. Extract of Article 11 of”India Japan DTAA” states
as under:
- This interest income was offered to tax at the
rate of 10% in terms of the provisions of Article 1. Interest arising in a Contracting State and paid
11(2) of India Japan DoubleTaxationAvoidance to a resident of the other Contracting State may
Agreement (‘DTAA’) be taxed in that other Contracting State.

- During the course of scrutiny, the assessing 2. However, such interest may also be taxed in
officer held that since the assessee had a PE in the Contracting State in which it arises, and
India, in view of Article 11(6) of the DTAA, according to the laws of that Contracting State,
assessee was no longer eligible for the but if the recipient is the beneficial owner of
concessional rate of 10% and interest income the interest the tax so charged shall not exceed
on suppliers credit is to be offered to tax @ 10 per cent of the gross amount of the interest.
40% under Article 7(1) of the tax treaty. ……….

- He thus proceeded to tax the said interest 6. The provisions of paragraphs 1, 2 and 3 shall
income at 40% as per the India Japan DTAA not apply if the beneficial owner of the interest,
taking into account the presence of the PE in being a resident of a Contracting State, carries
the year under consideration. on business in the other Contracting State in
which the interest arises, through a permanent
- The assessee carried the matter in appeal before establishment situated therein, or performs in
the Commissioner (Appeals) who upheld the that other Contracting State independent
plea of the assessee personal services from a fixed base situated

Ahmedabad Chartered Accountants Journal June, 2022 175

PE and Taxability of Interest Income As far as interest income is concerned, it can
happen, for example, when the debt claim in
therein, and the debt-claim in respect of which respect of which interest is paid is forming part
the interest is paid is effectively connected with of the assets of the permanent establishment,
such permanent establishment or fixed base. when economic ownership of the debt claim is
In such case, the provisions of Article 7 or allocated to the permanent establishment or
Article 14, as the case may be, shall apply. when the permanent establishment plays a
critical role in earning of that interest income.
Extract of Article 7 of India Japan DTAA None of these conditions is satisfied in the
present case, and there is nothing more than
1. The profits of an enterprise of a Contracting the mere existence of a permanent establishment
State shall be taxable only in that Contracting of the assessee company in India, which is
State unless the enterprise carries on business being put against the assessee.
in the other Contracting State through a
permanent establishment situated therein. If the - There has to be nexus between the PE and the
enterprise carries on business as aforesaid, the interest income. It is not even the case that the
profits of the enterprise may be taxed in that PE played any role in the supplier credit, which
other Contracting State but only so much of is the debt claim leading to the impugned
them as is directly or indirectly attributable to interest income, being extended to the Indian
that permanent establishment. customers who have paid interest on the
suppliers credit. As such, no part of interest
- What essentially is being followedin these income, by any stretch of logic, can be said to
articles is that the mere existence of a PE in the be directly or indirectly attributable to the Indian
source jurisdiction cannot, be reason enough permanent establishment of the assessee
to invoke the taxability of an interest income company.
under Article 7(1) unless such an income is
directly or indirectly attributable to such a PE. - The allegation that the Indian parties from whom
Attribution of an income to the PE is a degree the assessee has received interest income are
higher than mere connection of an income with also the clients of the assessee in India with
the PE. While every income attributable to a whomcontracts were executed through the PE
PE inherently has a connection with that PE, in India and the assessee has received fees for
the converse is not necessarily and universally technical services in a previous year from them,
correct. but then the performance ofcontracts through
the PE or receipt of fees for technical services
- The connotations of the expression “effectively from such clients is irrelevant aslong as the
connected” are to be seen in this light. It must interest income is not demonstrated to be
be such that unless the interest income cannot attributable to the PE.Such an attribution
be held to directly or indirectly attributable to a cannot be inferred or assumed; there has to be
PE, or attributable to the fixed base of the cogent material to establishthe fact that the
assessee, the taxation of such an interest income in question, i.e. interest income in this
income, at a rate higher than article 11(2), does case, is attributable to thePE.
not come into play.
❉❉❉
- The Assessing Officer alleged that since the
assessee had a permanent establishment in India
during the relevant period and there was
presumably some connection between the
interest income of the assessee and the existence
of the permanent establishment. There is
nothing to elaborate upon the nature of the
connection, except for the vague generalities.

176 Ahmedabad Chartered Accountants Journal June, 2022

FEMA CA. Savan Godiawala
Updates [email protected]

5 Guidelines on import of gold by Qualified ii. The advance remittance for import of Gold
Jewellers as notified by – The should not be leveraged in what-so-ever form
International Financial Services Centres for importing gold worth more than the advance
Authority (IFSCA) remittance made.

Directorate General of Foreign Trade (DGFT) iii. In case the import of Gold through IFSCA
formulate and implement the Foreign Trade Policy authorised exchange, for which advance
and Procedures in terms of Foreign Trade remittance has been made, does not materialize,
(Development and Regulation) Act, 1992, (FTDR or the advance remittance made for the purpose
Act 1992, hereinafter) as amended from time to time. is more than the amount required, the unutilised
The Central Government has amended the import advance remittance shall be remitted back to
policy conditions for gold in any form, other than the same AD bank within the specified time
monetary gold and silver. limit of eleven days.
In addition to nominated agencies as notified by
RBI (in case of banks) and nominated agencies as iv. For gold imported through IIBX, QJ shall
notified by DGFT, Qualified Jewellers (QJ) as submit the Bill of Entry (or any other such
notified by International Financial Services Centers applicable document issued/approved by
Authority (IFSCA) will be permitted to import gold Customs Department for evidence of import),
under specific ITC(HS) Codes through India issued by Customs Authorities to the AD bank
International Bullion Exchange IFSC Ltd. (IIBX). from where advance payment has been
To enable resident Qualified Jewellers to import gold remitted.
through IIBX or any other exchange approved by
IFSCA and the DGFT, Government of India the v. All payments by qualified jewellers for imports
following directions under FEMA were issued. of gold through IIBX, shall be made through
i. AD banks may allow Qualified Jewellers to exchange mechanism as approved by IFSCA
in terms of IFSC Act and regulations. Any
remit advance payments for eleven days for deviation from the extant guidelines for import
import of Gold through IIBX in compliance to of Gold through IIBX need to be approved in
the extant Foreign Trade Policy and regulations advance by IFSCA and other applicable and
issued under IFSC Act. AD banks shall ensure appropriate authority/ies.
that advance remittance for such import
through exchange/s authorised by IFSCA shall IFSC Authority (IFSCA) will conduct all required
be as per the terms of the sale contract or other due diligence on the exchange - IIBX including all
document in the nature of an irrevocable other entities involved in enabling import of Gold
purchase order in terms of IFSC Act and by QJs in terms of the IFSCA regulations. IFSCA
regulations made thereunder by IFSCA. AD shall also put in place necessary system to ensure
bank shall carry out all the due diligence and that the advance remittance received from QJs are
ensure the remittances sent are only for the bona solely for the purpose for the import of gold through
fide import transactions through exchange/s IIBX.
authorised by IFSCA.
Continued to page 192

Ahmedabad Chartered Accountants Journal June, 2022 177

GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
to record any provision for justification of
[I] Important Case Laws : (High Court)/ the seizure of the goods in question.
(Tribunal) Therefore, it was held that department was
not justified in detaining goods.
[1] Issue:
[2] Issue:
Goods can’t be detained for not having
batch number, packing date, expiry Intimation cannot be given in Form
date etc. under GST : HC: DRC-01 it should be in DRC-01A; HC
quashed intimation.
Case Laws:
Case Laws:
Shri Surya Traders v. Union of India
[2022] 137 taxmann.com 51 (All.) Agrometal Vendibles (P) Ltd. v. State of
Gujarat [2022] 137 taxmann.com 362
Facts: (Guj.)

The Petitioner was a registered dealer and Facts:
engaged in the business of selling Ancle
(Sweet Supari) and Varanasi Ashik (Betel An intimation against the appellant was
Nut Product). It transported goods along issued by the Adjudicating Authority in
with tax invoices & e-way bill which were Form GST DRC-01 alleging that
intercepted by the department. For one inadmissible Input Tax Credit has been
consignment of three bags, tax invoice was availed which is to be paid along with
handed over to the transporter but by interest and penalty, otherwise recovery
mistake it left it behind and e-way bill was action shall be initiated against him.
not generated as value was less than Rs.
50,000/-. The department detained whole The Form GST DRC-01 is a summary of
consignment and it filed writ petition a show cause notice whereas Form GST
against the same. DRC-01A is an intimation issued before a
show cause notice. If the taxpayer agrees
Held: with the contention of the department, then
he may pay its liability as per the
The Hon’ble High Court observed that as intimation. If he fails to pay the same, a
per rule 138 of CGST Rules, if the value of proper show cause notice is required to be
the transaction is more than Rs.50,000/- then issued by the Adjudicating Authority.
only e-way bill is required. In the instant
case, the department failed to show any In the given case, the intimation was issued
authority or provision of the Act in support with a clear mention that if a taxpayer fails
thereof for detaining goods. The to pay the same. Recovery proceedings
departmental authorities had in illegal and would be initiated against him. In other
in arbitrary manner referred the various words, the intent of the intimation is that no
discrepancies such as the pouches were not proper adjudication would be carried out.
having batch number, packing date, expiry
date, manufacturing date and referred that Held:
under the Food Safety Regulation, the said
dates/details were required. But so far the The Hon’ble High Court quashed the
GST law is concerned, the authorities failed intimation stating that an intimation should

178 Ahmedabad Chartered Accountants Journal June, 2022

be issued in GST DRC-01A and not in GST and VAT - Judgements and Updates
GST DRC-01. Moreover, DRC-01A is just
a means of communication before issuance disallowance of credit for contravening the
of show cause notice and the proper officer provisions of Rule 9 of CENVAT Credit
cannot threaten the appellant with recovery Rules, 2004, the learned Commissioner
action in the notice of intimation. proceeds to deny the credit on the
correlation between input service and
[3] Issue: output service. The Tribunal held that the
impugned order is not legally sustainable.
Demand Order cannot travel beyond
scope of show-cause notice; Held as un- On merits also, the Tribunal held that there
sustainable: CESTAT: was nexus of input services with the output
services and thus credit is also admissible.
Case Laws:
[II] Important Case Laws : (AAR):
Syndicate Bank v. CCE [2022] 137
taxmann.com 302 (Bang. CESTAT) [1] Issue:

Facts: ITC of GST paid on hiring of bus for
transportation of employees is allowed:
The appellant is engaged in providing AAR :
banking and other financial services. A
show cause notice was issued to the Case Laws:
appellant for wrongfully utilizing the
CENVAT credit in contravention of Rule Maanicare System India (P) Ltd., In re
9(1) & 9(6) of CENVAT Credit Rules, [2022] 137 taxmann.com 136 (AAR -
2004. Maharashtra)

Rule 9(1) provides that the CENVAT credit Facts:
shall be taken on the basis of certain
documents such as invoices, etc. whereas The applicant is a Private Limited
Rule 9(6) states the requirement of Company, engaged in the business of
maintaining proper records related to providing manpower services. It has hired
CENVAT credit. a 49 seater bus for transportation of its
employees. It is paying the GST under the
The appellant in this regard has produced reverse charge mechanism on such hiring
all the necessary documents to the services. The application of advance ruling
department. The department has accepted was filed to understand if he can avail the
the documents produced but has proceeded Input Tax Credit (ITC) of GST paid on
to deny the credit on the correlation such services under reverse charge.
between input service and output service
(a new argument that was not alleged in Held:
the show cause notice).
The Authority for Advance Ruling
In the appeal before the Tribunal, the observed that services provided were
appellant submitted the nexus of input being received by the applicant in the
services with the output services. It also course of furtherance of business.
argued that the authorities have gone Moreover, section 17(5) excludes the Input
beyond the show cause notice as the Tax Credit on leasing, renting or hiring of
question of correlation was not raised by motor vehicles for transportation of
them. persons, having an approved seating
capacity of more than thirteen persons
Held: (including the driver). The AAR held that
the applicant is eligible to avail the ITC.
After hearing both sides, the Tribunal has However, ITC prior to February 1, 2019,
also noted that the impugned order travelled is not eligible in view of the specific
beyond the scope of show-cause notice. restriction as it was there earlier under
The show-cause notice was issued for section 17(5) of the CGST Act.

❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 179

Corporate
Law Update

CA. Naveen Mandovara
[email protected]

MCA Updates: such body corporate or the
national, as the case may be,
1. The Companies (Share Capital and have obtained Government
debentures) Amendment Rules, 2014: approval under the Foreign
Exchange Management (Non-
Vide these amendment rules, the Ministry debt Instruments) Rules, 2019
(MCA) has inserted the following declaration and attached the same with the
in the annexure, in Form No. SH-4 (Securities private placement offer cum
Transfer Form), before the enclosures: application letter.”

Declaration: In Annexure, “(viii) Tick whichever is

- Transferee is not required to obtain the in Form applicable:-
Government approval under the Foreign
Exchange management (Non-debt PAS-4, in a. The applicant is not
Instruments) Rules, 2019 prior to transfer
of shares; or Part-B, serial required to obtain

- Transferee is required to obtain the number (viii) Government approval
Government approval under the Foreign
Exchange management (Non-debt under the Foreign
Instruments) rules, 2019 prior to transfer
of shares and the same has been obtained Exchange Management
and is enclosed herewith.”
(Non-debt Instruments)
[F. No. 01/04/2013-CL-V Part-IV dated
05.05.2022] Rules, 2019 prior to

2. The Companies (Prospectus and Allotment subscription of shares.
of Securities) Amendment Rules, 2022:
b. The applicant is required to
Vide these amendment rules, the Ministry
(MCA) has made the following changes: obtain Government

approval under the Foreign

Exchange Management

(Non-debt Instruments)

Rules, 2019 prior to

subscription of shares and

the same has been

obtained, and is enclosed

Rule No. Effect of the amendment herewith.

Proviso to “Provided also that no offer [F. No. 1/21/2013-CL-V dated 05.05.2022]
Rule 14(1) or invitation of any securities
(Inserted) under this rule shall be made 3. The Chartered Accountants, the Cost
to a body corporate Accountants and the Company Secretaries
incorporated in, or a national (Amendment) Act, 2022:
of, a country which shares a
land border with India, unless The Central Government has appointed the
May 10, 2022, as the date on which the
following provisions of the Chartered

180 Ahmedabad Chartered Accountants Journal June, 2022

Accountants, the Cost and Works Accountants Corporate Law Update
and the Company Secretaries (Amendment)
Act, 2022, shall come into force, namely: border with India, necessary security
clearance from Ministry of Home Affairs,
Provisions Provisions Government of India shall be attached with
the consent.
Sections 1 to 15 Section 51 [except
(both inclusive) clause (i)] Yes No.

Section 16 Sections 52 to 54 (if yes is opted, a copy of the security clearance
is to be attached)”
[except clause (i)] (both inclusive)
[F. No. 1/13/2013-CL-V, Vol. IV dated
Sections 17 Sections 59 20.05.2022]
to 19
(both inclusive) 5. Relaxation in paying additional fees in case
of delay in filing Form 11 (Annual Return)
Section 24 Sections 63 to 71 (both by Limited Liability Partnerships up to 30th
inclusive) June, 2022:

Sections 28 Sections 74 to 83 (both In view of transition from version-2 of MCA-
to 35 inclusive) 21 to version-3 and to promote compliance
(both inclusive) on part of LLPs, the MCA has decided to
allow LLPs to file e-Form 11 (Annual Return
Section 36 [except Section 84 [except of Limited Liability Partnership) for the
Financial Year 2021-2022 without paying
clause (i)] clause (i)] additional fees up to 30th, June, 2022.

Section 37 [except Sections 85 to 87 (both [General Circular No. 04/2022 dated
clause (i) & (ii)] inclusive) 27.05.2022]

Sections 38 to 50 Sections 92, Section 96 6. Relaxation in paying additional fees in case
(both inclusive) to 104 (both inclusive) of delay in filing all the event based e-forms
by LLPs which are due on and after 25th
[F. No. 12/11/2019-PI dated 10.05.2022] February, 2022 to 31st May, 2022 up to 30th
June, 2022:
4. The Companies (Incorporation) Second
Amendment Rules, 2022: The MCA has decided to allow LLPs to file
various event based LLP e-Forms, due dates
W.e.f. 01.06.2022, the Ministry (MCA) has of which are falling between 25th February,
notified the Companies (Incorporation) 2022 and 31st May, 2022, without paying
Second Amendment Rules, 2022 and as per additional fees up to 30th June, 2022.
these Rules, Form No. INC-9 (Declaration by
Subscribers and First Directors) has been [General Circular No. 06/2022 dated
substituted. 31.05.2022]

The said declaration now also requires to affirm SEBI Updates:
about the compliance under Foreign Exchange
Management (Non-debt Instruments) Rules. 1. Simplification of procedure and
standardization of formats of documents for
Further, in FORM No. INC-32 (SPICe+), in issuance of duplicate securities certificates:
Part-B, the following text has been inserted in
the Declaration: The SEBI has simplified the procedure and
documentation requirements for issuance of
“I, on behalf of the proposed directors, hereby duplicate securities.
declare that person seeking appointment is a
national of a country which shares a land

Ahmedabad Chartered Accountants Journal June, 2022 181

Corporate Law Update - An overseas securities holder shall be
permitted to provide self-declaration of the
Bow, the following documents will be required security certificates lost/misplaced/stolen
to be submitted by a security holder while which shall be duly notarize/ apostilled /
requesting for issuance of duplicate securities attested by the Indian Consulate / Embassy
certificates: in their country of residence, along with
self-attested copies of valid passport and
- Copy of FIR including e-FIR/Police overseas address proof.
complaint/Court injunction order/copy of
plaint (where the suit filed has been - In case of non-availability of Certificate
accepted by the Court and Suit No. has Nos./Distinctive Nos./ Folio nos., the RTA
been given), necessarily having details of (upon written request by the security holder)
the securities, folio number, distinctive shall provide the same, to the security holder
number range and certificate numbers. only where the signature and the address
of the security holder matches with the RTA
- Issuance of advertisement regarding loss of / listed company’s records. In case the
securities in a widely circulated newspaper. signature and/or the address do not match,
the security holder shall first comply with
- Submission of Affidavit and Indemnity the KYC procedure and then only the
bond as per the format prescribed by the details of the securities shall be provided to
Board. the security holder by the RTA/listed
company.
- There shall be no requirement of
submission of surety for issuance of [Circular No.: SEBI/HO/MIRSD/
duplicate securities MIRSD_RTAMB/P/CIR/2022/70 dated
25.05.2022]
(No such compliance is required, if the
value of securities as on the date of ❉❉❉
submission of application, along with
complete documentation as prescribed by
the Board does not exceed Rs.5 Lakhs)

- The applicant shall quantify the value of
the securities on the basis of the closing
price of such securities at any one of the
recognized stock exchanges a day prior to
the date of such submission in the
application.

182 Ahmedabad Chartered Accountants Journal June, 2022

GujRERA Corner

CA. Manan Doshi
[email protected]

Rights and duties of Allotees under RERA essential services, on reasonable charges, till the
taking over of the maintenance of the project by
The Article 21 of the constiution is considered to the association of the allottees
provision of paramount importance titled as
“Protection of life and personal liberty”. The Section 11(5) states that the promoter may cancel
provision of the same reiterated below: the allotment only in terms of agreement for sale if
not so allottee may approach theAuthority for relief,
“No person shall be deprived of his life or personal if he is aggrieved by such cancellation and such
liberty except according to procedure established cancellation is not in accordance with the terms of
by law” the agreement for sale, unilateral and without any
sufficient cause.
This one-line article provision certainly has a wider
meaning recognized by the judiciary from time to Section 19 of the Act describes rights and duties of
time. It also includes Access to speedy justice and allotees under RERA:
trial. The enactment of RERA is motivated by fast
track dispute resolution mechanism. “19. (1) The allottee shall be entitled to obtain
the information relating to sanctioned
First and foremost let us discuss definition of plans, layout plans along with the
“Allotee” specifications, approved by the
competent authority and such other
(d) “allottee” in relation to a real estate project, information as provided in this Act or
means the person to whom a plot, apartment or the rules and regulations made
building, as the case may be, has been allotted, thereunder or the agreement for sale
sold (whether as freehold or leasehold) or otherwise signed with the promoter.
transferred by the promoter, and includes the person
who subsequently acquires the said allotment (2) The allottee shall be entitled to know
through sale, transfer or otherwise but does not stage-wise time schedule of completion
include a person to whom such plot, apartment or of the project, including the provisions
building, as the case may be, is given on rent; for water, sanitation, electricity and
other amenities and services as agreed
Allottes include first as well as second buyer reason to between the promoter and the allottee
being it includes the person who subsequently buys in accordance with the terms and
a unit in a real estate project. conditions of the agreement for sale.

We hereby discuss sections of RERA act which (3) The allottee shall be entitled to claim the
describes duties and rights of allottes: possession of apartment, plot or
building, as the case may be, and the
Section 11(1) expressely states about details of association of allottees shall be entitled
registration, details of number of units and type of to claim the possession of the common
apartments, status of project, list of approvals areas, as per the declaration given by
taken. the promoter under sub-clause (C) of
clause (I) of sub-section (2) of section 4.
Section 11(4)(d) states about promoter be
responsible for providing and maintaining the

Ahmedabad Chartered Accountants Journal June, 2022 183

GujRERA Corner

(4) The allottee shall be entitled to claim participate towards the formation of an
the refund of amount paid along with association or society or cooperative
interest at such rate as may be prescribed society of the allottees, or a federation
and compensation in the manner as of the same.
provided under this Act, from the
promoter, if the promoter fails to comply (10) Every allottee shall take physical
or is unable to give possession of the possession of the apartment, plot or
apartment, plot or building, as the case building as the case may be, within a
may be, in accordance with the terms of period of two months of the occupancy
agreement for sale or due to certificate issued for the said apartment,
discontinuance of his business as a plot or building, as the case may be.
developer on account of suspension or
revocation of his registration under the (11) Every allottee shall participate towards
provisions of this Act or the rules or registration of the conveyance deed of
regulations made thereunder. the apartment, plot or building, as the
case may be, as provided under sub-
(5) The allottee shall be entitled to have the section (1) of section 17 of this Act.
necessary documents and plans,
including that of common areas, after Interest under RERA:
handing over the physical possession of
the apartment or plot or building as the Interest is defined under section 2(za) of the Act,
case may be, by the promoter. “interest” means the rates of interest payable by
the promoter or the allottee, as the case may be.
(6) Every allottee, who has entered into an
agreement for sale to take an apartment, Explanation.—For the purpose of this clause—
plot or building as the case may be,
under section 13, shall be responsible (i) the rate of interest chargeable from the allottee
to make necessary payments in the by the promoter, in case of default, shall be
manner and within the time as specified equal to the rate of interest which the promoter
in the said agreement for sale and shall shall be liable to pay the allottee, in case of
pay at the proper time and place, the default;
share of the registration charges,
municipal taxes, water and electricity (ii) (ii) the interest payable by the promoter to the
charges, maintenance charges, ground allottee shall be from the date the promoter
rent, and other charges, if any. received the amount or any part thereof till the
date the amount or part thereof and interest
(7) The allottee shall be liable to pay thereon is refunded, and the interest payable
interest, at such rate as may be by the allottee to the promoter shall be from
prescribed, for any delay in payment the date the allottee defaults in payment to the
towards any amount or charges to be promoter till the date it is paid;
paid under sub-section (6).
Rule 16 of Gujarat Real Estate (Regulation and
(8) The obligations of the allottee under sub- Development) (General) Rules, 2017 states that the
section (6) and the liability towards rate of interest shall be the contractual rate of interest
interest under sub-section (7) may be as may be mutually agreed to between the promoter
reduced when mutually agreed to and the allottee. Sub rule 2 of Rule 16 states that In
between the promoter and such allottee. case where the contractual agreement/AFS does not
expressly provide interest rate, SBI MCLR +2%
(9) Every allottee of the apartment, plot or shall be considered. Sub rule 3 of rule 16 states that
building as the case may be, shall the interest payable by the promoter to the allottee
shall be from the date the promoter received the
amount or any part thereof till the date the amount

184 Ahmedabad Chartered Accountants Journal June, 2022

or part thereof and interest thereon is refunded, and GujRERA Corner
the interest payable by the allottee to the promoter
shall be from the date the allottee defaults in Proviso to section 12 of the act states, ”Provided
payment to the promoter till the date it is paid. that if the person affected by such incorrect, false
statement contained in the notice, advertisement or
Rule 17 states that Any refund of monies along with prospectus, or the model apartment, plot or
the applicable interest and compensation, if any, building, as the case may be, intends to withdraw
payable by the promoter in terms of the Act or the from the proposed project, he shall be returned his
rules and regulations made thereunder, shall be entire investment along with interest at such rate as
payable by the promoter to the allottee within forty- may be prescribed and the compensation in the
five days from the date on which such refund along manner provided under this Act.”
with applicable interest and compensation, if any,
becomes due. The real estate sector plays a catalytic role in
fulfilling the need and demand for housing and
Section 18 of the act states that if the promoter fails infrastructure in the country. While this sector has
to complete or is unable to give possession of an grown significantly in recent years, it has been
apartment, plot or building, the promoter shall be e largely unregulated, with absence of
liable on demand to the allottees, in case the allottee professionalism and standardization and lack of
wishes to withdraw from the project, without adequate consumer protection. Though the
prejudice to any other remedy available, to return Consumer Protection Act, 1986 is available as a
the amount received by him in respect of that forum to the buyers in the real estate market, the
apartment, plot, building, as the case may be, with recourse is only curative and is not adequate to
interest at such rate as may be prescribed in this address all the concerns of buyers and promoters
behalf including compensation in the manner as in that sector. The lack of standardization has been
provided i.e. SBI MCLR + 2% (if not specifically a constraint to the healthy and orderly growth of
mentioned) industry. Therefore, the need for regulating the
sector has been emphasised in various forums.
Section 11 (4) states that The allottee shall be
entitled to claim the refund of amount paid along The RERA Act ensure greater accountability
with interest at such rate as may be prescribed and towards consumers, and significantly reduce frauds
compensation in the manner as provided under this and delays as also the current high transaction costs.
Act, from the promoter, if the promoter fails to It attempts to balance the interests of consumers and
comply or is unable to give possession of the promoters by imposing certain responsibilities on
apartment, plot or building, as the case may be, in both. It seeks to establish symmetry of information
accordance with the terms of agreement for sale or between the promoter and purchaser, transparency
due to discontinuance of his business as a of contractual conditions, set minimum standards
developer on account of suspension or revocation of accountability and a fast-track dispute resolution
of his registration under the provisions of this Act mechanism. The Act has inducted professionalism
or the rules or regulations made thereunder. and standardization in the sector, thus paving the
way for accelerated growth and investments in the
Section 11(7) states that allottee shall pay interest long run.
at an agreed rate if at all allottee makes any delay in
making payment however as per section 11(8) the ❉❉❉
obligation of allottee to pay interest towards section
11(7) may be reduced when mutually agreed
between the promoter and such allottee.

Ahmedabad Chartered Accountants Journal June, 2022 185

Allied Laws Adv. Ankit Talsania
Corner [email protected]

J. Sekar @Sekar Reddy v. Directorate of w 409, 420 of Indian Penal Code (hereinafter
Enforcement “IPC”) and Section 13(2), r/w 13(1)(c)
and13(1)(d) of the Prevention of Corruption Act,
Supreme Court of India 1988 against the appellant and two others.
Criminal Appeal No. 738 of 2022
(Arising our of Speal Leave Petition (Crl.) No. The Enforcement Directorate after perusing FIR felt
that additionally provisions u/s Section 2(1)(x) and
8305 of 2021 2(1)(y) of PMLA would also attract however
registered offence at ECIR No. 19/2016. The
Introduction respondent conduced the investigation and recorded
statement of appellant and others. In the
The Division Bench of Hon’ble Apex Court interregnum CBI registered two FIRs being RC
comprising of Justice Vineet Saran & Justice JK MA1 of 2016 A0051 and RC MA1 of 2016 A0052.
Maheshwari in the instant case has categorically The appellant filed bail application in RC MA1 of
held that failure to identify the source of money 2016 A0051 and was granted bail by order of
doesn’t allow the Directorate of Enforcement to Special Court after imposing certain conditions.
presume commission of offence under the
Prevention of Money Laundering Act, 2002 Subsequently, Deputy Director(ED), Chennai in
(hereinafter “PMLA”). ECIR CEZO/19/2016 passed an order for
provisional attachment in exercise of the power
Facts of the Case under Section 5(1) of PMLA for a specified period
of one month. On submitting the complaint OC
The instant appeal is arisen out of a judgement No. 785 of 2017 before the Adjudicating Authority
passed by the Hon’ble High Court of Madras in for confirmation of the order of provisional
Criminal O.P. No. 24200 of 2017 filed for quashing attachment, it refused to confirm the order of
the proceedings in CC No. 02 of 2017. The High attachment and dismissed the same on the ground
Court dismissed the petition and inter alia rejected that there was no material with the Deputy Director
the contention of the Appellant that FIR in respect for making a reasonable belief for change of old
of scheduled office was closed for want of evidence into new currency notes through the bank
and in absence of connected evidences with a crime officers and observed that the said allegation is
of schedule offence, the prosecution for offences based on speculations, which are not legally tenable.
under PMLA is unsustainable.
The appellant approached the Madras High Court
The Appellant herein who is the Managing Partner by invoking the power under Section 482 Cr.P.C.,
of M/s SRS Mining, a partnership firm engaged in and prayed for following reliefs:
sand mining had deposited Rs. 312.64 Crores in
three bank accounts of the firm. The Income Tax i. To stay all further proceedings in CC No. 2 of
Department conducted search in the official 2017 on the file of the Hon’ble Principal
premised of the appellant in 2016 and seized Sessions Court, Chennai
currency amounting to Rs. 106,98,89,800/- and
128.495 kg of gold. Subsequently in December
2016, CBI registered case for offences u/s 120-B r/

186 Ahmedabad Chartered Accountants Journal June, 2022

ii. To call for the records in CC No. 2 of 2017 on Allied Laws Corner
the file of the Hon’ble Principal Sessions Court,
Chennai and quash the same and pass such Findings of the Court
further other order, orders as deemed fit and
proper The Court noted that the FIR with respect to
schedule offence registered by the CBI with respect
By order dated 04/02/2021, the High Court of to proceeds of the crime including property attached
Madras dismissed the petition against which the was already closed. The Court went on to analyse
appellant has preferred the present appeal. legal position as established in the aforesaid cases
and the report of I.T. Department and the reasoning
Arguments of the Parties given by CBI while submitting the final closure
report and the order passed by the Adjudicating
Appellant Authority. It was further observed that for proceeds
of crime, as defined under Section 2(1)(u) of
The appellant urged that for invocation of PMLA, PMLA, the property seized would be relevant and
pre-existing occurrence of the scheduled offence its possession with recovery and claim thereto must
is required because the proceeds of crime are be innocent. In the present case, the schedule
essential property derived from criminal activity of offence has not been made out because of lack of
the said offence. It was further urged that as per evidence as Adjudicating Authority had opined that
Section 8(1) of PMLA, a show cause notice may the record regarding banks and its officials who may
be issued regarding the attached property if the be involved, is not on record.
said Authority is having reason to believe that any
person has committed an offence under Section 3 The Hon’ble Apex Court relying and pointing out
or is in possession of proceeds of crime. the Statement of Objects and Reasons of the PMLA,
therefore categorically held that for lack of identity
Placing reliance on judgements of this Court in of the source of collected money, it could not be
Radheshyam Kejriwal Vs. State of West Bengal reasonably believed by the Deputy Director (ED)
(2011)3SCC 581 and Ashoo Surendranath Tewari that the unaccounted money is connected with the
vs. Deputy Superintendent of Police, EOW, CBI commission of offence under PMLA, the Court
and Another (2020) 9 SCC 636 the appellant stated ruled that even in cases of PMLA, the Court cannot
that adjudication proceedings and criminal proceed on the basis of preponderance of
proceedings are independent to each other but the probabilities.
material for commission of offence recorded by the
authorities in those proceedings may be a relevant Conclusion
factor, in particular when for lack of evidence, the
Authority itself is satisfied that the attachment of The instant case settles that law that PMLA being
the proceedings in PMLA case cannot be continued. a stringent law on money laundering, any allegation
made under the Act must be proved beyond
Respondent reasonable doubt and it is the duty of the Courts to
consider the allegations in light of material collect
On the other hand, Respondent contended that the in support in order to be satisfied that a prima facie
order passed by the Adjudicating Authority under case has been made out. Reiterating the principle
Section 5(5) PMLA is subject to the appeal which of ‘innocent unless proven guilty’ the Court has held
is pending before the Appellate Authority. that unless the allegations are duly substantiated by
Therefore, the order of the Adjudicating Authority the authorities and are proved against the person in
and the finding recorded therein are not sufficient a court of law, the person is innocent.
to quash the proceedings in the present case.
❉❉❉

Ahmedabad Chartered Accountants Journal June, 2022 187

Capital CA. Karan Vora
Markets [email protected]

Summary: that the inflation is likely to remain above the
upper tolerance level of 6 per cent through the
RBI, has increased the Repo rate second time by first three quarters of 2022-23. Hence, there is a
50 bps to 4.90 per cent to address inflation concerns. need for calibrated monetary policy action to
Banks have followed suit. While Indian Economy keep inflation expectations anchored and restrain
is doing well, stock Markets are in a bearish grip the broadening of price pressures.
due to rising interest rates, inflation concerns and
global outlook. · PSU and Private Banks have increased their
lending rates and deposit rates in response to RBI
Key M&A Deal include Adani buying Holcim’s rate hikes. Banks have revised their Marginal
stake in Ambuja Cements and ACC Ltd to become cost of fund based lending rates (MCLR rates)
second largest cement player in India and PE deal which directly revise the Rate of interest of
of food brand Country Delight raising $108 Mn in floating rate loans that they provide.
a round led by Venturi Partners and Temasek.
Impact of Russia-Ukraine War:
Economic Update:
· Russia-Ukraine war marked 100 days and
· The Monetary Policy Committee (MPC) of RBI fighting has escalated in at least eight regions of
in its meeting on 8th June decided to Increase Eastern Ukrain including Kyivska, Donetsk,
the policy repo rate under the liquidity adjustment Luhansk and the capital city of Kyiv. As per
facility (LAF) by 50 basis points to 4.90 per cent. Ukraine, Russia now holds around 20% of the
Ukrain territory.
· Consequently, the standing deposit facility (SDF)
rate stands adjusted to 4.65 per cent and the · UN estimates that 12 million people inside
marginal standing facility (MSF) rate and the Ukraine will need relief and protection, while
Bank Rate to 5.15 per cent. more than 4 million Ukrainian refugees may
need protection and assistance in neighbouring
· This is the second consecutive increase by RBI countries in the coming months.
after repo rate was increased by 40 bps last
month. · Amin Awad, UN Crisis Coordinator for Ukraine
said “This war has and will have no winner.
· MPC also decided to remain focused on Rather, we have witnessed for 100 days what is
withdrawal of accommodation to ensure that lost: lives, homes, jobs and prospects.”
inflation remains within the target going forward
(4% ± 2%), while supporting growth. · Crude Oil prices are rising with Brent Oil has
crossed $110 as global demand is likely to
· India’s retail inflation fellslightly to 7.04% in breach pre pandemic levels in 2023 while the
May from an eight-year high of 7.8% in April, supply of oil is struggling due to sanctions on
helped by a supportive base effect. Russia. Russia is world’s third largest crude oil
producer and second largest exporter.
· MPC said that the tense global geopolitical
situation, the consequent elevated commodity
and food prices and global growth risks indicate

188 Ahmedabad Chartered Accountants Journal June, 2022