July 2021

Volume : 45 l Part 4 l July, 2021

41st RRC at Agra
August, 2014



Ahmedabad Chartered Accountants Journal

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

Volume : 45 Par t : 4 July, 2021

CONT ENTS

To Begin with

- FGF!................................................................................ CA. Jayesh Sharedalal................. 87

Editor ial ............................................................................................CA. Rutvij P. Shah.........................88
Fr om the Pr esident............................................................................CA. Monish Shah..........................89

Ar ticles

Deductibility of Capital Gains u/s 54 and 54F of the I.Tax Act,1961...CA. Tej Shah.................................91

GST on Housing Society - how much and how far applicable............ CA. Harsh Mehta..........................95

Sovereign Debt and Deficit Levels – Impact due to CA Rohan Shah &

COVID-19 Pandemic.......................................................................... CA. Siddharth Dave....................100

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia....................105

From the Courts..................................................................................CA. C.R. Sharedalal &
CA. Jayesh Sharedalal............... 106

Tribunal News.....................................................................................CA. Yogesh G. Shah &
CA. Aparna Parelkar.................. 109

Unreported Judgements......................................................................CA. Sanjay R. Shah....................116
Controversies.......................................................................................CA. Kaushik D. Shah...................119
Judicial Analysis..................................................................................Adv. Tushar Hemani......................120

FEM A & I nternational Taxation

Analysis of Recent Ruling of Delhi High Court on Granting of.......... CA. Dhinal A. Shah &

Benefit of MFN Clause CA. Karan Sukhramani...............124

FEMA Updates....................................................................................CA. Savan Godiawala..................127

I ndirect Taxes

GST and VAT Judgments and Updates................................................ CA. Bihari B. Shah &
CA. Vishrut R. Shah.....................129

Cor por ate L aw & Other s

Corporate Law Update.......................................................................CA. Naveen Mandovara...............132
Guj RERA Corner..................................................................................CA. Manan Doshi.........................135
Capital Markets..................................................................................CA. Karan P. Vora.........................138

Fr om Published Accounts .................................................................CA. Pamil H. Shah..................... 143

Fr om the Gover nment ......................................................................CA Ashwin H. Shah &
CA. Kunal A. Shah......................146

I T Cor ner ...........................................................................................CA. Rushabh Shah.....................150

Association News.............................................................................. CA. Rushabh Shah &
CA. Jay Parekh...........................154

ACAJ Cr osswor d Contest....................................................................................................................155

Ahmedabad Chartered Accountants Journal July, 2021 85

Journal Committee

CA. Rutvij Shah CA.Ashish Sharma

Chair man M ember s Convenor

CA. Ashok K. Kataria CA. Mehul Shah

CA. Mohit Tibrewal Ex-officio CA. Nirav J. Shah
CA. Niren M. Nagri CA. Riken Patel

CA. Monish Shah CA. Sarju Mehta

CA. Rushabh Shah CA. Jay Parekh

A t t ent i on

M ember s / Subscr iber s / Author s / Contr ibutor s

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 2021-22 is ` 1200/-, single copy ` 120/- (if available).

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

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

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

will they be sent back.

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

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

concur with the authors / contributors.

7. L ife M ember ship/Annual M ember ship and Other Fees F. Y. 2021-22 Amount in `

Basic GST Total
90 590
1. Admission Fees 500
- 600
2. Annual M ember ship Fees - 750

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

b. If paid after june 30 of each financial year : 180 1180
216 1416
i. In case of membership (of ICAI) for a period of less than or equal to five years, 720 540 3540

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

3. L ife M ember ship Fees
i. In case of membership (of ICAI) for a period of less than or equal to five years 4000

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

4. Br ain Tr ust M ember ship Fees
a. I ndividual M ember ship Fees
i. In case of membership (of ICAI) for a period of less than or equal to five years 1000

ii. In case of membership of (ICAI) for a period more than five years 1200

b. Flexi Firm/Corporate Membership Fees*** 3000

* * * Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting. Additional
Representatives can be nominated @1500/- plus GST per participant subject to maximum of 20 participant per firm

Professional Awar ds

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 AccountantsAssociation, Ahmedabad, 2nd Floor, Darshak, 14/A, Swastik
Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596
No part of this Publication shall be reproduced or transmitted in any form or by any means without the permission
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.

Pr inted : Pr atiksha Pr inter, Ahmedabad Mobile: 98252 62512 E-mail : [email protected]

86 Ahmedabad Chartered Accountants Journal July, 2021

FGF !

Om Shanti! CA. Jayesh C. Shar edalal

FGF! Yes, you may have guessed it right. It means [email protected]
‘feel good factor’. Feeling good is an aspiration of
all. Feeling good all the time is surely on everyone’s Listening patiently to the employee will initiate the
wish list. But make no mistake! Feeling good and experience of ‘fgf in the mind of the employee. It
feeling happy are not the same. However, feeling is just like our visit to a good doctor who devotes
good is an important aspect of a meaningful life. suffi cient ti me to li steni ng to our probl em and
probing further by having a dialogue with us till
A s you progress i n age the i nstruments of we are satisfied with conveying everything to the
experiencing ‘fgf’ keep on changing. Let us begin doctor. Most of the time we are capable to help the
with the day when you were gifted a bicycle by employee to find out a good solution for him/her.
your parents. It made you feel extremely good. It Since the ‘fgf’is intangible, you cannot measure it.
cannot be disputed that this ‘fgf’ would have been But your effort in bringing a solution to the personal
experienced as you advanced in age and came into problem of an employee will create a tremendous
possession of all the tangible items on your wish ‘fgf ’for him/her. I feel that as you are reading this
list, may it be a scooter, a bike, a car, an SUV, a you may be visualising in your mind your efforts
decent house, a foreign holiday. The list of the ‘fgf’ made for your employees for providing an ‘fgf ’
moments can be endless. At the same time, it cannot experience. This current ongoing thought itself may
be disputed that each of the ‘fgf’ events/moments have created an ‘fgf ’ for you also.
has a short-term life.
I would like to take up one more situation, which is
In today’s context, especially in the COVID times, not related to COVID times but is omnipresent. An
our duty to provide the ‘fgf’ moments or the ‘fgf’ accountant (book- keeper) is a bridge between us
experience to our near and dear ones gain all the and our client. Some accountants are very sharp
more importance. I have no doubt in my mind that and some are not so sharp. Our efforts in the case
as the head of your f ami l y you woul d have of the former are less as compared to the latter.
constantly provided the ‘fgf ’ experiences. When we have to deal wi th a not so sharp
accountant on seeing hi m in our office, we may
However, I would like to make a menti on about have an immediate thought of cursing either the
peopl e surroundi ng us i n our dai l y work, our accountant or our client or ourselves for the efforts
profession. We spend a substantial time in our work we may have to put in. This, definitely creates a
surrounded by our partners and employees. diametrically opposite effect of ‘fgf’. Instead, if we
can make a small prayer to almighty to provide us
I t becomes our obl i gati on to provi de ‘f gf ’ positive energy and we put on a light smile on
experiences to our partners and our staff as well. our face while interacting with such an accountant,
Let me talk about employees. I am in no doubt that I am sure it will create an ‘fgf’ not only for you
as an employer you may be already providing such but also for the other person.
‘fgf’ moments, though simply paying a salary is
not at all an ‘fgf ’ experience. If you are already In the end, I would like to dwell upon ‘feeling good’
provi di ng extra staf f wel f are measures l i ke and ‘feeling happy’. Both are intangibles. But in
providing a meal from a well-known restaurant or my vi ew, ‘f eel i ng happy’ i s on a much hi gher
arranging a picnic, these are true ‘fgf’ experiences. pedestal than ‘feeling good’. There can be many
But i n these depressi ng ti mes of COV I D, an attributes assigned to these two terms to list out the
employee will always look upon you for seeking differences between them. However, placing these
some solution about his/her personal difficulties, two on the plank of a simple understanding, in my
be it economic or social. The ‘fgf’comes into play view feeling good is temporary experience, whereas
i n such a si tuati on. I t i s necessary to devote feeling happy is not a temporary experience.
sufficient time to ‘listen’ to the problem of your
employee. I need not dwel l upon the difference “Happiness is a state of mind and has nothing to
between ‘li stening’ and ‘hearing’ at thi s stage. do with the external world”.

- L or d K r ishna
Om Shanti!!

hhh

Ahmedabad Chartered Accountants Journal July, 2021 87

Editor ial

CA. Rutvij Shah
[email protected]

Thewholeworld isnow battling with 2nd or 3rd waveof Coronavirus. Major culprit of thisspread isDelta
variant of CoronaVirus. Research hasshown that Deltavariant isderived fromAlphavariant which is
50% morecontagiousthan original coronavirus. Deltavariant iseven 50% morecontagiousthanAlpha
variant. Deltavariant first took Indiaby surpriseand put tremendouspressureon health infrastructureof
our country. Wewitnessed asituation wheretherewassevereshortageof medicines, oxygen and other
medical infrastructure. We passed through a bad phase which could not be imagined in worst of our
dreams.

Asa country everyone stood up to this challenge. Doctors and other healthcareprofessionals worked
tirelessly tohelpthenationfight thecrisisbrought onby thesecondwaveof CoronaVirus.Policepersonnel,
essential workers and social organisations were heavily involved in helping people who were either
infected with thevirusor wereadversely affected dueto economic or social reasonsbrought about by the
pandemic. Peoplealsounderstood thegravity of thesituation and followed strict lockdownwhichhelped
in bringing thenumber of casesunder control.

It isnow for all of usto continueto bevigilant and strictly follow SMS– Social Distancing, Masksand
Sanitization. Vaccinations is also a must. Everyone should get vaccinated without fail. We must also
complement our government for itstimely decisionson vaccineswhen thispandemic wasearly in its
inception.At that stagenot much wasknowsabout vaccinesand timelinesfor availability.At that time
our government madearrangementsforAstraZeneca(AZ)-Oxford vaccineknown asCovishield in India.
They also backed up and encouraged indigenouseffort by Bharat Biotech for Covaxin. Coupleof more
local vaccinesaresoon to belaunched.At present wehaveoptionsfor 3 vaccinesin Indiawhich isthe
highest anywherein theworld in onecounty. Weareoneof thehighest vaccinated country in theworld
and weshould beproud about it.

On thetitlepagewehavetaken upResidential Refresher Course(RRC) whichwasconducted in theyear
2014 at Agra. RRC is a unique blend of learning with fun. RRC is meticulously planned by office
bearers. In RRC participantsvisit atourist place, stay therefor 2-3 daysand learn / discusssubjectsof
professional interest whilevisiting nearby placesof interest.

In thisissuewearefortunateto havewordsof wisdom in “Mananam” by CA. Jayesh Sharedalal who is
oneof thestalwartsof our profession. I am surehiswriteup on F.G.F. will beagreat sourceof guidance
and inspiration for our readers. Wehavealso started anew column “GujRERA Corner” from thisissue.
Thisnew column on RERA will cover anew emerging areaof practicefor our members.

hhh

88 Ahmedabad Chartered Accountants Journal July, 2021

From the
President

CA. M onish Shah
[email protected]

Dear M ember s,

The month of festivities begin with 1st of July being the CA Day. Celebrating the 73rd
Foundation Day. It is also theDoctor’s Day on 1st July. Wecelebrated the special Day at Tea
Club. Thisyear being special celebrationsarelimited but then every celebration isimportant
as it gives us a new ray of hope.

The Day is also marked as GST Day. Four years since the time GST entered our life. It has
been enriching for someof our friendsand colleagues. However, theglitchesand challenges
due to the website have been numerous. Professionals have seen nightmares complying
with therigid timelinesand hiccupsthat thewebsitehasposed. However, it givesmeimmense
pleasure to tell that we have made constant efforts to learn GST and our endeavours will
continue. Today we can proudly say that all our members are equipped with unparalleled
knowledge on the subject. To smoothen the road of GST we have been making constant
representations to both SGST and CGST commissioner office and also to the Council. One
such representation was made on 1st July 2021 to the SGST Commissioner.

Thechallengesin lifeof CA never ends. Thismakestheprofession dynamic and interesting.
The launch of New Website of eFiling of Income Tax known as eFiling Portal 2.0 happened
last month on 7th June 2021. However, like every new beginner it also jolted out. Most
functionsof thePortal weren’t working. Theshift somewherefrom TCSto Infosysasservice
provider was not appreciated. The Hon Finance Minister had a meeting summoned with
stakeholdersand that wasafruitful one. Most glitcheswereidentified. TheFinanceMinister
and her team congratulated and thanked the CA Professionals for helping in identifying the
issues and also suggesting the corrective actions for the same. Our representation on the
same was also considered. We are hopeful that the change that was brought to speed up and
ease out the compliance processes will soon be operative.

A new notification allowing the Multi- Disciplinary Partnership by Chartered Accountants
has been issued. In such testing times ,It’s really important that such collaborations and
Mergers do happen for growth. Also thedream asstated by PM in hisspeech with regards to
Indian Global Firm can soon be a reality. For practising members this will allow them to
ponder new avenuesof practice. I am sureother bodieswill comeout with similar notification
for their professionals too so as to allow such firms to serve in more fields. It is a welcome
move.A onestop solution to all legal and tax needswill now soon bea surety. This will have
a far reaching and positive impact for all Chartered Accountants.

Ahmedabad Chartered Accountants Journal July, 2021 89

Fr om the Pr esident

Residential Refresher Course ( RRC) has been an important event. This year we planned a
Members only RRC at Udaipur at TheAnanta. This isthe 49th RRC, to match thenumber of
yearscompleted to the Foundation Day of theCAAA. TheParticipation was restricted to 70
members. It gives me immense pleasure to inform that the RRC registration was full within
24 hours of its launch. The short break in a way with abundant studies was definitely the
need of the hour.
Covid-19 aspeople say will see itsthird variant in this month. There are if ’sand but’son the
issue. We request all members to take utmost care and follow the guidelines of the Unlock.
We wish that all Members and their Families are safe and healthy. TheVaccination Drive of
the Government is on. We also contributed by having Vaccination Drive along with
Ahmedabad Branch of WIRC of Instituteof CharteredAccountants. Wehad it for 6 daysand
it was a huge success.. Kudos to the Care4U team for bringing such Initiatives.
Entertainment has almost eloped our lives but at CAAA I and my team always try and get
the best foot forward. This year we had the first entertainment event called Lucky Blind. It
was again mapped to focus on theyear of CAAA Foundation. There were28 Members who
won theprize.A total of Rs. 90,000/- worth prizesweregiven away. TheHousiewascombined
with live singing by Jyoti Christian and her team. I enjoyed Hosting the event.
AsaPresident it’stheFeedbacksand Suggestionswhich helpsmeand my team going. Thus
request all members to share their feedbacks and suggestions and help us serve you and the
Association in a better way.
At the end Stay Safe
# Get Vaccinated
# Healthy Life

hhh

90 Ahmedabad Chartered Accountants Journal July, 2021

Deductibility of Capital Gains CA. Tej Shah
u/s 54 and 54F of the Income [email protected]
Tax Act, 1961
wheretheproperty consistsof any building or
Sections54 and 54F of theIncomeTax Act, 1961 land appurtenant thereto can beheld even as
wereintroducedpredominantly topromotehousing stock in tradeover and abovefor residence.
by granting exemption to theassesseefrom capital
gainsarising pursuant to saleof acapital asset by However, as per S. 54F, the nature of such
investing in anew specified asset. In this articleI original asset transferred can be any Capital
am going to discuss various scenarios and their Asset (other than a resi denti al house) l ike
implicationswhileinvesting such capital gainsin shares, land etc. within the meaning of S. 2(14)
thespecified asset asmentioned in them. Both are of the act.
identical on principle, apart from a few factual
differences, which have been dealt with as and Under both these sections, the original asset
when need arises. transferred has to be necessarily a “long term
capital asset”. It means that the assessee should
1. Eligible Assessee – As is apparent, both have held the asset as per the period of holding
sections have granted deduction only to an mentioned in S. 2(42A). Upon the sale of such
assesseebeing an individual or an HUF and long term capital asset, the assessee must have
no other cl ass of assesses. The Hon’ble earned l ong term capi tal gai n whi ch i s
Madras High Court in the case of K. computed as per the provisions of S. 48.
Gangiah Chetty and Sons. (214 ITR 548)
relying on the decision of the Hon’ble Delhi 3. M eani ng of t he t er m “pur chase/
High Court in the case of Dewan Chand constr uction” of a new asset i.e. Residential
Dholan Dass (132 ITR 790) whilereversing House– In order to claim deductibility under
the decision of the Tribunal, held that even either sections, theassesseeshouldpurchasea
though apart of theproperty wasused by the new residential house, (either oneyear before
partners for their residence, but since the or within two years after transferring the
ownership of the property vested with the original asset); or construct anew residential
assesseefirm, deductionu/s54wasnot granted. housewithin threeyearsafter transferring the
The underlying principle is that the asset original asset.
should beowned by an individual or an HUF
only. Purchase means the date on which the assessee
acquires a right of title in the new asset. This
2. Nature of Or iginal asset tr ansfer red – As can happen through 2 ways. Firstly, either by
per S. 54, the nature of the original asset way of possession of the property or, Secondly,
transferred has to be “buildings or lands even i f possessi on i s not avai l abl e, i f an
appurtenant thereto, and being a residential allotment letter is issued by the seller/builder.
house, the incomefrom which is chargeable In such cases, even if the final sale deed is
under theheadIncomefrom HouseProperty”. made on a l ater date because of umpteen
S. 23(2) requiresthat if theproperty consists reasons, it is the date of possession or date of
of ahouseor part of it occupied/or not by the granting allotment letter which has to be taken
owner, but it hasto befor thesolepurposeof into consideration for the purpose of reckoning
residenceandnoneother. S.23(5) requiresthat the purchase date of the new asset. In case of
allotment letter it has to be kept in mind that

Ahmedabad Chartered Accountants Journal July, 2021 91

Deductibility of Capital Gains u/s 54 and 54F of the I ncome Tax Act, 1961

earnest money paid at the time of agreement aman of common knowledgethat it isfor the
to sell is not returned to theassessee. In arecent purposeof actual living. It shouldhavearoom,
decision by theDelhi ITAT in the case of Rajiv bathroom, kitchen etc., size of which is not
Madhok [2020] 117 taxmann.com 232 and material.Merely constructingawalledstructure
the Pune ITAT in the case of Ayushi Patni without thesedoesnot fall within themeaning
[2020] 117 taxmann.com 231, both following of purchase/constructionof aresidential house
the decision of the Hon’ble Bombay High within themeaning of thesections.
Court in the case of Smt. Beena K. Jain (217
ITR 363), held that it is the date of possession 5. Amount of Deduction available– Deduction
which has to be taken into consideration for availableisabit different in thetwo sections.
the purpose of investment in the new asset and Asper S. 54(1)(i), thecapital gainsexempted
not the date of agreement to sell since the right shall betheamount of capital gainsinvested
in the property is transferred only upon taking in thecost of thenew asset. It meansthat any
possession. The Mumbai ITAT in the case capital gainsreceived over and abovethecost
of Hasmukh N. Gala (2017) 83 taxmann.com of thenew asset, shall bechargeableto capital
49 hel d that even i f constructi on i s not gainstax. It isthecost of thenew residential
compl eted and ti tl e to the property i s not houseand not just thecost of construction of
transferred to the assessee within specifi ed the new residential house, which is to be
time, but if the advance is not returned by the adjusted. Thecost of thenew residential house
bui l der and al l otment l etter i s i ssued to would necessarily includethecost of theland,
assessee, then date of gi vi ng advance to thecost of materialsused in theconstruction,
builder constitutes “date of purchase” of new thecost of labour and any other cost relatable
house. to the acquisition and/or construction of the
residential house.
The above rul es appl y i n the case of
constructing a new asset too. It means that even Whereas as per S. 54F (1)(a), the capital gain
if the property is under construction beyond a exempted shal l be the amount of net
period of 3 years (for reasons not in control of consideration as much as it bears to the cost
the assessee like a stay obtained from court or of the new asset, i.e. Amount of Deduction =
the builder taking too long to construct) but if Investment in the new asset divided by Net
the intention of the assessee is not to retain Consideration of original asset.
cash and if possession i s taken pursuant to
agreement to sell, then benefit of deduction u/ 6. Whether samemoney asreceived upon sale
s 54 should be granted to the assessee. This of or iginal asset has to be utili zed for
was held by the Chandigarh ITAT in the case pur chasing/constr ucting a new asset? – S.
of Mrs. Seema Sabharwal  (2018) 91 54/54F areself explanatory and do not require
taxmann.com 2. The Hon’ble Karnataka theassesseeto invest thesameconsideration
High Court in the case of CIT v. K. received upon saleof theoriginal asset to be
Ramachandra Rao [2015] 56 taxmann.com invested in the new asset. This was recently
163/230 Taxman 334 held that where the upheld by the Hon’ble Madras High Court
assessee had already started construction of a in the case of Ms. Moturi Lakshmi 2020 (119
residential house within one year prior to date taxmann.com 488) following the classic
of sal e of l and and uti l i sed enti re sal e judgment of the Hon’ble Kerala High Court
consideration within three years from date of in the case of K.C. Gopalan 1999 (107
transf er of l and, he coul d not be deni ed taxman 591). Thecourt further held, “Had it
exemption under section 54F of the Act. been theintention of theLegislaturethat the
very same money that had been received as
4. Residential Housepur chased should not be considerationfor transfer of aresidential house
mer ely symbolic – Theresidential houseso
purchased should bear basic residential
characteristicsso that it isdiscernibleeven by

92 Ahmedabad Chartered Accountants Journal July, 2021

Deductibility of Capital Gains u/s 54 and 54F of the I ncome Tax Act, 1961

shouldbeusedfor acquisitionof thenewasset, 8. Who is consider ed as Owner of the new
Secti on 54(1) woul d not have al l owed r esidential house? – Owner of a residential
adjustment and/or exemption in respect of house purchased/constructed need not
property purchased one year prior to the necessarily be the person whose name is
transfer, whichgaveriseto thecapital gain or reflected in the sale deed. It may sometimes
maybein thealternativehaveexpressly made happen that an assessee has purchased a
theexemptionincaseof prior purchase,subject residential housein thenameof his/her family
to purchasefromany advancethat might have member or hasjointly purchased it. However
beenreceivedfor thetransfer of theresidential if it is the assessee who has ultimately paid
housewhich resulted in thecapital gain”. consideration for the purchase of the new
residential house, then heisconsideredtobea
7. New asset pur chased cannot betransferr ed deemed owner for the purpose of granting
within 3 year s of its purchase – As per S. exemption u/s 54/54F. This was held by the
54, the new asset acqui red cannot be Hon’ble Rajasthan High Court in the case
transferred within 3 yearsfrom thedateof its of Lakshmi Narayan 402 ITR 117.
acquisition. If theassesseetransfers thenew
asset within a period of 3 years, then capital Similarly, if in a given case an assessee is a
gainsexemptedearlier shall bebrought totax. joint holder in two different residential houses
Thi s i s computed by taking the cost of as per the sal e deed, but i s an owner (as
acquisition of thenew asset asreduced from menti oned above) of onl y one of such
thecapital gainsexempted earlier. residential house, it cannot be held that such
assessee is owning more than one residential
Whereas as per S. 54F, other than the new house so as to deny exemption u/s 54F. The
asset, the assessee cannot purchase any principle is that the assessee by virtue of being
residential housewithin 1 year or construct any a joint holder does not become a joint owner
residential house within 3 years, after the date of the property because an owner is one from
of transfer of the original asset. whose hands the consideration is paid to buy/
sell the property. This was held by the Hon’ble
A question may arise that if the new asset is Delhi High Court in the cases of Ravinder
demolished within a period of 3 years, can the Kumar Arora 342 ITR 38 and Kamal Wahal
assessee be denied exempti on u/s 54? – As 351 ITR 4 and various others.
discussed earlier, transfer of an asset is only
tri ggered when ri ghts i n the asset are 9. Can saleof morethan oner esidential house
transferred. As per S. 2(47) transfer is effected be eligible for exemption? – Apparently in
upon sale, exchange, compulsory acquisition, S. 54, there is no such prohibition. It may
rel i nqui shment of the asset, and happenthat anassesseeisaholder of 2different
extingui shment of any ri ghts i n the capital residential housesandhemay want tosell both
asset. Moreover, consideration of any kind has of themandinvest inalarger house. Regardless
to be received by the assessee upon transfer of thecase, if such an assesseehassold more
of the asset. Since mere demolition does not thanoneresidential housebut if hehasinvested
transfer any rights by the assessee to another, in one residential house, it is only logical to
it does not meet any ingredients of S. 2(47) grant exemption to such assesseesinceS. 54
and therefore cannot be termed as transfer so isabeneficial sectionwhichpromoteshousing.
as to deny exemption. This was held by the The words“from thetransfer of A long term
Hon’ble Bombay High Court in the case of capital asset — and beingA residential house”
Dilip Manhar Parekh (2017) 83 taxmann.com cannot be narrowly interpreted to restrict
22 following its coordinate decision in the case exemption even if morethan oneresidential
of Smt. Chhaya B. Parekh IT Appeal No. housesweretransferred by theassessee. This
4954 (Mum.) of 2010, dated 16-5-2012. was recently held by the Delhi ITAT in the

Ahmedabad Chartered Accountants Journal July, 2021 93

Deductibility of Capital Gains u/s 54 and 54F of the I ncome Tax Act, 1961

case of Vijay Kumar Wanchoo (2021) 124 unsureof utilizingthesaleconsiderationwithin
taxmann.com 82 following the decision of that time limit, then it is imperative that he
Mumbai ITAT in the case of Ranjit Vithaldas investstheunutilized portion in CGASbefore
(2021) 23 taxman.com 226. Similarly, if an furnishingreturnu/s139(1). It shouldbenoted
eligibleassesseeowns2 different housesand that therearetwo limbsto this. Firstly, asfar
transfersthemat different timesand investsin as uti l i zi ng the sal e consi derati on i n
2 new assets, then also exemption can be purchasi ng/constructi ng a new asset i s
claimed u/s54. concerned, S. 139 is the notified time limit;
Secondly, if thereisany utilizedportionof sale
However there is a bar as to holding in S. 54F, consideration which cannot be invested in
wherein the assessee cannot own more than purchasing/constructing anew asset, S. 139(1)
one residential house other than the new asset, isthenotifiedtimelimit for investinginCGAS.
on the date of transfer of the original asset. Asfar asthefirst limbisconcerned, inabsence
of any clarification, various courts have
10. What is the meaning of ONE Residential interpreted that thetimelimit for utilizing the
housepurchased/constructed?–Asper both entiresaleconsideration should beconstrued
these sections, the assessee is eligible for aswithin filing duedateof return u/s139(4).
exemptiononly uponpurchase/constructionof See Hon’ble Punjab and Haryana HC in
ONE residential house contrary to sale of (2011) 339 ITR 610 in the case of Ms. Jagriti
(original asset asper S. 54or saleof residential Aggarwal and Jagtar Singh Chawla (2013)
houseasper S. 54F) whereit can bemorethan 33 taxmann.com 38; Nilima Abhijit Tannu
one unit. It may happen in cases that the (2019) 106 taxmann.com 256 and various
assessee has bought one large piece of land othes. The Ahmedabad ITAT in the case of
and constructed two adjoining housesor; he Anita Ajay Shad (2017) 86 taxmann.com 246
hasbought twoflatsaboveor adjoiningtoeach hasinterpreted both limbsand held, “Section
other. In similar cases exemption has been 54(2) enjoinsthat thecapital gain isrequired
grantedsinceit wereinthesamepremisesand to be appropriated by the assessee towards
used for common residencefor joint members purchase of new asset before furnishing of
of one family. This washeld by the Hon’ble return of incomeunder section 139 of theAct.
Bombay High Court in the case of Devdas Alternatively, intheevent of non-utilization of
Naik (2014) 49 taxmann.com 30 that even capital gainstowardspurchaseof new asset,
though theassessee purchased two different theassesseeisrequired to deposit thecapital
adjoiningflatsbut sincethey sharedacommon gainsin specifiedbankaccount beforethedue
kitchen, it wasconsidered asONE unit for the dateof filingof return of incomeunder section
purposeof exemption. However theMadras 139(1) of the Act. Any payment towards
ITAT in the case of M.S. Amaresan (2021) purchasesubsequent tothefurnishingof return
123 taxmann.com 292 denied exemption to of incomebut beforethelast dateavailableto
theassesseewhohad investedintwo different filethereturn of incomeunder section 139(4)
flatsin different areas. isirrelevant. Such subsequent paymentsafter
filingof returnarerequiredtoberoutedout of
11. I nvest i ng i n Capi t al Gai ns Account s depositsmadeincapital gainaccount scheme.
Scheme (CGA S) – Perhaps the most Thus, theplea of theassesseethat utilization
controversial part of both sections 54/54F is of capi tal gai n can be made before the
whento invest in CGAS. Uponaplain reading extended date for filing of return of income
of Sub-sec (4), it appearsthat theassesseehas under section139(4) evenafter filingof return
to utilizetheentiresaleconsideration upon sale
of original asset before date of furnishing Continued to page118
return of income u/s 139. If the assessee is

94 Ahmedabad Chartered Accountants Journal July, 2021

GST on Housing Society - how CA. Har sh M ehta
much and how far applicable [email protected]

I ntroduction for a consideration by a person in the course or
furtherance of business;
Co-operati ve Housi ng Soci eti es are enti ti es
regi stered under the co-operati ve l aws of the Section 2(84) “Per son” includes a co-operative
respecti ve States. “Housi ng soci ety” means a society registered under any l aw relating to co-
soci ety, the obj ect of whi ch i s to provi de i ts operative societies or Society as defined under the
members with maintenance and management of the Societies Registration Act, 1860
common amenities and services. Simply put these
are a collective body of persons, supplying certain Sec 2(31) “Consider ation” in relation to the supply
services to its members, be it collecting statutory of goods or servi ces or both i ncl udes (a) any
dues from its members and remitting to statutory payment made or to be made, whether in money or
authorities, maintenance of the building, security otherwise, in respect of, in response to, or for the
etc. inducement of, the supply of goods or services or
both, whether by therecipient or by any other person
Societies which may be r egister ed under Guj ar at but shal l not i nclude any subsi dy gi ven by the
Co-oper ative Societies Act, 1961 Central Government or a State Government.

A society, which has as its object the promotion of Sec 2(17) “Business” includes provision by a club,
the economi c i nterests or general wel fare of i ts associ ati on, soci ety, or any such body (f or a
members, or of the public, in accordance with co- subscripti on or any other considerati on) of the
operative principles, or a society established with facilities or benefits to its members; A co-operative
the object of facilitating the operations of any such society (being a person as defined above) provides
society, may be registered under this Act; Provided services to its member in the form of facilities or
that it shall not be registered if, in the opinion of benefits to it member (in course of business) for a
the Registrar, it is economical ly unsound, or its consideration. Hence based on above definition and
registration may have an adverse effect upon any concept of supply co-operative society also gets
other society, or it is opposed to, or its working is covered under GST.
likely to be in contravention of public policy.
Whether Cooper ati ve Soci ety is li able for
Applicability of GST r egistration under GST?

At present the GOODS AND SERVICE TAX ACT, When the aggregate turnover of a Cooperati ve
2017, has no scope for differential treatment based Societies in a financial year exceeds twenty lakh
on Profitability. Unlike in income tax law, where rupees, such Cooperative Societies become liable
there is benefit for non-profit organization, in GST for Registration under GST as per Sec 22.(1) of
same rules are applicable whether an organisation CGST Act. That means if the collection of money
makes profit or not. for maintenance charges by society exceeds Rs 20
Lakhs per annum then the Soci ety need to be
Definitions under GST Act which attr acts the Registered under GST.
taxability to co-operativesocieties
Aggregate turnover (total receipts) of the Housing
As per Section 7 expr ession “supply” includes– Societies includes all mode of recipets of the society
All forms of supply of goods or services or both such as soci ety mai ntenance charges f rom i ts
such as sal e, transfer, barter, exchange, licence, members, recei pts f rom i nvestments, i ncome
rental, lease or disposal made or agreed to be made receipts from advertisement board, receipts from

Ahmedabad Chartered Accountants Journal July, 2021 95

GST on Housing Society - how much and how far applicable

mobile towers in premises, Share transfer fee from Registr ation under GST
members, receipts from speci al purpose use of
common area by member (for example marriage Limit for registrati on under GST for providing
function, parties, etc). services is Rs. 20,00,000. Whereas, for goods, the
limi t has increased to Rs.40,00,000 w.e.f 01/04/
Thus, Co-operative Housing Society or Residential 2019. However, f or Housi ng Soci eti es’ the
Welfare Association Turnover (including exempted following table suggests registration criteria.
receipts) of which crosses Rs 20 Lakhs per annum
become l i abl e for Registrati on under GST and
should charge GST from its members.

Scenar io Condi t i on L iable to take r egistr ation

Aggr egate Tur nover M onthly Contr ibution

per member per month

1 Less than Rs. 20 lakhs Less than Rs.7500 No
No
2 Less than Rs. 20 lakhs More than Rs.7500 No*
Yes
3 More than Rs. 20 lakhs Less than Rs.7500

4 More than Rs. 20 lakhs More than Rs.7500

* No Other Taxable ser vices given by the society

Char geability and payment of tax on monthly subscr iption

Further, if the aggregate turnover of such Housing Society/ Residential Welfare Association is up to Rs 20
lakh in a financial year, then such supplies would be exempted from GST even if char ges per member are
more than Rs 7500. A Housing Society / Residential Welfare Association shall be required to pay GST on
monthly subscription / contribution charged from its members if such subscr iption is mor e than Rs 7500
per member and the annual tur nover of Residential Welfare Association by way of supply of ser vices
and goods is also Rs 20 lakh or mor e.

L et’sunder stand theI mplication of GST with different scenar io:-

Scenar io Contr ibution Total Receipts Receipts Total Registr ation Taxable Tax

(Per M ember Contr ibution other than (Taxable) Receipts Needed I ncome @

Per Month) by M ember s Contr ibution L ike (Total (Yes/No) 18%

Receipts Rental for Aggr egate

(Exempted) Advertise- Turnover

L ikeI nter est ment Per Year )

I ncome H oar ding

1 6000 1900000 0 0 1900000 No 0 0

2 7550 1600000 0 0 1600000 No 0 0

3 6500 2200000 0 0 2200000 No 0 0

4 6500 1900000 600000 0 2500000 No 00

5 7599 1850000 700000 0 2550000 Yes 1850000 333000

6 7599 1850000 0 750000 2600000 Yes 2600000 468000

7 4000 1500000 0 600000 2100000 Yes 600000 108000

80 0 2700000 0 2700000 No 00

90 0 0 2200000 2200000 Yes 2200000 396000

10 7550 2200000 0 0 2200000 Yes 2200000 396000

11 4000 1750000 0 0 1850000 No 0 0

7501 100000

12 4000 1750000 0 0 2550000 Yes 800000 144000

7501 800000

13 4000 1700000 100000 100000 2050000 Yes 250000 45000

7501 150000

96 Ahmedabad Chartered Accountants Journal July, 2021

GST on Housing Society - how much and how far applicable

- Treatment of different kindsof receipts:- b. Other income:

The different kind of receipts by a society can be Any income not falling under the criteria of
categorised as under: Maintenance fees are consi dered as other
income. If theAggregateturnover of thesociety
a. Maintenancefees: ismore than Rs. 20 Lac (which includesother
income) and theMaintenanceFeescollected is
Thesearethecontributionsby Membersof the lessthan Rs. 7500 per month per member, then
Society (for an equal amount or proportionately only other incomewill betaxable.
based on the bui l t-up area) for common
maintenance of the society such as paying for c. Exemptedreceipt: Certainreceiptsof thesociety
cleaning, security, admin, accountsaudit etc. If arenon-taxableeven if theaggregateturnover
theAggregate turnover of the society is more of the society is morethan Rs. 20 Lakhs(with
than Rs. 20 Lac(without any other income) then or without other income).
thisincomeshall beexemptedsubject tolimit of
Rs. 7500 per month per member. In order to give more clarity, following are
certain examplesof receiptsand their natureof
taxability:

Typeof Receipt Descr iption M aintenancefees Other income
M aintenanceand
Ser vice Char ges Society may be paying for some security, admin, Included.
accounts audit etc. And hence it is taxable subject Exempted if it is
Sinking Fund to limit of Rs. 7500. less than
Non Occupancy Rs. 7500
Char ges
Par king Char ges Setting aside revenue over a period of time to fund a Included.
Shar eTr ansfer Fees future capital expense. Taxable.
Water Char gesfor
common utilities. These are typical charges for let out Property. These are Included.
not applicable commonly. Taxable.
Water Char ges–
I ndividual use Generally charged to members for using space on Parking. Included.
Its purely one to onebasis and not for common use. Taxable.
Common Ser vices
It is usually charged for share transfer especially in case of Included.
sale of Property. It is occasional and on one to one basis. Taxable.

When Water charges are collected by Society from the Exempted
Members on proportionate basis, deposits the same to the
Government, it is acting only like a collection agent and it
is not considered as Society’s receipt. Chances are that
thesearealready taxed by Government’sArmsat source
and hence society is not required to charge tax on it.

When society is collecting a monthly/quarterly/yearly Included.
contribution of an approx. amount from the members Taxable.
towards water charges to be deposited to government.

When society has allowed members to use certain limit of Included.
water (as in the case of boring facility) and charges for any Taxable.
excess use of water above the free limit, such receipts are
taxable income.

Service charge for using facilities like Club House, Included.
Swimming Pool, which are commonly charged to all Taxable.
members arecovered under Maintenance fees

Ahmedabad Chartered Accountants Journal July, 2021 97

GST on Housing Society - how much and how far applicable

Typeof Receipt Descr iption M aintenancefees Other income

Repai r s Fund These are contribution from all Members, at the rate Included.
fixed at the General Body Meeting from time to time, Taxable.
(subject to theminimum of 0.75 percent per annum of
the construction cost of each flat) for meeting expenses of
normal recurring repairs.

I nter est on Default It is not for any common use but its charges case to case Included.
basis. Taxable.

Chargesfor using Use of Common Spacesuch arebanquets and gyms for use Included.
common space by Member or Outsider may be charged by the society. Taxable.
And as it is on case to case basis, it is not covered under
Maintenance fees.

Non-Agr icultur al Tax It is to be paid on all lands annually that have been used Exempted
for any other purposes other than farming. As it is collected
by society and deposited to Government, it is not taxable.

I ncomeon Renting These are not common services and are mostly to be given Included.
M obileTower etc to Business entities, therefore these are chargeable to Tax. Taxable.
In case the Society is not registered under GST, then the
same shall be subject to RCM (after 1st April 2018

Proper ty Tax on When society is paying property tax from the existing Exempted
common ar ea fund.

When society is collecting the share of property tax from Exempted
individual member on a proportionate basis and
depositing that exact amount to Government, then the
Society is only acting as agent.

When society is collecting a monthly/quarterly/yearly Included.
contribution of an approx. amount from the members Taxable.
towardsProperty Tax.

Taxabl e Heads Exempted Heads
Maintenanceand ServiceCharges Property tax
Parking Charges Electricity Supply from MCGM only
Non-Occupancy Charges Water Supply from MCGM Only
Sinking Fund Non-Agricultural Tax
Repair Fund
ShareTransfer Fees
Tower or other Rent
Interest or Penalty

98 Ahmedabad Chartered Accountants Journal July, 2021

GST on Housing Society - how much and how far applicable

- L et’sunder stand theI mplication of GST with different scenar io for exemption and taxability

Scenar io Repair s Water Contr ibu- Par king Club Tot al Exemption Exemption Non Taxable
and Char ges r eceipt Eligible Amount Taxable
1 M ainte- Agent tion to Charges house
2 nance Ser vice 7300
3 7300 0 sinking 7900
4 7300 600 8600
5 7300 600 fund 9400
6 7300 600 9900
7 7300 600 0 00 8800 7300 7300 0 0
8 7300 0 8100 7300 7300 600 0
9 7300 0 0 00 7900 8000 0 600 8000
7300 0 7450 8000 0 600 8800
7300 0 700 0 0 8500 0 600 9300
8000 0 0 8800
700 800 0 7300 0 7300 800
7300 0 0 7900
700 800 500 7450 0 7450 0

700 800 0

0 800 0

0 0 600

0 0 150

Rate of Tax Statutor y Compliances:

Thesociety isliabletocollect tax at therateof 18% Retur ns: Society are also liable to file monthly
if theaggregateturnover exceeds20 lakhs returns i.e. GSTR-1, GSTR-2, GSTR-3 , Annual
returnsetc.
I nput Tax Credit (I TC) Allowed:
Invoices: Society isrequiredto changetheinvoice
If the Society becomes liable to pay GST, it is format of monthly/quarterly/yearly billsinvoicedto
allowed to takeInput Tax Credit under Sec 16 (1) themembers. Society should mention theGSTIN
of CGST Act subject to conditionsfor taking input No, thetax collectedandsoonintheinvoiceissued
tax credit. Housing Society is entitled to ITC in by it.
respect of taxes paid by them on capital goods
(generators, water pumps, lawn furniture etc.), Booksof Accounts: Society isliabletoprepareand
goods(taps, pipes, other sanitary/hardwarefillings maintain proper booksof accounts. It would also
etc.) and i nput servi ces such as repai r and beliableto audit if theaggregateturnover exceeds
maintenanceservices– Lift AMC, Housekeeping, thethresholdlimit of audit.Alsoto maintainproper
Security, Fire AMC, Repairs & Maintenance, Recordsof Supply & Expensesand preservesuch
Contract staff,Accounting& AuditingServicesand Recordsfor 72 Months.
other such services.
Conclusion
Applicability of Rever seChar geM echanism
If the aggregate turnover exceeds Rs. 20 Lakhs
Tax liability under ReverseChargeasdefinedunder cooperativesociety arecompulsorily requiredtoget
Sec2(98) of CGSTAct alsoapplicable.That means regi stered, there i s no other exempti on for
tax shall bepayableby theHousing Society when registration.Also in GST regimehosingsociety are
suppliesarereceived which arenotified Services eligibleto claim ITC on inward supply madeby it,
asper Sec 9(3) of CGST Act likeservicesof Goods which wasnot allowed earlier, thiswould benefit
the society in the form of reduction in cost. The
Transport Agency, Advocate Services etc. and society cantransfer thisbenefit toitsmember isthe
suppliesfrom Un-registered Person under Sec 9(4) formof reductionof maintenancechargescollected
of CGST Act. The society can claim ITC on tax fromitsmember after dueadetailedthecost benefit
paid under RCM. analysisavailableto thesociety under GST.

Eligibility for Composition Scheme hhh

Housing Society is not eligible for Composition
Scheme.

Ahmedabad Chartered Accountants Journal July, 2021 99

Sovereign Debt and Deficit

Levels – Impact due to

COVID-19 Pandemic

CA. Rohan Shah CA. Siddhar th Dave

[email protected] [email protected]

TheCOVID-19 pandemic hasbeen acrisislikeno spends more than it makes, it adds to the debt.
other. Not only has it taken lives and disrupted
livelihood in every corner of the globe, it has the Sovereign debt isusually for financing the budget
potential to knock economies into simultaneous deficitwhichisthedifferencebetweentheflowof
recessionsnot seen sincethe1870s1.
government spending and theflow of government

revenues(mainly taxes).

What haveCountr ies’Governmentsbeen doing Fr om wher e does the Gover nment get the
to tacklethisPandemic? Funds?

Every affected country (and that includesthemost In theory, the government has various options to
developed nations as well as the emerging and borrow funds.Internal sourcesof borrowinginclude
developing countries) is literally on war-footing. rai si ng money f rom the publ i c as wel l as
Financing the increased healthcare expenditure, commercial lenders, andaretypically raisedinlocal
procurement and distribution of vaccinesas well currency. External borrowing sources include
asproviding economic stimulusto thosewho have variousmarket-oriented methods such asissuing
beenworst affectedby thispandemic, isnot aneasy bonds and availing long-term loans. Countries
job. Along with meticulousplanning and execution, having lower market access tend to reach out to
themost important requirement isadequatefunds global financial institutions such as the IMF and
to bankroll this. theWorld Bank.

How would the government raise such massive Practi cal l y however, the maj ori ty of the
amount of funds? Does the government have a government’sborrowing comesfrom two sources
secret stash of money l yi ng i n a Gri ngotts – (i) the public, and (ii) quantitative easing (QE)
bankvault?No.Typically,governmentsfinance measures. While you may be familiar with the
public spending by raising taxes, cutting existing variousQEmeasures, it may besurprising to
outlays orincreasingthesovereigndebt. imaginehow thegovernment isabletoborrow from
its own citizens. Households not experiencing
Obviousl y, increasi ng the tax burden on the incomelossesduring thelockdown phasehad far
commonpublicinsuchtestingtimesisnot apopular fewer opportunities to spend money as whole
move. And usually, there aren’t many planned swathsof theeconomy shut down, so their savings
outlays that can be cut, otherwise there’d be a increased dramatically. Further, in such uncertain
tremendous risk of stagnation, leading to long- times, peoplealso prefer risk-freeinvestments, and
drawn recession. Eventually, borrowing funds what better than those investments which are
seemsto bethemost viableoption which seemsto guaranteedby thegovernment itself. Thesovereign
beleft. However, several considerationsrelating to gold bond seriesintroduced by thegovernment in
lender availability, overall economic impact and India are a classic example of such borrowings,
financial healthparametersneedtobekept inmind. wherein the tenure is medium term (5 to 8 years)
and thefixed return guaranteed isquitelow (2.5%
What isSover eign Debt? interest per annum), at thesametimeattractiveto

In simple terms, it is basically what a country’s
government owes. Each day that thegovernment

100 Ahmedabad Chartered Accountants Journal July, 2021

Sovereign Debt and Deficit L evels – I mpact due to COVI D-19 Pandemic

thepublic sincethe variablereturns arelinked to iii. Japan’sgrossgovernment debt ratio of around
market forces. 230% of GDP at end-2019 is the highest
amongst theworld. It isestimatedthat thewider
Where Do We Stand Today? projected fiscal deficit and declinein GDPthis
year could raise the debt ratio to well above
To tacklethe health crisis and its massive impact 240% of GDP in 2020 and 2021, before it
on theeconomies, governmentsand central banks returnsto agradual downward trajectory.4
have deployed a wide range of measures, which
also include large discretionary fiscal stimulus iv. Since the Global Financial Cri sis, USA’s
packages.Asaresult, thesovereigndebt levelshave national debt has often grown at a faster rate
surged acrosstheglobe. than theGDP. By April 2020, thenational debt
had surpassed the GDP by al most 18%,
i. Germany, who has long maintained a policy pegging thetotal debt at approx. $27 trillion.
of constantly maintaining a balanced budget Theexisting budget deficit isaround 25-30%,
and never taking on debt, has been forced which is expected to further widen due to
tosuspend the debt rul esand spend pandemic relief measures such as the $2T
considerable funds to protect the health of CA RES A ct. I n f act, wi th the Bi den
citizensand stabilisetheeconomy.2 administration in, and with Speaker Pelosi’s
new stimuluspackage, theUSA government
ii. SouthAfricaprojecteditsbudget deficit would islikely to takeanother trancheof borrowings
widen to 14.6% of GDP in the current fiscal to keep itself running.5
year, the highest since the end of apartheid.
They havealso announced acoronavirusrelief
packageequivalentto10%ofSouthAfrica s
GDP.3

Ahmedabad Chartered Accountants Journal July, 2021 101

Sovereign Debt and Deficit L evels – I mpact due to COVI D-19 Pandemic

v. The situation for the under-developed and distress”, while28 others wereconsidered at
emerging countriesisworse. They arefacing “high risk” asof June2020.6
risksof asovereign debt default, which makes
it harder to borrow or attract investment in vi. India’s public debt ratio, which remarkably
future, opensup legal liabilities, and can have remainedstableat around70percent of theGDP
destabilising knock-on effects. Credit ratings si nce 1991, i s proj ected to j ump by 17
firm Fitch saysArgentina, Ecuador, Lebanon, percentagepointsto nearly 90per cent because
and Surinamehavedefaulted already, in what of increasein public spending dueto COVID-
it predicts will be a record year for defaults, 19, the IMF said and thesimultaneous fall in
while Zambia has started “a default-li ke tax revenuesand economic activity. Thefiscal
process”. The World Bank and the IMF list deficit for FY 2020-21 wasearlier budgeted at
Mozambiqueasoneof eight countriesin“debt 3.5% of GDP and now has been revised to
9.5% of GDP.7

102 Ahmedabad Chartered Accountants Journal July, 2021

Sovereign Debt and Deficit L evels – I mpact due to COVI D-19 Pandemic

Thecoronaviruspandemicislikely tocausealong- adds to purchasing power and may not be a
lasting“zombification”of theglobal economy, i.e., factor for higher inflation, nor for largecurrent
slow growth, low inflation and high debt, which account deficits.
will becomecommon acrossadvanced economies
following thepandemic. iii. Whilethedebt ratiocan’t grow forever without
harming thenation, it can and should grow in
I sDebt at such High L evelsr eally a Pr oblem? an economic downturn to minimize human
suffering and thethreat tolonger-term growth.
While the numbers may seem exorbitant, the
conclusion of various economists and finance iv. Infact,most developedeconomiesaretestament
experts around the globe is that the current debt to this. As mentioned above, Japan has debt
levelsmay notbeamajorconcern.Thebriefreasons ratios as high as 230% of GDP, while that of
aresummarised below: EU countriesand USA also typically found in
excessof 100% of theGDP.
AbsoluteDebt Level isapoor indicator of ‘troubled
economies’ Higher debt-to-GDP ratio nowisbeneficialvis-a-
vislower GDP later
i. Thedebt needsto bemeasured relativeto the
sizeof theeconomy and also needsto factor in If the government opted for lower spending to
related economic aspects such as inflation, combat thepandemictokeepthedebt-to-GDPratio
population growth and productivity growth. in check, it would leave the economy weaker for
an extended period of time. Loss of employment
ii. A popular measureisto usetheratio of debt to and shri nki ng market demand can l ower
GDP as the standard measure for examining productivity for years.All thismay lead to slower
trendsover time.A risingratio meansthat debt growth, thus reducing the GDP (denominator) in
is growing faster than the economy, while a the coming years, which will eventually lead to
shrinking ratio meanstheopposite. increased debt ratio. Economists believe that
enactingadditional policiestoreducethepandemic’s
iii. Hi story has ti me and agai n shown that extent andcostswouldalleviateeconomichardship,
economic growth can lower the debt ratio speedtherecovery,possibly improvetheeconomy’s
despite rising debt. This reinforces the point long-runproductivity, andthereby lessentheoverall
that agrowingeconomy canbemoreimportant risein thedebt ratio.
than a growing debt, given that economic
sustainability canserviceadditional debt taken COVID-19 alleviation costsaretemporary in nature
to fund the rising economy. In corporate and
personal finance, thismethod would becalled A virus life-cycle is usually short and would last
capital gearing, however countries’indefinite for maybeacoupleof years.Accordingly, thecosts
existence allows gearing to take place over tocombat thepandemicmay betreated asone-time
decades, perhapseven centuries. excepti onal costs. Permanent costs (such as
permanent tax cuts) will add growing amountsto
Empirically, higher debt-to-GDPratiosaregrowth the debt every year, forever. So even though the
stimulating debt ratio will grow in theshort run, thelong-term
fiscal gapmay beonly somewhat larger than before
i. Earlier theoriessuggested that adebt-to-GDP COVID-19 hit.
ratio of 60% for developed countriesand 40%
for emerginganddevelopingeconomieswould SomeK ey Consider ationsto bekept in mind
be prudential. But, crossing these thresholds
may not pose any real threats to debt Rising interest costs
sustainability.
Even thoughthesovereign borrowingsareat alow
ii. As long as there is spare capacity in the interest rate, governmentsend up spending ahuge
economy or unemployment,higher fiscal deficit sum of money to regularly financetheinterest cost

Ahmedabad Chartered Accountants Journal July, 2021 103

Sovereign Debt and Deficit L evels – I mpact due to COVI D-19 Pandemic

every month. It needsadequatecash-flow planning Increase in the supply of money in the market, if
toavoiddebt defaults.Also, they needtobemindful unchecked, may also lead to runaway inflation.
of long-term debt, becausetheinterest burden will Further, it isseen that QE often leadsto increased
keeponincreasingwiththeincreaseininterest rates stock valuations. Because this program pushes
oncetheeconomy improves. down bond yields, someexpertshaveargued that
it facilitates more risk-taking among investors,
Debt transparency pushing them into higher-returning investments,
likestocksandreal estatewhich may leadto certain
Governments who borrow to manage thei r asset bubblesbeing created.
economiesand fund investment must havestrong
institutions, processesand controlsto managethe Conclusion
debts they incur. Poorly managed borrowing can
quickly destabilisean economy. Concern about debt should not short-change the
nation’seffortstofight thepandemic, carefor those
Low-income countries cannot easily raise funds harmedby it andby thesuddenanddeeprecession,
from the internal market, and hence increasingly andrestoretheeconomy tohealthwhenthesituation
tapnon-traditional sourcesof credit, suchasprivate allows. Starving the economy in the name of
lendersand international bond markets. Thismay fighting debt would be short-sighted and self-
open smaller countriesto thegreater geopolitical defeating. At some point, action will have to be
risk, in caseof extensivedefaults. taken to rein in the deficit, but we may be a long
way from that point.
Borrowingsin foreign currency may beriskier
Refer ences
Any governments’borrowing in local currency is
generally considered less risky because as a last 1. International Debt Statistics2021,World Bank
resort thegovernment canprint additional currency
notestomeet any debt obligations. Whilethiscould 2. www.dw.com/en/coronavirus-germany-to-
lead to a decline in the value of the currency, the take-on-more-debt-i n-2021-to-tackl e-
government would still beableto pay up on time pandemic/a-54643033
and save i tsel f from the embarrassment and
catastrophic implicationsof default. However, in 3. www.cnbc.com/2020/06/24/south-afri ca-
caseof foreign currency denominated borrowing, budget-deficit-debt-seen-widening-as-virus-
a government does not have the ability to print hits-economy.html
foreign currency andthereforetherisk of default is
much higher. This has been seen several times in 4. www.fitchratings.com/research/sovereigns/
thepast with several countriesincluding Greece, japan-coronavirus-response-increases-public-
Turkey, Ghanaand Russiahaving defaulted in the debt-challenge-15-04-2020
past.
5. https://www.visualcapitalist.com/americas-
Adverse impacts of quantitative easing (QE) debt-27-trillion-and-counting/
measures
6. https://www.thenewhumanitarian.org/analysis/
When a central bank takes permanent ownership 2020/10/08/pandemic-debt-crisis-looms
of its own government’s debt, that debt ceases to
exist for all practical purposes. Thus, by buying up 7. https://m.economictimes.com/news/economy/
itsown bonds, thecountry would befinancing its indicators/indias-public-debt-ratio-to-jump-to-
expensesthroughprintingcurrency rather thanreal 90-per-cent-because-of -covi d-19-i mf /
money flow.Asseen historically, thecentral banks amp_articleshow/78661641.cms
facedifficultiesin unwindingitsbalancesheet, and
hencemuch of thisdebt will remain on thecentral hhh
bank’sbooksin perpetuity.

104 Ahmedabad Chartered Accountants Journal July, 2021

Glimpses of AdvocateSamir N. Divatia
Supreme Court [email protected]
Rulings
withExplanation 2and4 thereof, theamountspaid
4 Stay by I TAT- Sec 254(2A)-3rd Proviso- by theResident Indian enduser/distributorsto non-
resident computer softwaremanufacturer/supplier,
Since the object of this proviso is the automatic as consideration for resale/use of the computer
vacation of astay granted by on completion of 365 softwarethrough EULA/ distribution agreement is
days, whether or not theassesseeisresponsiblefor not thepayment of royalty for theuseof copyright
the delay caused in hearing of the appeal, such in the computer software and that does not give
object being itself discriminateonly if thedelay in rise to any incometaxable in India, as aresult no
disposingof theappeal isattributedtoparty, isliable liability to makeTDSu/s195.
to bestruck down assviolativeof Article14 of the EngineeringAnalysisCentreof ExcellancePvt Ltd
Constitution of India, Thisproviso would result in (dt 2-3-2021)
automatic vacation of stay upon expiry of 365 day
seven if the appeal could not be taken up for no 6 Sec 45-A.Y. 1999-2000-Amount received
fault of theassessee. Further thevacation of stay in on family settlement
favour of the Revenue would ensure even if There was family settlement in which the NRI
revenueisitself responsiblefor delay inhearing, In received impugned amount as a result of dispute
thissensethisproviso ismanifestly arbitrary and regardingimmovableproperty settledultimately by
di sproporti onate so far as the a assessee i s filingconsent terms. It couldnot besaidtobefamily
concerned. Consequently thisproviso will beread settlement and on such basis it could not be said
down without the word “even” and” is not”. Any that theamount received by oneof theco-owners
order of stay shall stand vacated after expiry of the did not constitute capital gain. SC dismissed the
period mentioned in thissection only if thedelay is SLPfiled by assessee.
attributed to theassessee. P.P. Mahatmev ACIT (2021)( 126 taxmann,com
176)
DCIT v Pepsi FoodsLtd ( dt 6-4-2021)
hhh
Sec 9(1)9vi)-I ncome Tax- Taxability of

5 sumsr eceived for supply of softwar eas
“Royalty”

Thedefinition of royalty contained inArticle12 of
DTAA read with provisionsof Sec 9(1)(vi) along

Ahmedabad Chartered Accountants Journal July, 2021 105

From the
Courts

CA. C. R. Shar edalal CA. Jayesh C. Shar edalal

[email protected] [email protected]

Consider ation of stay applications thebasisthat electricity isnot an“article”or “thing”
was an artificially restrictive meaning of the
21 Ganapathy Har idaassv/sITO provision. The benefit of additional depreciation
[2020] 428 I TR 505 (M ad) under section32(1)(iia) had, therefore, beenrightly
granted to the assessee by the Commissioner
I ssue: (appeals) and theTribunal. With effect fromApril
1, 2013, the provision had been amended by the
What are the requirements for disposal of stay Financeact, 2012 and theassesseeengaged in the
applications? generation of power haveexpressly been included
in theambit thereof.
Held:
Regi st r at i on of Char i t abl e Tr ust ,
Theordersdid not comply with therequirements
that had been set out f or di sposal of stay 23 Rejection at thetimeof Registration: Not
applications. Theorder didnot deal withtheaspects pr oper.
of primafaciecase, financial stringency andbalance CI T v/s. DivineShiksha Samiti
of convenience.Theattachment of thebank account [2020] 428 I TR 552 (M P)
was to be lifted forthwith. The assessee was to
appear without further notice in this regard and I ssue:
theassessing authority wasto reconsider thestay
application filed by theassesseein thelight of the Requirement at the time of Registration of a
guidelinesset out incircularsandinstructionsissued CharitableTrust.
by the Central Board of Direct Taxes, as well as
theapplicationsunder section 154 and passorders. Held:
Till such time, no further recovery proceedings
coul d bei ni tiated. Registration of Trust. Rejection of Application by
Commi ssioner (Exempti ons) on ground that
Depr eciation: Electr icity is“Ar ticle“or assesseeexistsfor purposeof profit of officebearers
and not for charitablepurposes. Tribunal holding
22 “thing” that at timeof granting registration, Commissioner
Pr. CI T v/s. NTPC Sail Power Co. Pvt. not required to examine whether income derived
L td. [2020] 428 I TR 535 (Delhi) by Trust spent for charitable purposes or trust is
earningprofit. Directiontogrant registrationproper.
I ssue:
24 Sec. 147/148: Validity of reopening
Iselectricity an“Article”or “Thing”for thepurpose M uk ul K umar Si ngh v/s. CI T and
of depreciation u/s32? other s[2020] 429 I TR 21 (Patna)

Held: I ssue:

Electricity iscapableof abstraction, transmission, Merevaluation report by departmental valuation
transfer, delivery, possession, consumption and use officer would besufficient to reopen?
likeany other movableproperty.Todeny thebenefit
of additional depreciation to agenerating entity on

106 Ahmedabad Chartered Accountants Journal July, 2021

Held: Fr om the Cour ts

Therewasnothingonrecordtoestablishthat except appreci ate that penalty proceedi ngs and the
for thevaluationreport therewasany other material assessment proceedingsaredistinct and since, the
evenprimafacie, indicatingapplicationof mind by assesseehadnot commenced thebusiness, it could
theAssessing Officer in arriving at hisconclusion, not have earned income, which had not been
necessitating reopening under section 147 of the accounted for. TheTribunal had failed to takeinto
assessment. The difference in valuation of the account thewell settled legal principlesthat mere
property inthetwo reportswasalsonot substantial. disbelief of an explanation would not besufficient
During thecourseof theproceedings, much prior to impose penalty. The order of penalty was not
to thepassing of theorder accepting hisreturn, the valid.
assesseehad submitted thevaluation report from
an approved valuer and hiswasnever objected to I nter est on non-per for mi ng assets:
or rej ected. The assessee had disclosed ful l Taxability
particulars. Despitetheassesseehaving submitted
his valuation report dated January 10, 2005 why 26 Bhind Dist. Co.Op. Centr al Bank L td.
therequest calling for avaluation report wasmade v/s. I T Depar tment and other s
only on October 19, 2006 and why the report [2020] 429 I TR 121 (M P)
reached theofficer on November 5, 2007 wereall
questions which were not clear from the record. I ssue:
Without meeting the essential ingredients of
appl icati on of mind to the various material, In thecaseof aNon-Banking Financial Company,
necessitating reopening of the assessment was whether interest on non-performing assetscan be
mi ssi ng. The order passed by the Deputy taxed?
Commissioner under section143(3)/147 asalso by
theCommissioner wasset aside. Held:

Val idi ty of Penal ty Pr oceedings u/s Sincetheassesseewasacting under thedirectives
271(1)(c) befor e Commencement of of the Reserve Bank of India with regard to
prudential norms set out, taxing interest on non-
25 Business. performing assetscould not bejustified on thereal
K aver i Associatesv/s.Asst. CI T income theory. The Tribunal was not justified in
[2020] 429 I TR 40 (K ar n) holdingthat interest on non-performing assetswas
taxableon accrual basis.
I ssue:
Cash Cr edi ts: Cr edi t ed t o Capi t al
Whether penalty proceedingscanbeinitiatedbefore Account: Taxability
commencement of business?
27 CIT v/s. (1) Smt. T. Ani Chandr a Kala
Held: (T.C.A. No. 249 of 2019)
(2) Pauldhas Regin (T.C.A. No. 250 of
The assessee since the inception till the end of 2019) [2020] 429 I TR 179 (M ad)
previ ous year, i .e. M arch 31, 1999 di d not
commenceany business. Thenoticeunder section I ssue:
274 read with section 271(1)(c) wasissued for the
assessment year 2002-03andnot for theassessment Whether amount received asadvancefor supply of
year in question that is 1999-2000. Besides, this goodscredited to capital account can be taxed as
therewasno mention in thenoticethat theassessee income?
had concealed theincomeor furnished inaccurate
particularsof income. Theauthoritieshad failed to Held:

That unless the credit entries were shown to be
unexplained, merely based on assumptions that
there was certain increase in the capital of the

Ahmedabad Chartered Accountants Journal July, 2021 107

Fr om the Cour ts against the assessee. The preliminary objections
rai sed by the assessee wi th regard to the
assesses(whichwasalsoexplainedby theassessee), mai ntai nabi l i ty of the appeal s fi l ed by the
the assessing authority could not have made an Department under section 260A against theorders
additionmerely onassumptions.TheCommissioner of theTribunal wasthat in each of theappeals, the
(Appeals) andtheTribunal hadexaminedthematter tax effect waslessthan thelimit prescribed in the
on the basis of the evidence available on record circular issuedby theCentral Boardof Direct Taxes
andarrivedat thefindingsof fact that thecashcredits in Circular No. 17 of 2019 datedAugust 8, 2019.
in question were advances made by the creditor TheDepartment contended that thecircular would
against purchase of materials from the assessee, not beapplicabletoappealsthat arosefromanorder
who were engaged in thebusinessof cashew nuts. under section 263.

I s ther e any differ ence in the meaning OnAppeals:

28 of “Plant” and “Machiner y”? Held, dismissing the appeals, that even if the
CI T v/s. Soci edade De Foment o consolidated tax effect in all these appeals was
I ndustr ial Pvt. L td. (No.1) taken, it would not exceed the monetary limits
[2020] 429 I TR 207 (Bom) prescribedinBoard’sCircular No. 17of 2019dated
August 8, 2019 and therefore, theappealswereto
I ssue: bedismissed dueto low tax effect.

What is the difference in the meaning of “Plant” Revenuev/s. Capital Expenditur e
and “Machinery” – Sec. 10B?
30 CIT v/s. Hanon Automative Systems
Held: I ndia P. L td. (M ad)
[2020] 429 I TR 244 (M ad)
The terms “pl ant” and “machi nery” are not
synonymous. The plant is where machinery is I ssue:
installed.And theplant iserected, not installed. In
theend, whether anew plant erected, and thenew How aparticular expenseisarevenueexpenseand
machinery installed amounts to adding to an not acapital expense?
existing unit or amounts to a separate unit on its
own isamatter of fact. Held:

Appeals: L ow tax effect: How to be The Tribunal had rightly examined the nature of
thetransactionandheld that thelumpsumpayment
29 calculated made by the assessee for the development of
Pr. CI T v/s. Vinodbhai Ranchhodbhai infrastructurefor uninterrupted power supply to it
Par ekh [2020] 429 I TR 225 (Guj ) was revenue expenditure under section 37(1).
Though the assessee had parted with substantial
I ssue: fundsto thecompany, thecapital asset continued
to remain theproperty of thecompany.
Non filing of appealshaving low tax effect. How
isit to beconsidered? hhh

Held:

The Tribunal quashed and set aside the orders
passed by the Commissioner under section 263

108 Ahmedabad Chartered Accountants Journal July, 2021

Tribunal
News

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

DCI T v. Jateen M andanlal Gupta 187 compani es i n whi ch assessee was holdi ng
substantial interest
7 I TD 832/126 Taxmann.com 20 (Ahd)
Or der dat ed 2nd Febr uar y 2021, Held
Assessment Year 2008-09
Thetribunal found that theCIT(A) hasgiven very
Facts: clear-cut finding that therewasno benefit accrued
to theassesseeout of theloansand advancesgiven
Theassesseeisan individual having incomefrom by theby JPvt. Ltd. tothecompanies.TheTribunal
salary, rent, interest andshort-termcapital gain.The also noted that samecontention wasalso raised by
assessee, among other companies, is a registered theassesseebeforetheAO during theassessment
shareholder and carryingvoting rightsnot lessthan proceedings and also beforethem which was not
10% in threecompaniesJPvt Ltd, GM Pvt Ltd & disputed either by the AO or by the ld. DR. The
D Pvt Ltd. M/s J Pvt. Ltd. in the year under Tribunal al so found that in case of another
consideration has advanced loan to D Pvt. Ltd. shareholder of JPvt Ltd., who wasalso subject to
and G Pvt. Ltd. respectively.Accordingly, theAO similar additionfor theyear under considerationi.e.
wasof theview that such transaction of advancing being dividend under section 2(22)(e) of theAct,
theloan to thecompaniesfallswithin theparameters theHon’bleGujarat HighCourtsinhiscaseJayesh
of deemed dividend as provided under section T. Kotak v. Dy. CIT [2020] 116 taxmann.com 426/
2(22)(e) of the Act. However, the assessee 273Taxman 525/424 ITR 435 (Guj.), hasheld that
contendedthat thereisnoaccumulated profit in the toapply theprovisionof section2(22)(e) theremust
company namely JPvt. Ltd.at thetimeof advancing bepersonal benefit arisestotheassesseeout of such
the loans to the aforesaid parties/entities. The loan and advances. TheHon’bleCourt found that
assesseefurther contended that hehasnot received it was not the case of theAO in that case that the
any benefi t out of the loan advanced by the petitioner has received any amount as holder of
company totheparties/entitiesandthat theadvances substantial sharesfrom theloan giver company or
madeby thecompany JPvt ltd., areinter corporate the l oan receiver company. Accordi ngly, the
deposits. Accordingly, there was no deemed Tribunal held that onceit isestablished that thereis
dividend asper thesaid section. However,AO held no benefit accrued to theassessee out of the loan
that there wasdeemed dividend sinceJ Pvt. Ltd., transactions, theprovisionsof section 2 (22)(e) of
had accumulated profitsand it wasnot necessary theAct cannot beattracted.TheTribunal onperusal
that the assessee needs to obtain benefit. CIT(A) of theassessment order, found that thecontention
hel d in the favour of the assessee hence the of theassesseethat theamount advancedwasinter-
Department isin appeal. corporatedeposit hasnot been disputedby theAO.
Similarly, the learned CIT (A) has also observed
I ssue: that thecompany hasadvancedmoney totheparties
as inter corporate deposits which has not been
Whether pr ovisions of section 2(22)(e) will be disputed by the DR. And hencetheTribunal held
attr acted in a situation wher e company, in that the loans and advances were made as inter
which assessee was r egister ed shar eholder,
advanced l oans and advances t o ot her

Ahmedabad Chartered Accountants Journal July, 2021 109

Tr ibunal News the replacement. It was also not the case of the
revenuethat on account of replacement of thispart
corporatedepositsinordinary courseof itsbusiness of machinery, productivity or capacity of production
which arenot subject to theprovisionsof deemed had goneup and thismachinecan independently
dividendasprovidedunder section22(2) of theAct. work and deliver the different output. In the
circumstance, it washeld that theexpenditurecan
Jaya Hind I ndustr ies L td. v. DCI T124 beallowed asrevenuededuction.Accordingly, the
Tribunal held that theexpenditureincurred on the
8 taxmann.com 265/187 ITD 659 (PUNE) replacement of Gripper can beallowed asrevenue
Or der dat ed 4th Januar y 2021, deduction.
Assessment Year 2010-11
Sandvik AB v. DCI T (I nter nati onal
Facts: Taxati on) 187 I T D 638/123

The assessee was engaged i n busi ness of 9 Taxmann.com 160 (Pune)
manufacturingof PressureandGravity DieCasting, Or der dat ed 6th Januar y 2021,
H.T. Coi ls, Magnetos, Automotive Clutches, Assessment Year 2014-15
Brakes,VehiclesBodies, etc. It claimed deduction
on account of expenditure incurred under head Facts:
repair and maintenance. The AO opined that
expenditure claimed as repairs and maintenance AssesseeaSwedenbasedcompany fileditsoriginal
represented thecost of replacement of machinery return declaring total incomein respect of interest
vis. Gripper which was part of high pressure die received on ECB loans. Theassesseehadreceived,
casting machinesand, thus, hehad disallowed the certain amount from its Indian affiliate ‘S’ for
claimtreating thesameascapital expenditure. The imparting ‘Human resourceleadership training’to
CIT(A) confirmed the action of the Assessing three of the employees of ‘S’. The same was
Officer by holding that it wasacaseof substitution desi gnated as Trai ni ng fees (Non-techni cal
of old asset by new asset and the expendituredid services) not chargeabletotax as‘feesfor technical
not fall within themeaning of current repairsand services’in India under the DTAA read with the
maintenanceasdefined under section 31. Protocol asexpanding to theDTAA between India
and Portuguese. The AO did not accept the
I ssue: assessee’scontention of thelatter’sentitlement to
the limited scope of the term ‘fees for technical
Whether expenditur e incur r ed by assessee- services’asgiven in theIndiaand PortugueseTax
company on replacement of a part of machinery Treaty. He held the training fees received by the
could beallowed asa r evenuededuction assesseefromitsIndianaffiliateas‘feesfor technical
services’taxable under Article 12 of the DTAA.
Held: Accordingly, he the AO added said sum to the
assessee’stotal incomeinthefinal assessment order
TheTribunal found asper thefactual submissions and taxed as fees for technical services at 10 per
made on behal f of the appellant are that the cent. TheDRPalso did not provideany succour to
expenditureisincurred on replacement of Gripper theassesseeby primarily relying on itsorder in the
which ispart of robotic armsforming part of high assessee’sown casefor theassessment year 2013-
pressurediecasting machines. Thereisno increase 14 and also holding on merits that the services
of productivity or capacity on account of incurring relating toTraining werein thenatureof technical
thisexpenditure. It isalso submitted that thispart, or consultancy, which satisfied the mandatory
namely, Gripper cannot be machine itself i.e. it condition of “makeavailable”. Theassesseeisin
cannot perform any functionindependently.These appeal beforethetribunal.
facts remain uncontroverted by the Department.
Only part was replaced, and the necessity of
replacement hadarisenaspart becomeoldandthere
was no increase in productivity or capacity after

110 Ahmedabad Chartered Accountants Journal July, 2021

I ssue: Tr ibunal News

Whether benefit of India PortugueseDTAA can Asper theTribunal itemsmentioned in clause4(b)
be al lowed i n ter ms of M FN clause i n the of Article 12 between India and Portuguese after
Protocol to I ndia Sweden DTAA? the words ‘make available’, such as, technical
knowl edge, experi ence, ski l l, know-how or
I s Tr aining fee a consider ation for render ing processesor atechnical plan or technical design,
Manager ial servicesasclaimed by theassessee? strengthen theview that thetechnical serviceshere
largely cater to engineering field. Further the
I s Tr aining fee a consider ation for render ing ‘Consultancy services’ would not beof thenature
Consultancy or technical servicesasheld by the as understood commonly, but draw their colour
Revenue? from the items mentioned after the term ‘make
available’, morespecifically, when thesearealso
I f Tr aini ng fee is not FTS, does it become comprehended in the sense of making available
immunefrom taxation? experienceor skill etc. to therecipient for using it
at his own end. That shows that the technical
Held: knowledge, experience, or skill etc., must be
handed over to theacquirer for itslater useby self
TheTribunal held that once two sovereigns have asaprecondition for falling within thepurview of
added Protocol to the DTAA between India and thisArticle. Thetribunal found that theleadership
Sweden, whichcontainstheMost FavouredNation training provided by theassesseedid not result in
(MFN) clause, inter alia, quaarticle12,thesequitur maki ng avai labl e any techni cal knowl edge,
is that the beneficial provisions contained in the experience, or skill etc. to the employees of ‘S’,
DTAA between Indiaand Portugueseisto beread which could enablethem to useit later on. In that
in the DTAA between Indiaand Sweden. view of the matter, it was held that the revenue
authoritieswerenot justifiedinconsideringTraining
Asper theTribunal thephilosophy of equating the fee as a consideration for rendering Consultancy
nature of training with the rendition of the same or Technical serviceswithin themeaning of article
natureof serviceisunfounded. Ordinarily, training 12(4)(b) of the DTA A between I ndi a and
isconceived aspassing on of someproficiency by Portuguese.
thetrainer to thetrainee. It simply leadsto honing
up the skills of the other in the subject, which Accordingly it was held that the Training fee
patently cannot be termed as an equivalent of received by the assessee does not fall within the
renderingservicein that field. Simply equipping or purview of Article12of theDTAA withPortuguese
enabling the othersfor doing an activity is a step in as much as it is neither fees for managerial
anterior to rendition of suchservices.According to serviceson onehand nor consultancy or technical
theTribunal thecaseof theassessee- that it imparted services on the other. Thus, according to the
leadershiptrainingtothreeemployeesof ‘S’, which, Tribunal, thetaxability of thesamewasrequired to
in turn, helped them in managing theaffairsof ‘S’ betested within themeaning of Article7 read with
in abetter way and hence, it rendered managerial Article5 of theDTAA. But thetribunal found that
services to ‘S’- is not correct. The Tribunal held theAO hashimself accepted that theassesseedid
that rendering leadership training to employeesof not have any PE in India, and henceheld that the
‘S’cannot besaid asrendering managerial services amount of Training feewill alsoescapetax net asit
so asto fall outsidetheambit of feesfor technical cannot betaxed as‘Businessprofit’underArticle7
servicesunderArticle12(3) of theDTAA between in the absence of there being any PE in India in
India and Sweden read with its Protocol and the termsof Article5.
resultant Article12 of Indiaand Portuguesetreaty.
The contention of the assessee was therefore
dismissed asdevoid of any merit.

Ahmedabad Chartered Accountants Journal July, 2021 111

Tr ibunal News

Agr o Tech Foods L t d. v. DCI T 124 not satisfiedwiththesame, it hadrecourseof remedy
under theAct and that the provisions u/s. 263 of
10 taxmann.com 517/ 187 ITD 763 (HYD) theI.T.Act, arenot meant to providesuch remedy
Or der dat ed 17th December 2020, to theassessee. Hetherefore, directed theTPO to
Assessment Year 2010-11. recompute the ALP i n accordance wi th the
directionsof theDRPandkeepinginmindtheerrors
Facts: pointedout intherevisionorder, hefurther observed
that the directions of the DRP cannot be agitated
The assessee had entered into i nternati onal by the assessee nor can they be reconsidered by
transactionswithitsAEs.Accordingly, thecasewas the TPO. He, therefore, held that the purpose of
referred by AO to theeTPO for determination of exercisewill belimited to correctly computing the
the ALP of the international transactions u/s. arms’length pricein thegiven set of transactions.
92CA(3) of theI.T.Act.TheTPO, videorder, dated Against thisorder of theCIT (IT & TP) u/s. 263 of
28-8-2013, suggested adjustment u/s92CA of the theAct, theassesseeisin appeal beforeTribunal.
Act. Accordingly, the AO proposed the draft
assessment order against which, the assessee I ssue:
preferred itsobjectionsbeforetheDRP. TheDRP
passed an order, dated 28-10-2014 wherein it has Whether or der of TPO under section 92CA is
directed theTPO to re-examinethecomputation of based on refer ence of Assessing Officer and
markup by giving dueopportunity to theassessee therefore, it isalsopart of assessment record and
andalsotore-workout theadjustment.Accordingly, can ber evised by Commissioner under section
theTPO passed theconsequential order, dated 31- 263
12-2014 and suggested TP adj ustment.
Subsequently, theCIT (IT & TP) assuming powers Held:
u/s 263 of the I.T. Act, perused the TPO’s order
and observed that theorder passed by theTPO is The tribunal referred to the provisions of section
erroneousin so far asit isprejudicial to theinterest 263 reads as “The Principal Commissioner or
of therevenue. Therefore, theCIT issued anotice Commissioner may call for andexaminetherecord
to theassesseeu/s263 of theI.T.Act. Theassessee of anyproceedingunder thisAct,andif heconsiders
objected totherevision on theground that theTPO that any order passed therein by the Assessing
is not an AO and therefore, the TP order is not Officer iserroneousin so far asit isprejudicial to
amenable to revision u/s 263 of the I.T. Act. The the interests of the revenue, he, may, after giving
CIT (IT& TP) however, held that the TP order is theassesseeanopportunityof beingheardandafter
also amenable to section 263 of theAct and that making or causing to bemadesuch inquiry ashe
the TPO as well as the DRP have not considered deems necessary, pass such order thereon as the
theincorrect allocationof operatingexpenditureand circumstancesof thecasejustify, includinganorder
also theincorrect consideration of miscellaneous enhancing or modi fying the assessment, or
incomeand foreign exchangegainsin thecaseof cancelling the assessment and directing a fresh
theassesseeand not in thecaseof thecomparables assessment”.According to theTribunal it wasclear
whilecomputing their PLI. He, therefore, held the that any order passed by theAO can berevised by
assessment order to be erroneous in so far as it is the CIT. The order of the TPO u/s. 92CA of the
prejudicial to the interests of the revenue. The Act, is based on the reference of the AO and
assesseealso argued beforetheCIT that oneof the therefore, it is also part of the assessment record
comparable i.e. Tasty Bites Ltd. should not be and can be revised by the CIT u/s. 263 of the I.T.
considered ascomparablebecauseit did not satisfy Act.TheTribunal referredtotheCo-ordinateBench
one of the filters adopted by the TPO. The CIT of ITAT at Kolkatain thecaseof PhilipsLtd. v. Pr.
(IT& TP) did not accept the sameby holding that CIT [IT Appeal No. 1142 (Kol.) of 2016, dated
theissueof selection of comparableswasdecided 27-3-2019], wherein it washeld that thedirection
by the TPO & DRP and that if the assessee was of the DRP are to be considered as part of the

112 Ahmedabad Chartered Accountants Journal July, 2021

Tr ibunal News

assessment order and can besubjected to revision theTPO. Thereafter, pursuant to survey conducted
under section 263 of the Act. In view of this at office premises of HI, several incriminating
decision Tribunal did not have any doubt that TP documents were found, copies of which were
order is also part of assessment order and is thus obtained and inventorised. Statements of various
amenableto jurisdiction of theCIT u/s. 263 of the senior executives were also recorded. The AO
Act and particularly on theissueswhich werenot came to conclusion that assessee had a business
considered by theTPO and DRP. Thus, assessee’s connection in India under section 9(1)(i) and
groundsof appeal wasrejected on for thisreason. accordingly itsincomewould betaxablein India.
The DRP confirmed the order of AO/TPO. The
Huawei Technologies Co. L td. v. ADI T assesseeisin appeal beforetheTribunal.

11 (I nter nati onal Taxati on) 122 I ssue:
taxmann.com 130/ 187 I TD 782 (DEL )
Or der dat ed 9th December 2020, Whether HI not only constituted dependent
Assessment Year 2009-10 to 2016-17. agent PE of HC but also ser vice PE and fixed
placePE within ar ticle 5 of I ndo-China DTAA
Facts: asbusinessof HC in Indiawastotally dependent
on HI
TheassesseeHuawei China(HC) wasacompany
incorporatedinPeople’sRepublicof Chinaandwas Whether sincether e wasonly onecontr act for
primarily engaged in the business of supplying supply of equipment which included har dwar e
advanced telecommunication network equipment, and softwar e both, entir e income fr om supply
namely, core and access network equipment, of equipment was to be assessed as business
mobi l e network equi pment and data i ncome ar i si ng f r om assessee’s busi ness
communicationsequipment etc. for useinfixedand connection/PE in India
mobilephonenetworksandterminal products, that
is, mobile phone handsets to various customers Held
(including customersin India). It had asubsidiary
in India, namely, Huawei Telecommunications As per the Tribunal the facts on record show that
IndiaCompany PrivateLtd. (HI). During theyear real and intimate relationship existsbetween HC
under consideration, HC provided services to HI andHI, inasmuchas, thesaleof telecommunication
under the terms of Technical ServiceAgreement network equipment would serve no purpose of a
(TSA). HI was invol ved i n the provisi on of buyer unless the telecommunication network
integration, installation, and commissioning services equipment areinstalledandcommissionedand this
in relation to telecom network equipment supplied isdoneby HI in India. Hence, theactivitiesof HC
from outsideIndia. Theassesseeoffered revenues continue till the telecommuni cation network
accrued from provision of technical servicesto HI equipment areinstalledandcommissionedinIndia.
on gross basis and paid taxes in accordance with This entire sequence contributes directly to the
provisions of article 12 of DTAA between India earning of incomeof HC in itsbusinesseven if the
and China. Theassesseehad also earned revenue saletransaction hasbeen concluded outsideIndia.
on account of saleof telecom network equipment On consideration of the entire facts, it was found
and terminal equipment/mobilehandsetsbut had that thedominant purposeof theHC isnot to sell
not of f ered the revenue f or taxati on. The telecommunication equipment but to commission
international transactionsrelating to provision of it after duecustomization of hardwareandsoftware
techni cal servi ces and contract sof tware i n accordance wi th the requi rement of
development services were referred to the TPO, telecommunicationserviceprovider. Inother words,
which transactions were studied/analysed by the the Indian buyer’s business purpose would not
TPO and no adjustments were recommended by concludemerely onpurchasing of equipment from
HC, the same has to be customi zed and
commissioned to the satisfaction of the Indian

Ahmedabad Chartered Accountants Journal July, 2021 113

Tr ibunal News totally dependent onHI. Even wheresupplieshave
beenmadethroughHTL or Sterlite, theinstallations/
telecom service providers. Thus, the dominant commission havebeen doneby HI. Moreover, HI
purpose i s to set up the equi pment as per isnot capableof supplyingtheequipment andsince
requirement of the telecom service providers. thetechnology know-how and capability isowned
Moreover,thejoint biddingteamincludedresources by HC, HI could not have bid on its own, which
from Indian entity as well as HC, which clearly meansthat HI iseconomically dependent on HC,
hi ghl i ghts that the I ndi an resources were theassessee.
parti ci pating the bid process incl udi ng deal
negotiations along with Chinese resources. On Considering the factsin totality, and considering
perusal of theclausesof variousagreementsit was from all possible angles, it was held that HI not
evident that in the Good’s Sales Agreement for only constitutesdependent agent PEof HCbut also
supply of equipment,Article6.3 clearly provides Service PE and fixed placePE within article5 of
that theowner shall havetheright toreject theentire Indo-China DTAA.
shipment/goodsor part thereof
FI H I ndi a (P.) L t d. v. DCI T 126
In light of the aforesaid, it was viewed that the
assesseecontinuedtoundertaketherisk of rejection 12 taxmann.com 111 (Chennai)
of the supply in India and therefore, there is Assessment Year 2010-11 Or der dated
extension of business of the assessee in India in Febr uar y 8, 2021
respect of the supply of equipment to India. The
installation and other managed services were Facts:
carriedonby HI under supervision of HC. TheFTS
on account of such supervisory serviceshasbeen During thecourseof assessment proceedings, the
offered to tax. Accordingly, HI isnot equipped to AOnoticed that theassesseehasdebited anamount
install equipment supplied by HC and, therefore, towards Service Tax written off account. The
theact of installationhasbeen performed only with assesseehadavailedof variousinput servicesduring
thesupervision of HC resourceswhich meansthat thefinancial year relevant toassessment years2008-
supply and itsinstallation areintegral. Therefore, 09 & 2009-10 and has followed an accounting
the activity of supervision in connection with method whereby expenses have been debited to
installation doesconstitute‘installation PE’asper profit & lossaccount excluding ServiceTax. The
article5(2)(j) of India-ChinaDTAA whichprovides ServiceTax component paid against serviceshas
that abuilding siteor construction, installation or beenaccountedasinput tax credit adjustableagainst
assembly project or supervisory activities in output servicetax payableon servicesrendered by
connection therewith, where such site project or theassessee. But, becauseoutput servicesrendered
activities continue for a period of more than 183 by theassesseeareexempt from tax on account of
days. It isestablished with factson record clearly SEZ benefits, the assessee has carried forward
that HI iseconomically dependent on theassessee unutilized input tax credit to subsequent yearsand
asit hashandledthework of installationof telecom made aclaim before the ServiceTax Department
equipment supplied by HC on technical support for refund. But when theServiceTax Department
provided by HC. Further, the business of HI is hasrejected refund claim madeby theassesseefor
wholly and exclusively for equipment supplied by reasons best known to them, the assessee has
HC. In fact, HI cameinto existencewith an intent reversed input tax credit and debited into profit &
to aid thebusinessof HC in India. Factson record lossaccount andclaimedasexpendituredeductible
clearly showed that HI isnot capableof supplying u/s. 37(1) of the Act. The AO, held that Service
theequipment what it isbidding for. Productsto be Tax credit being rejected, cannot impact theprofit
supplied must cater to thespecific requirement of & lossaccount. Even it istobetreated asaprofit &
customer’s. Businessof HI istotally dependent on lossaccount item, it wasnever treated asincomeat
HC. In fact, the business of HC in India is also any point in timefor it to bewritten off. Even if the

114 Ahmedabad Chartered Accountants Journal July, 2021

Tr ibunal News

same was to be treated as claim of deferred current assetspending adjustment against output
expenditure, thesamepertainsto earlier yearsand taxes payable on goods or services. In this case,
isthereforeaprior perioditem whichisnot eligible theassesseehadaccounted input servicesexclusive
to be cl ai med as an i tem of expendi ture. of servicetax and treated servicetax component as
Accordingly, claim wasrejected. Being aggrieved input tax credit pending adjustment. Further, when
by the assessment order, assessee preferred an theapplication filedby theassesseefor refund was
appeal bef ore CI T(A ). The CI T(A ) af ter rejectedby theDepartment, theassesseehaswritten
considering relevant submissionsof the assessee off said input tax credit and debited in to profit &
rejected thearguments taken by theassessee and loss account. Therefore, per Tribunal the second
confirmed addition madeby theAO on theground observation of theAO would also fails. Regarding
that thesameisnot allowableasdeductionu/s.37(1) the third observation of theAO, that even if it is
of the Act. Aggrieved by the CIT(A) order, the deductibleasexpenditurebut said expenditureis
assesseeisin appeal beforeTribunal. relatableto earlier financial year and partakesthe
natureof prior perioditemwhichcannot beallowed
I ssue asdeduction., theTribunal did not find any merit
in theobservation for thereason that although part
Whether input ser vicetax cr edit wr itten off in of input tax credit pertainsto earlier financial year
books of account of assessee was to be allowed but thesamehasbeencarriedforwardtosubsequent
asdeduction under section 37(1) financial year asper theprovisionsof law. Further,
thesamehasbeen claimed asrefund with respective
Held department during the current financial year.
Therefore, when the input service tax credit is
As per the Tribunal the AO had not disputed the carried forward from earlier financial year to the
fact that theassesseehas not debited ServiceTax current financial year, it partakesthenatureof taxes
component paid on input servicesinto theprofit & paid for the current financial year and hence
loss account. Therefore, the tribunal was of the deductible as and when the assessee has debited
considered view that there was no merit in the into the profit & loss account. Therefore, on this
observation of theAO that it isnot an item of profit count also theobservation madeby theAO failed.
& lossaccount.Asfar assecond observation of the Tribunal further observed that it is well settled
AO that theassesseehasnever treated said service principleof law by thedecision of variouscourts
tax asanitemof income, thetribunal foundthat the and Tribunals that input tax credit/CENVAT is
assesseehaspaid servicetax on input servicesand deductible u/s. 37(1) of theAct, when such input
hencethequestion of treating said servicetaxesas tax credit isreversed or written off in thebooksof
an itemof incomedoesnot arisebecauseany taxes account. The Tribunal accordingly held that the
paid on purchase of goods or services is part of input servicetax credit wasdeductibleu/s37 of the
cost of goodsor serviceswhichcanbeeither debited Act.
to profit & lossaccount when theassesseehasnot
availed input tax credit or if assesseeavailsinput hhh
tax credit then theServiceTax component istaken
out from the profit & loss account and treated as

Congr atulations

CA. Chinubhai N. Shah, Past President of our Association,
on being appointed asaProfessional Director of Nutan Nagarik
Sahkari Bank Ltd.

Ahmedabad Chartered Accountants Journal July, 2021 115

Unreported
Judgements

In thisissue, wearegiving gist of two decisionsof CA. Sanj ay R. Shah
ITAT,Ahmedabad concerning following issues: [email protected]

(i) Whether C.I.T. (Appeals) can dismiss the Gist Only
appeal for want of prosecution on theground
that evenafter repeatedreminders, theassessee Factsof theCase:
– appellant did not remain present; and
1. The assessee is an individual engaged in
(ii) Whether provisions of section 2(22)(e) are investment and tradinginsharesandsecurities.
attractedwhen thereisinter-corporatedeposits The learned C.I.T. (Appeals) dismissed his
given by one company to another company, appeal ex-parte on the ground of non-
wherein common directors/ shareholdershold prosecution at theend of the assessee, which
morethan 10% sharesin equity. Though there theassesseechallenged beforetheTribunal. In
aremany decisionson thisissueavailable, it is C.I.T. (Appeals) order, it indicatesthat C.I.T.
just to drive home the point that issue of the (Appeals) hasissued noticesto theassesseeon
deemed dividend isbeing decidedby Tribunal five occasions but on each occasion, no one
and isnot kept pending dueto larger bench of appeared, and accordingly, learned C.I.T.
SupremeCourt seized of somemattersrelating (Appeals), after putting relianceupon various
to section 2(22)(e). decisionsof SupremeCourt and High Courts
including that of Bombay High Court in the
We hopethat thereaderswould find them useful. case of Chemipol Vs. Union of India, which
hold that every judicial and quasi-judicial
Annexur e - 1 authority isentitled to dismissthecasebefore
him on account of want of prosecuti on,
In theIncomeTax AppellateTribunal dismissed theappeal of theassessee.
Ahmedabad – Bench ‘A’
Held:
BeforeShri Rajpal Yadav,Vice-President
and 1. The Tri bunal hel d that consi deri ng the
provisions of section 250(6), it is mentioned
Shri WaseemAhmed,Accountant Member that order of C.I.T. (Appeals) disposing of the
appeal shall be in writing and shall state the
ITA No.2127/Ahd/2018 pointsfor determination, thedecision thereon
AssessmentYear: 2011-12 and thereason for thedecision.

Shri Bimal Jitendrabhai MehtaVs. ACIT, Cir.2 2. Interpreting the above provision of section
250(6), theTribunal held asunder:
Thane, Maharashtra Bhavnagar
“5. On perusal of section would indicatethat
(Appellant) (Respondent) theld.CIT(A) was required to formulate
points in dispute, and thereafter record
Assesseeby : Shri M.J. Shah, AR reasons on such points. No doubt the
Respondent by: Shri VirendraOjha, CIT-DR l d.CI T(A ) has gi ven number of
opportunitiesto theassesseeto attend the
Dateof hearing : 24-06-2021

Dateof pronouncement : 05-07-2021

116 Ahmedabad Chartered Accountants Journal July, 2021

Unr epor ted Judgments

hearing, but theassesseedidnot avail and Gist Only
remained absent, which ipso facto would
not empower theld.CIT(A) to passan ex Factsof theCase:
parteorder without going to themerit of
thecasesand without making aspeaking 1. TheassesseeisaLimited Company, in which
order, because, rationale for passing a the public arenot substantially interested. In
speaking order based on the material thecourseof assessment proceedings, theAO
availableonrecordisthat, such ordersare inter alianoticed that theassesseehasavailed
subject to further appeal, and such order unsecured loan from group concern, namely,
wouldenablenot only thelitigantsandthe Cama M otors Pvt. L td. to the tune of
appellateauthority toknow theexact point Rs.1,71,90,000/-. It was found that common
of disputefor adjudication. In theinstant Directorsof theassesseecompany hold more
case, even i f the assessee di d not than 10% of the share capital in the lender
participate, the ld.CIT(A) ought to have company. The AO accordi ngl y, i nvoked
gonethrough the assessment record and provisions of section 2(22)(e) and made an
thereafter formedthepoint indispute, and addition of Rs.1,71,90,000/- in the hands of
should haverecorded reasonsin support theassesseeunder section 2(22)(e) of theAct.
of his conclusions on those points. The BeforeC.I.T. (Appeals), theassesseerelied on
ld.CIT(A) failed to adherethemandatory theSpecial Benchdecisionof Bhaumik Colour
procedure, hence hi s order i s not Pvt. Ltd. – 118 ITD 1 and C.I.T. (Appeals)
sustainable. We allow this appeal of the considering the said decision deleted the
assesseeandset asidetheimpugned order addition.
of the ld.CIT(A) for fresh adjudication.
Needless to mention here, the assessee 2. BeforetheTribunal, theassesseeraised 2 fold
shall cooperatein theset asideappellate contentions:
proceeding, and would not indulge in
unnecessary delay tactics. (i) the unsecured loan received was in the
ordinary courseof businessfor which the
6. In theresult, appeal of theassesseeisallowed interest has been charged by the lender
for statistical purpose.” company and such transactions was also
therein earlier assessment years, wherein
Annexur e – 2 theaddition madeby theAO wasdeleted
by C.I.T. (Appeals) and confirmed by
In theIncomeTax AppellateTribunal ITAT.

Ahmedabad – Bench ‘A’ (ii) the detail s of shareholding of l ender
company andtheassesseecompany would
BeforeShri Rajpal Yadav, Vice-President, and show that theassesseecompany doesnot
Shri Pradip Kumar Kedia,Accountant Member hold any share in the lender company
which have given loan to the assessee.
ITA No.430/Ahd/2016 Further, noneof theshareholdersof lender
AssessmentYear: 2012-13 company holding more than 10% of its
share capital holds 20% or more of the
DCIT, Circle1(1)(2) Vs. M/s. CamaHotelsLtd. voting power in theassesseecompany, and
therefore, theprovisionof section 2(22)(e)
Ahmedabad Ahmedabad. of theAct isnot applied.

(Appellant) (Respondent)

Assesseeby : Shri S.S. Shukla, Sr. DR
Respondent by: Shri Rajesh C. Shah, A.R.

Dateof hearing : 03-03-2021

Dateof pronouncement : 06-07-2021

Ahmedabad Chartered Accountants Journal July, 2021 117

Held: Unr epor ted Judgments

1. The Tribunal, after considering the fact that advances given by thelender was not for the
noneof theshareholdersof thelender company individual benefit of the shareholder but for
is holding 10% or more of the voting power busi ness purposes, and therefore, such
holds substantial interest i n the assessee transactionswould not behit by provision of
company thebasicconditionof section2(22)(e) section 2(22)(e) of theAct.
doesnot apply. Secondly, theTribunal alsotook 2. TheTribunal, accordingly, upheldthedeletion
note of the plea that the lender company has of such addition by C.I.T. (Appeals) and
given interest bearing loan to theassesseeand dismissed the appeal of the Revenue on this
the l oan i s not interest free. Under such count.
circumstances, theCalcuttaHigh Court in the
case of Pradip Kumar Malhotra vs. CIT – hhh
(2011) 338 ITR 538 (Cal) observed that

Continued fr om page 94 Ar ticle : Deductibility of Capital Gains u/s 54 and
54F of the I ncome Tax Act, 1961

does not coincide with the plain language On a safe side, I woul d like to opine to all
employed under section54(2) of theAct.”The future assessees that regardless of the case,
Hon’ble Bombay High Court in the case of once you are planning to take benefit of S. 54/
Humayun Suleman Merhant (2016) 73 54F, i t i s better to i nvest the enti re sal e
taxmann.com 2 held that sincetheunutilized consideration received upon sale of original
amount of saleconsiderationwasnot invested asset in CGAS to avoid any litigations.
in CGAS before filing return u/s 139(1), the
AO is right in giving restricted amount of To sum up, sincethese provisions have been made
exemptionu/s54proportionately totheamount beneficial to the assessee, the cour ts have by and
invested. lar ge constr ued it liber ally. Although it should be
r emember ed that while claiming exemption, the
I concur with the decision of the Ahmedabad assessee must act in tandem and not against the
ITAT (supra) that if the assessee is unsure of guidelines (set out in these pr ovisions. I f by and
uti l i zi ng the enti re sal e consi derati on i n lar ge these pr ovisions ar e complied with and if in
purchase/construction of the new asset within substancetheconditionsar efulfilled, a mer esmall
the time limit for filing extended due date of deviation will not di senti tle the assessee fr om
return u/s 139(4), then he has to invest the claiming exemption.
unutil i zed porti on of sal e consideration i n
CGAS within the time limit for filing return u/
s 139(1).

hhh

118 Ahmedabad Chartered Accountants Journal July, 2021

Controversies

CA. K aushik D. Shah
[email protected].

I ssue: only against ‘incomefrombusiness.It washeld
Whether deduction u/s80-IA should belimited to by the Assessi ng Offi cer that deducti on
businessincomeor GrossTotal income? computedunder Section80-IA of theAct could
not be allowed against any source other than
Pr oposition: business.

Section 80-IA Wherethegrosstotal incomeof an View in favour of proposition:
assesseeincludesany profitsand gainsderived by
an undertaking or an enterprisefrom any business - In the Commissioner of Income Tax v. M/s
referred to in sub-section (4) (such businessbeing RelianceEnergy Ltd theCIT(A) directed the
hereinafter referredtoastheeligiblebusiness), there Assessing Officer not to restrict thededuction
shall , in accordance wi th and subj ect to the admissible under Section 80-IA of theAct to
provisionsof thissection, beallowed, incomputing i ncome under the head ‘busi ness’. The
thetotal incomeof theassessee, adeduction of an Assessing Officer was further directed to
amount equal to hundredper cent of theprofitsand aggregatethededuction under Section 80-IA
gainsderivedfromsuchbusinessfor tenconsecutive of theAct with theother deductionsavailable
assessment years. It is proposed that thescope of to theassesseeand then to allow deductionsof
the act is limited to determination of profit from such aggregateamount to theextent of ‘gross
eligiblebusinessand doesnot restrict to theextent total income’. The order of the Appellate
of business income only and to be calculated on Authority wasaffirmed by theTribunal and the
Grosstotal incomeof business, alsosection 80-AB High Court on thisissue.
isto bebrought into consideration of same.
- Further TheHon’bleSupremeCourt expressed
View against theproposition: agreement with theAppellateAuthority that
Section 80AB of the Act which deals with
Asper section 80-AB of theAct, theprofit linked determination of deductions under Part C of
deduction from eligible business can only be Chapter V I -A i s wi th respect onl y to
allowed against incomeof thesamenaturealone. computation of deduction on thebasisof ‘net
income’.
- As per Commissioner of Income Tax V. M/s
RelianceEnergy Ltd(2021) theAssessing(AO) - TheHon’bleSupremeCourt observed that the
stated that “Incomefrom Business” alonehad ‘gross total income’ of the assessee for the
to be considered for allowing any deduction relevant assessment year was less than the
computed on “Incomefrom business” and using quantum of deducti on determi ned under
the same analogy deduction computed on Section 80-IA of theAct.
“Income from other sources” should be
allowed against income from other sources - Theassessee’scontended that incomefrom all
only.Asthededuction under Section 80-IA of other heads including ‘income from other
the Act pertains to profits and gains from a sources’, inadditionto‘businessincome’, have
businessundertaking, thededuction isallowable
Continued to page131

Ahmedabad Chartered Accountants Journal July, 2021 119

Judicial
Analysis

AdvocateTushar Hemani
[email protected]

No penalty on the income disclosed dur ing 6 PR. CI T vsR Umedbhai Jeweller s Pvt.
Sur vey and duly incor por ated in the r etur n of L td. (Tax Appeal No. 549 of 2016)
incomefiled thereafter.
2.1 The respondent – assessee is a company
5 CI T vs ROOP CREATI ON (P) LTD engagedinthebusinessof tradingingold, silver
(TAX APPEAL No. 621 of 2011) and diamond jewelery. Theassesseecompany
was incorporated during the financial year
It emergesfrom therecordthat theassesseefiled its 2009-2010.A survey operation under Section
return of incomewhich wastaken in scrutiny and 133A of the Income-Tax Act,1961 (for short
the assessment order under section 143(3) was ‘the Act’) was conducted i n case of the
passedwheretheAssessingOfficer initiatedpenalty company on 1.7.2010. During the course of
proceedingsandultimately leviedpenalty of amount survey, the company made a disclosure of
Rs.31,97,700/-. ThiswaschallengedbeforetheCIT Rs.5.86 crores(rounded off) on theground of
(Appeals) whi ch del eted the penal ty. When introduction of bogussharecapital during the
challenged beforetheTribunal, it upheld theorder financial year 2009-10. Such disclosureswere
of theCIT (Appeals), which isunder challengein duly matchedby other investigationcarriedout
thepresent Tax Appeal proposing aforementioned by thedepartment.
question of law.
2.2 On 31.8.2010, theassessee– company filed a
TheTribunal hasessentially reliedonanearlier case returnof incomefor theAssessmentYear 2010-
of Dr.Satish Gupta where identical question had 11 declaring total income of Rs.6.29 crores
been decided. It found that therewasno variation (rounded off) which incl uded the above-
in thereturned incomeand therefore, therewasno mentioned disclosureof Rs.5.86 croresmade
basisfor levyingof penalty. It emergesfurther from during the survey. No further additions were
the record that neither there was any question of made by the Assessing Officer during the
concealment of any particularsof incomenor was assessment proceedings.He, however, initiated
thereany other basisprovided for upholding levy penalty proceedingsconcerning thesaid sum
of penalty. The only reason why the Assessing of Rs.5.96 crores on the premise that the
Officer had justified in levying of penalty wasthe assessee had sought to evade tax on the said
materi al found duri ng the course of survey sum.By anorder dated30.8.2013,after hearing
indicating unaccounted receivables. TheTribunal the assessee, he imposed penalty of Rs.1.99
noted specifically that neither explanation 5 to crores(rounded off) @100 per cent of thetax
section 271(1)(c) wasapplicablenor wasit acase sought to beevaded.
wheretheassesseehadnot declaredthesurrendered
incomein thereturned incomewithintheduedate. xxx…

There being no infirmity in the reasons given by 6. To our mind, such penalty could not havebeen
theTribunal,theissuerequiresnofurther meritorious imposedasrightly heldby theTribunal.Section
consideration and the Tax Appeal is therefore, 271 of theAct providesfor penalty. Clause(c)
required to bedismissed.Accordingly, Tax Appeal of sub-section (1) of Section 271 of the Act
isdismissed.

120 Ahmedabad Chartered Accountants Journal July, 2021

provides that if theAssessing Officer during Judicial Analysis
thecourseof any proceeding under theAct is
satisfied that any person has concealed the offers an explanation which he is not able to
particularsof hisincomeor furnishedinaccurate substanti ate or fai l s to prove that such
particularsof such income, hemay direct such explanation isbonafide, theamount added or
person to pay by way of penalty which shall disallowed in computing total incomeof such
not be less than, but which shall not exceed person, as a result thereof for the purpose of
three times the amount of tax sought to be clause (c) of sub-section (1) be deemed to
evaded by the reason of conceal ment of represent the income in respect of which
particularsor furnish inaccurateparticularsof parti cul ars have been conceal ed. Thi s
such income. Relevant provision or Section explanation would, thus, apply at thestageof
271 of theAct reads, thus; assessment sinceit refersto in respect of any
facts material to the computation of total
xxx… income.At such astage. If theassesseefailsto
offer an explanation or offersan explanation
7. As noted, the revenue desired to bring in the which is found to be false, the explanation
element of the assessee having furnished would apply and by deeming fiction, the
inaccurateparticulars of its income. The fact assesseewould befor thepurposeof clause(c)
that theassesseedid makeadisclosureof such of sub-section (1) of Section 271 of theAct be
income in the return filed and theAssessing deemed to have concealed the particulars of
Officer wasnot dissatisfied by such disclosure theamount added or disallowed in computing
isnot in dispute. Theassesseehaving filed the total incomeof theassessee.
returnby theduedatefor filingreturn, inwhich
such income was also offered to tax, the xxx…
question of assessee having furnished in
accurateparticulars of the incomewould not 7 CI T v. SAS Phar maceuticals [2011] 11
arise. taxmann.com 207 (Delhi)

8. It may be that the assessee was subjected to 6. In this context, the question would be as to
search operation beforefiling of thereturnand whether theassesseecan beimposed penalty
it may also bethat the revenue has sufficient under section 271(1)(c) of the Act when the
material at its command to argue that but for assesseehasshownthisincomein theincome-
the survey operation the assessee would not tax return filed by it and contends that it has
have disclosed such income. However, these voluntarily declared the same in the ‘regular
arenot thegroundson which thepenalty under return filed for therelevant year’.
Section 271(1)(c) of theAct can beimposed.
The grounds are specific, namel y, of the 7. To seek an answer, it would be necessary to
assessee having concealed particulars of the look into thelanguageof section 271(1)(c) of
i ncome or havi ng furni shed i naccurate theAct. Thisprovision readsasunder :
particulars of such income. When neither of
thesetwo conditionsapply, penalty cannot be xxx…
levied under thesaid provision.
8. As pointed out above, the contention of the
9. Attempt on thepart of counsel for therevenue Department isthat theintention of theassessee
to rely upon explanation (1) to Section 271(1) in maintaining false records relating to cash,
of the A ct woul d al so be f uti l e. Sai d stock and renovation, etc., wasmanifest, viz.,
explanation provides that if a person fails to to conceal the particul ars of income and
offer anexplanationor offersexplanationwhich furnishedinaccurateparticularsof suchincome.
isfound by theAssessing Officer to befalseor It wascontended that but for thesaid survey in
which the assessee was exposed, he would
havefiledtheincome-tax returnconcealingthe

Ahmedabad Chartered Accountants Journal July, 2021 121

saidincomeandtherefore, provisionsof section Judicial Analysis
271(1)(c) of theAct areclearly attracted.
wherever theLegislatureintendedto imposea
9. The learned counsel for the assessee, on the penal liability coveringacasewherereturnwas
other hand, contendsthat clause(c) of section yet to be filed, a deeming fiction has been
271(1) of theAct makesit crystal clear that the consciously provided. In the absence of any
act of ‘concealment’or ‘furnishing inaccurate such deeming fiction imposing penalty in a
particulars’isrelatableonly inrespect of areturn caseof survey where return is yet to befiled,
beingfiled. Therefore, inacasewherethestage the penal provision of section 271 of theAct
of filingreturnitself hadnot beenreached, there cannot beinvokedasthemandatory ingredients
is no question of invocation of the penal thereof arenot met at all.
provision of section 271 of theAct, as is the
positionin thepresent case. In thepresent case, 11. He also sought to draw sustenance from the
thereturn wasfiled well within theprescribed judgment of SupremeCourt in thecaseof CIT
time, i.e., on 2-12-2003 and in thesaid return v. ReliancePetroproducts(P.) Ltd. [2010] 322
the entire amount had been duly shown as ITR158 / 189Taxman 322wherein, inter alia,
income. Therefore, invoking apenal provision it hasbeenheldthat unlesstheconditionsunder
merely on the basis of assumption that the section 271(1)(c) of theAct exist inaparticular
assessee ‘would not have included’the said case, penalty cannot be imposed and it was
amount while filing his return is completely further held that 271 of theAct being apenal
erroneous and unsustainable. It is a settled provision isrequired to beconstrued strictly.
positionof law asenunciatedinvariousjudicial
pronouncementsthat ‘penalty cannot bebased xxx…
on presumptions and surmises’. It was also
argued that thelegislativeintent in connection 12. After considering therespectivesubmissions
with section 271 of theAct isfurther fortified of thelearned counsel for theparties, weareof
from thevariousExplanationsprovided in the the view that the argument of the learned
said provision. In thisregard, Explanation 4is counsel for the assessee has to prevail as it
relevant wherein it isspecifically provided as carried substantial weight. It is to be kept in
to what would be included in the expression mindthat section271(1)(c) of theAct isapenal
‘theamount of tax sought totheevaded’,which provision and such aprovision hasto bestrictly
i s the basi s f or i mposi ti on of penal ty construed. Unlessthecasefallswithinthefour-
contemplated under section 271(1)(c) of the corners of the said provision, penalty cannot
Act. Theperusal of thesaid Explanation also be imposed. Sub-section (1) of section 271
clearly establishesthedirect nexusbetweenthe sti pul ates certai n conti ngenci es on the
concealment/i naccurate particul ar bei ng happening whereof theAssessing Officer or
furnished with thereturn filed. the Commi ssi oner (Appeal s) may di rect
payment of penalty by the assessee. We are
10. To bolster thissubmission, thelearnedcounsel concerned herewi th the fundamental i ty
for theassesseetook refugeof Explanation 5 provided in clause(c) of section 271(1) of the
and Explanation 5A of section 271 of theAct Act, which authorizes imposition of penalty
andsubmitted that theseExplanationsprovide when theAssessing Officer issatisfied that the
that in cases of search by way of deeming assesseehaseither;
fiction, theliability towardspenalty hasbeen
prescribed even in cases where the return of (a) Concealed the particularsof his income;
income for such year has not been furnished or
before the said date of search. Therefore,
(b) Furnished inaccurate particulars of such
income.

13. It is not the case of furnishing inaccurate
particular of income, as in the income-tax

122 Ahmedabad Chartered Accountants Journal July, 2021

return, particulars of income have been duly Judicial Analysis
furnished and the surrendered amount of
income was duly reflected in the income-tax 328 and in Reliance Petroproducts (P.) Ltd.
return. Thequestion iswhether theparticulars (supra), theSupremeCourt hasclinched this
of income were concealed by the assessee or aspect, vi z., the assessee can furnish the
not. It would depend upon the issue as to parti cul ars of i ncome i n hi s return and
whether thisconcealment hasreferenceto the everything would depend upon theincome-tax
income-tax return filed by the assessee, viz., return filed by the assessee. This view gets
whether concealment is to be found in the supported by Expl anati on 4 as wel l as
income-tax return. Explanations 5 and 5A to section 271 of the
Act as contended by the learned counsel for
14. Wemay, first of all, reject thecontention of the therespondent.
learned counsel for therevenuerelying upon
theexpression‘inthecourseof any proceedings 16. No doubt, thediscrepancieswerefoundduring
under thisAct’occurring in sub-section (1) of thesurvey. Thishas yielded incomefrom the
section271of theAct andcontendingthat even assesseein theform of amount surrendered by
during survey when it was found that the theassessee. Presently, wearenot concerned
assessee had concealed the particular of his with the assessment of income, but the moot
income, it would amount concealment in the questionistowhether thiswouldattract penalty
courseof ‘any proceedings’. Thewords‘inthe upon the assessee under the provisions of
courseof any proceedingsunder thisAct’are section 271(1)(c) of the Act. Obviously, no
prefaced by the satisfaction of theAssessing penalty can beimposed unlesstheconditions
Officer or the Commissioner of Income-tax stipulated in thesaid provisionsareduly and
(Appeals). When thesurvey isconducted by a unambiguously satisfied. Sincetheassesseewas
survey team, the question of satisfaction of exposed during survey, may be, it would have
Assessi ng Offi cer or the Commi ssi oner not disclosedtheincomebut for thesaidsurvey.
(Appeals) or theCommissioner doesnot arise. However, therecannot beany penalty only on
Wehavetokeepin mind that it istheAssessing surmises, conjecturesandpossibilities. Section
Officer who initiated thepenalty proceedings 271(1)(c) of theAct hastobeconstruedstrictly.
and directed the payment of penalty. He had Unless it is found that there is actually a
not recorded any satisfaction duringthecourse concealment or non-disclosureof theparticulars
of survey. Deci si on to i ni ti ate penal ty of income, penalty cannot beimposed. There
proceedi ngs was taken whi l e maki ng is no such concealment or non-disclosure as
assessment order. It is, thus, obvious that the the assesseehad made acomplete disclosure
expression ‘in thecourse of any proceedings in the income-tax return and offered the
under this Act’cannot have the reference to surrendered amount for thepurposesof tax.
survey proceedings, in thiscase.
17. We, thus, answer thequestionsasformulated
15. It necessarily follows that concealment of above, in favour of the assessee and against
particularsof incomeor furnishingof inaccurate therevenuefinding nofault with thedecisions
particular of incomeby theassesseehasto be of the CIT(A) as well as the Tribunal. As a
in the income-tax return filed by it. There is result, thisappeal isdismissed.
sufficient indication of thisin thejudgment of
this Court in the case of CIT v. Mohan Das hhh
Hassa Nand [ 1983] 141 ITR 203 / 13Taxman

Ahmedabad Chartered Accountants Journal July, 2021 123

Analysis of Recent Ruling of CA. K ar an Sukhr amani
Delhi High Court on Granting [email protected]
of Benefit of MFN Clause

CA. Dhinal A. Shah
[email protected]

Backgr ound “If after thesignatureof thisconvention under any
Conventionor Agreement betweenIndiaandathird
A Most Favoured Nation (MFN) clause hasbeen Statewhichisamember of theOECD, Indiashould
an important feature in the context of India’s limit itstaxation at sourceon dividends, interests,
international tradingpolicy. Inatax treaty or double … . to a ratelower or a scopemorerestricted than
tax avoidance agreement (‘DTAA’) context, the the rateor scopeprovided for in this Convention
MNF clause is incorporated where one of the on thesaid itemsof income, then asfromthedate
Contracting Country decidesto grant MFN status on which the relevant Indian Conventi on or
to theother Contracting Country in relation to the Agreement entersinto forcethesamerateor scope
specified income streams. In an MFN situation, as provided for in that Convention or Agreement
generally oneof thecontractingstatestoatax treaty on thesaid itemsof incomeshall also apply under
(say India) grantsresidentsof theother contracting thisConvention.”
state(say Netherland), thesamebeneficial treatment
madeavailableby it (i.e. by India) to theresident to It may benoted that some of Indian DTAAs with
third country (say Germany). countrieslike Slovenia, Lithuania and Columbia
(which areOECD member countries) providefor
Thebeneficial treatment may taketheformof lower a lower withholding rate of 5% for dividend
tax rate of source country taxation or a restricted taxationsubject toconditions. Thesecountrieswere
scopeof definitionof aparticular incomestream or not OECD memberswhen DTAA wasentered into
in any other manner as the negotiating tax treaty by India, but became OECD members only at a
partnersdecide. later date, post 2010.

MFN clause in tax treaty signed between India- In above context, a question arises as to whether
Netherland by virtue of DTAA between India and Slovenia
(an OECD member country), the concessional
India- Netherland DTAA wasentered in 1989 and withholdingrateof 5%ondividendpaymentsmade
wassubsequently amended by way of Notification by Indian companiesto resident of Netherland can
1 dated 30 August 1999. As per DTAA, dividend be appl i ed, whi ch i s otherwi se subj ect to
paid by Indian entitiesto residentsof Netherlands, withholding @10%.
whoarebeneficial ownersof suchdividend, isliable
to withholding tax at aratenot exceeding 10%. Recent Decision of Delhi High Court in case of
Concentrix Services Netherlands B.V. and Optum
Further, protocol to DTAA has an MFN clause Global Solutions International B.V.
which statesthat if Indiaentersinto aDTAA on a
later datewithathirdcountry, which“is”anOECD TheTaxpayers, beingresident of Netherlands, were
member, providing a beneficial rate of tax or contemplating toreceivedividend incomefrom its
restrictivescopefor taxation of dividend, interest, wholly-owned Indian subsidiaries.
royalty, etc. asimilar benefit should beaccorded to
India-Netherlands DTAA as well. The relevant The Taxpayers made an application with the tax
extract of theMFN clauseisasbelow: authority togrant alower ratewithholdingcertificate
under theITL, wherein the request wasto permit

124 Ahmedabad Chartered Accountants Journal July, 2021

Analysis of Recent Ruling of Delhi High Cour t on Gr anting of Benefit of M FN Clause

remittanceof dividend by Indian companiesafter issuing aseparatenotification in order to apply
withholding taxesat lower rateof 5% asper I-NL the provisions of the protocol. Reliance was
DTAA read with MFN clauseand India’sDTAAs placed on theDelhi High Court decision in the
with Slovenia/ Lithuania/ Columbia. case of Steria (India) Ltd. v. CIT [[2016] 386
ITR 390].
Thetax authority issuedawithholdingtax certificate
statingthat thetaxeswill berequired tobewithheld - The MFN clause, which forms part of the
at the rate of 10% as per I-NL DTAA when protocol, incorporates the principle of parity
dividend incomeisremitted. between I-NL DTAA and theDTAAsexecuted
with thethird statesthereafter by Indiaquathe
TheTaxpayerscontended that thebenefit of MFN rateof withholdingtax or thescopeof theDTAA
clause was automatic and triggered the moment in respect of items of i ncome concerni ng
Indiaenteredintoabeneficial DTAA withamember dividends, interest, royalties, etc.
of OECD and there was no requirement to issue
any specificnotificationtoaccordthebeneficial rate - Asper theMFN clause, theprincipleof parity
of 5%.Aggrieved by thesame, theTaxpayersfiled is applicable if the following conditions are
writ petitionsbeforetheDelhi HC. satisfied:

Department’s Contention o Thethird statewith whom Indiaentersinto a
DTAA should be a member of the OECD.
Slovenia, Lithuania, andColumbiawerenot OECD
memberson thedatewhen Indiaexecuted DTAAs o The DTAA executed with the third state
with thesecountries.Accordingly, theMFN benefit limitstherateof withholding tax imposed by
given to these countries is in their own right and Indi a at a rate l ower or a scope more
was not due to the fact that they were OECD restricted, than therateor scopeprovided in
members. the subject DTAA, i.e., I-NL in the present
case.
Further, the benefit of MFN clause would be
availableonly if thecountry withwhichIndiaenters - On satisfaction of the above conditions, the
into aDTAA wasan OECD member at thetimeof benefit of lower withholdingtax or therestricted
execution of the subject DTAA (i.e. I-NL in the scope of DTAA with the third state should be
present case). However, Slovenia, Lithuania and applicable to I-NL DTAA from the date when
Columbiawerenot OECD memberson thedateof the DTAA with the third country comes into
execution of I-NL DTAA and became members force
only on a later date. Thus, MFN clause of I-NL
DTA A have no appl i cabi l i ty. Further, no - Further, thecontention of thetax authority that
notification hasbeen issued in order to giveeffect the benefit of MFN clause would be available
to the MFN clause of I-NL DTAA. only if thecountry with which Indiaentersinto
a DTAA was an OECD member at the time of
Ruling of Delhi High Court execution of thesubject DTAA (i.e. I-NL in the
present case) is misconceived and contrary to
The Hi gh Court granted the benefi t of 5% theplain languageof I-NL DTAA. Rather, there
withholding tax rateon dividend incomeby virtue could be a hiatus between the dates on which
of MFN clause of I-NL DTAA and based on the the DTAA is executed between India and the
below reasoningsruled that the10% withholding third state and the date when such third state
certificatesshould bequashed and afresh certificate becomesamember of OECD. TheMFN clause
indicatinglower rateof 5%shouldbeissuedby the can only apply when the third state fulfils the
tax authority: attributeof being amember of theOECD.

- Theprotocol of aDTAA formsan integral part - On thecontentionof thetax authority that MFN
of the DTAA and there is no requirement of clauseof I-NL DTAA can bemadeapplicable

Ahmedabad Chartered Accountants Journal July, 2021 125

Analysis of Recent Ruling of Delhi High Cour t on Gr anting of Benefit of M FN Clause

only incaseswherethethirdstate“is”amember o I n the present case, Netherl ands has
of OECD on thedatewhen theDTAA hasbeen interpreted the MFN clause in a particular
entered into with India, whereas the DTAAs way and, therefore, theprincipleof common
withSlovenia/Lithuania/ Columbiawereentered interpretation should apply on all fours to
into with India when these countries were not ensureconsistency andequal allocationof tax
OECD membersand becameOECD members claimsbetween thecontracting states.
only onalater date, theHighCourt hasobserved
asbelow: o While interpreting international treaties
including DTAAstherulesof interpretation
o Theword “is” describesastateof affairsthat that apply todomesticor municipal law need
should exist not necessarily at thetimewhen not be applied, as international treaties,
I-NL DTAA was executed but when a conventions and DTAAs are negotiated by
request ismadeby thepayer or deducteefor di pl omats and not necessari l y by men
issuance of a lower rate withholding tax instructed in thelaw.
certificateunder theITL
o Therefore, i nterpretati on of DTAAs i s
o AssumingtheDTAA languageissusceptible liberated from the technical rules which
totworeadings,togleantheintent of theIndia govern the interpretati on of domesti c/
and Netherlands in framing MFN clause municipal law. Thecorefunction of aDTAA
reliancecan beplaced on the decreeissued should be seen to aid commercial relations
by Netherlands, wherein Netherlands has and equitabledistribution of tax revenuesin
provided thebenefit of 5% withholding tax respect of incomewhich fallsfor taxation in
with referenceto participation dividend paid both thecontracting States.
by companies resident in Netherlands to a
body resident in India from the date when Concluding Remarks
Sloveniabecameamember of OECD.
TheHigh Court decision providesguidance well
o Asper “commoninterpretation”rule, inorder in timeastheissueof lower withholding pursuant
toallocatetax claimsequally betweenthetwo toMFN clausehasbeenatopicof debateespecially
contractingstates,thecourtsof thecontracting dueto switch over to classical system of dividend
statesarerequired to ensurethat DTAAsare taxation in India from tax year 2020-21 and
applied efficiently and fairly so that thereis onwards. The High Court reiterates that MFN
consistency i n the interpretation of the clause has automatic application and there is no
provisionsby thetax authority and courtsof requirement of any notification in order to trigger
theconcerned states. However, thecommon MFN clause. Further, by applyingtheprinciplesof
interpretation ruleshould beapplied with care parity, the High Court has granted the benefit of
and caution having regard to thefact that the lower rate pursuant to MFN clause as agreed by
view expressed coul d be unique and/or Indiain other relevant DTAAsentered into after I-
personal tothetax authority or acourt. Hence, NL DTAA was executed.
an attempt should bemadeto chooseaview
that findsgeneral acceptancewith courtsand hhh
authorities.

126 Ahmedabad Chartered Accountants Journal July, 2021

FEMA CA. Savan Godiawala
Updates [email protected]

5 L iber alised Remittance Scheme for of US$ 2.2 billion (0.3 per cent of GDP) in the
Resident I ndividuals– Repor ting preceding quarter, i.e., Q3:2020-21.·

Thisreferst to A. P. (DIR Series) Circular No. 106 The current account deficit in Q4:2020-21 was
dated May 23, 2013, i n terms of which, AD primarily on account of ahigher tradedeficit and
Category -I bankswererequired to upload thedata lower net invisiblereceiptsthaninthecorresponding
in respect of number of applicationsreceived and period of thepreviousyear.·
the total amount remitted under the Liberalised
RemittanceScheme(theScheme) onOnlineReturn Net servicesreceiptsincreasedontheback of arise
Filing System (ORFS). in net earnings from computer, transport and
businessserviceson ayear-on-year basis.·
It hasnow been decided to collect thisinformation
through XBRL system instead of theORFS. Private transfer receipts, mainly representing
remi ttances by Indi ans empl oyed overseas,
Accordingly,AD Category – I banksshall upload increased to US$ 20.9 billion, up by 1.7 per cent
the requisite information on XBRL system on or from their level ayear ago.·
beforethefifth of thesucceeding month from July
01, 2021 onwards. TheXBRL sitecanbeaccessed Net outgo from the primary income account,
through URL https://xbrl.rbi.org.in/orfsxbrl. User primarily reflectingnet overseasinvestment income
idsarebeing issued separately. In caseno dataisto payments, increased to US$ 8.7 billion from US$
befurnished,AD banksshall upload ‘nil’figures. 4.8 billion ayear ago.·

Sour ce:RBI /2021-22/56A . P. (DIR Seri es) In the fi nanci al account, net forei gn di rect
Circular No. 07, dated June17, 2021 investment at US$ 2.7 billion waslower than US$
12.0 billion in Q4:2019-20.·
For ful l text r efer :https://rbi .org.in/Scri pts/
BS_CircularIndexDisplay.aspx?Id=12115 Net foreignportfolio investment (FPI) increasedby
US$ 7.3 bi ll ion – mai nl y on account of net
Devel opments in I ndia’s Balance of purchasesintheequity market – asagainst adecline
of US$ 13.7 billion in Q4:2019-20.·
6 Payments dur ing the Four th Quar ter
(Januar y-M ar ch) of 2020-21 Net external commercial borrowingsto Indiawas
l ower at US$ 6.1 bi l l i on i n Q4:2020-21 as
Preliminary data on India’s balance of payments compared with US$ 9.4 billion ayear ago.·
(BoP) for the fourth quarter (Q4), i.e., January-
March 2020-21, are presented in Statements I There was an accretion of US$ 3.4 billion to the
(BPM6 format)and II (old format). foreign exchange reserves (on a BoP basis) as
compared with an accretion of US$ 18.8 billion in
Key Featuresof India’sBoPin Q4:2020-21· Q4:2019-20 (Table1).

India’scurrent account balance(CAB) recorded a BoP dur ing 2020-21·
deficit of US$ 8.1 billion (1.0 per cent of GDP) in
Q4:2020-21 asagainst asurplusof US$ 0.6 billion Thecurrent account balancerecorded asurplusof
(0.1 per cent of GDP) in Q4:2019-20 and adeficit 0.9 per cent of GDPin 2020-21 asagainst adeficit

Ahmedabad Chartered Accountants Journal July, 2021 127

FEM A Updates

of 0.9 per cent in 2019-20 on the back of a sharp Depreciation of the Indian rupee against the
contractioninthetradedeficit toUS$ 102.2billion US dollar during the quarter contributed to
from US$ 157.5 billion in 2019-20.· changes in India’s liabilities, when valued in
theUSdollar terms.
Net invisible receipts werelower in 2020-21 due
to increase in net outgo of overseas investment Reserveassetsaccounted for over two-thirds
income payments and lower net private transfer of India’sinternational financial assets.
receipts, even though net services receipts were
higher than ayear ago.· Non-debt liabilitieshad 52.4 per cent sharein
India’sexternal liabilities.
Net FDI inflows at US$ 44.0 billion in 2020-21
werehigher than US$ 43.0 billion in 2019-20.· II . Annual Var iations:

Net FPI increased by US$ 36.1 billion in 2020-21 During 2020-21, non-residents’net claimson
ascompared to US$ 1.4 billion ayear ago.· Indiareducedby US$ 22.7 billion: increasein
overseasassetsof Indian residents(US$ 141.2
External commercial borrowingsto Indiarecorded billion) exceeded the rise in foreign owned
inflow of US$ 0.2 billion as compared with US$ assetsin India(US$ 118.5 billion).
21.7 billion in 2019-20.·
Theincreaseininternational financial assetsof
In 2020-21, there was an accretion of US$ 87.3 Indian residentswasledby alargeaccretion of
billion to foreign exchange reserves (on a BoP US$ 99.2 billion in reserve assets; overseas
basis).· direct investment and currency and deposits
weretheother major components.
Source: PressReleases
Inward direct investment and portfolio equity
For ful l text r efer :https://rbi .org.in/Scri pts/ investment together accountedfor nearly 90per
BS_PressReleaseDisplay.aspx?prid=51820 cent of theincrease in international financial
li abil itiesduring 2020-21.
7 I ndi a’s I nt er nat i onal I nvest ment
Position (I I P), M ar ch 2021 Theratioof India’sinternational financial assets
tointernational financial liabilitiesincreasedto
Key Featuresof I ndia’sI I P in M arch 2021 70.9per cent inMarch2021from65.6 per cent
ayear ago.
I. Quarter ly Var iations:·
II I. Ratio of I nternational Financial Assetsand
Net claimsof non-residentson Indiaincreased L iabilitiesto GDP (at cur r ent pr ices):
by US$11.2 billionduringQ4:2020-21toUS$
352.7 billion in March 2021. Theratiosof reserveassets, Indian residents’
overseas financial assets and claims of non-
The increase in net claims was due to larger residents on India to GDP at current market
increaseinforeign-owned assetsinIndia(US$ prices surged during 2020-21, largely due to
17.9 billion) vis-à-vis the overseas financial thedeclinein GDPduring theyear, caused by
assets of Indian residents (US$ 6.7 billion) theCOVID-19 pandemic.
during thequarter.
The ratio of net IIP of India to GDP also
Indian residents’ overseas financial assets improved to (-) 13.1 per cent in March 2021
abroad increased largely on the back the from (-) 13.9 per cent ayear ago.
increasein overseasdirect investment aswell
ascurrency and deposits. Source: PressReleases

Inward portfolio investment and loans were For full text r efer : https://rbi.org.in/Scripts/
major contributorsto therisein India’sforeign BS_PressReleaseDisplay.aspx?prid=51822_
liabilities.
hhh

128 Ahmedabad Chartered Accountants Journal July, 2021

GST and VAT CA. Bihar i B. Shah CA. Vishr ut R. Shah
Judgments [email protected] [email protected]
and Updates
petitioner several timessubmittedtheprayer for
]I] I M PORTANT CASE L AWS: grant of interest on delayed refund but no
communicationreceived.Therefore, it filedwrit
[1] Subject: petition.

I nter est on delayed Refund Thedepartment submittedthat it issuedseveral
show cause notices and petitioner submitted
I ssue: detai led repl iesenclosi ng therewith therequisite
documents. Further, refund amount of partially
I nter est on delayed Refund under Ser vice rejected claims were also sanctioned after
Tax L awsto bepaid being a right if gr anted receiving ordersof theappellateauthority i.e.
after 3 months of r eceipt of application: Commissioner (Appeals) on appealsfiled by
Bombay HC thepetitioner.Withtheimplementationof goods
and servi ce tax (GST) wi th effect from
Case L aws: 1.7.2017, thedepartmental set upwasrequired
to be re-organi zed. This exerci se of re-
Qualcomm I ndia (P) L td. v. Union of I ndia organizationcausedcertaindelay inprocessing
[2021] 127 taxmann.com 380 (Bom) of appeals and i n i ssui ng further orders
sanctioning refund asper theorder in appeals.
Facts: However, therewasno intentional delay by the
refundsanctioning authority.
Thepetitioner wasacompany engaged in the
businessof providingsupport servicesprimarily Decision:
to its foreign affiliates. It filed 19 refund
applications claiming refund of un-utilized TheHon’bleHigh Court observed that if any
CENVAT credit under rule 5 of theCENVAT duty ordered to berefunded to any applicant is
CREDIT RULES al ong wi th supporti ng not refundedwithinthreemonthsfromthedate
documents. Therefund sanctioning authority of receipt of application, then interest shall be
passedordersinoriginal inrespect of therefund paid.Also, Central BoardExciseandCustoms,
cl ai ms made by the peti ti oner parti al l y New Del hi had i ssued a ci rcul ar dated
sanctioning the refund amount and partially 1.10.2002 regarding non-payment of interest
rejecting therefund amount.Against theorder in refund/rebatecaseswhich weresanctioned
partially rejecting therefund claim, petitioner beyond threemonthsof filing of application.
preferred appealsbeforetheappellateauthority. Therefore, it washeld that if an application for
in thosecases, appellateauthority passedorder refund is made, the same is required to be
in appeal allowing the refund claim of the adjudicated within threemonthsof receipt of
petitioner. theapplication.But if therefundisgrantedafter
threemonthsof receipt of theapplication, then
Subsequently, petitioner received the refund theapplicant would be entitled to interest on
amounts as sanctioned. However the refund such delayed refund asa matter of right. The
amountsweresanctioned beyond threemonths
from thedateof filing of refund applications.
Therefore, the petitioner claimed that it was
entitled to interest on delayed payment of
refund. Despitesubmitting theevidences, the

Ahmedabad Chartered Accountants Journal July, 2021 129

GST and VAT - Judgements and Updates Case L aws:

petitioner wouldbethereforeentitledtointerest Om Tr ading Co. v. Dy. CST [2021] 127
under section 11BB of theCentral ExciseAct, taxmann.com 626 (M P)
1944 on theamountsrefunded to it.
Facts:
[2] Del hi H C Di r ect s r evenue t o deci de
Assessee' s cl ai m of Refund of Expor t Theappellant wasengaged in carrying on the
BenefitsPr efer ably within 12 weeks businessof selling andpurchasing of Clarified
Butter (Ghee), Butter and other Milk Products.
[2] Subject: A show causenoticewasissuedtotheappellant
by the Deputy Commissioner of State Tax,
Refund of Expor t Benefits- Dir ection Gwali or, in which it was stated that the
appellant iscarrying on the businessonly on
I ssue: papersand thee-way billsaredownloaded by
theconcernedvehiclesarenot transportingany
Del hi H C di r ect s r evenue t o deci de goods in actual. Since the appellant failed to
Assessee’s cl ai m of Refund of Expor t prove hi s e-way transaction detai l s, hi s
Benefitspr efer ably within 12 weeks: registration wascancelled. It filed appeal but
same was rejected. Therefore, it filed writ
Case L aws: petition.

Green L eaf Tobacco Products v. Pr incipal Thedepartment contended that theappellant
CC [2021] 127 taxmann.com 621 (Delhi). hadfailedtobringonrecordany material before
theauthoritiestoshow that thebills/e-way bills
Facts: which were issued. The Single Judge also
dismissed thewrit petitionasno error found in
Thepetitioner filedwrit petitionseekingrefund order. It filed appeal against it.
of export benefitstothetuneof Rs.3,57,52,392/
- along with interest, under section 16 of Decision:
Integrated Goodsand ServicesTax Act, 2017
read with section 54 of Central Goods & The Hon’ble High Court observed that the
ServicesTax Act, 2017. detailedenquiry wasconductedbeforepassing
theorder, in which certain discrepancieswere
Decision: found wi th regard to the business of the
appellant. It wasfound that theappellant has
It was submitted by the department that the failed to provee-way bill transaction details,
decision with respect to refund of export therefore, the registration was cancelled. A
benefits to the petitioner is still pending proper opportunity of hearing wasafforded to
consideration and no final decision has been theappellant. Nocogent documentary evidence
taken by them. Therefore, it wasdirected that isavailableon record to justify thestand taken
department would decidetheclaim of refund by the appellant. Therefore, it was held that
of the petitioner, details of which have been SingleJudgehasrightly cometotheconclusion
furnished in the writ petition, as early as and dismissed the writ petition and the writ
possible and practicable, in accordance with appeal wasalso dismissed.
law, preferably within a period of 12 weeks
from thedateof receipt of copy of thisorder. [4] Subj ect: Rectification of GSTR-1 r ej ected:

[3] Subject: I ssue:

Rightly cancelled Registr ation Calcutta HC Rej ected Petition seeki ng
Rectification of GSTR-1 For m after expir y
I ssue: of timeper iod pr escr ibed.

Registr ation of dealer r ightly cancelled on
failur e to pr ove E-way Bill tr ansaction
details.

130 Ahmedabad Chartered Accountants Journal July, 2021

Case L aws: GST and VAT - Judgements and Updates

Abdul Mannan K han v. Goodsand Ser vices Aggrievedby thecommunication of theSGST
Tax [2021] 127 taxmann.com 357 (Cal.) authoritieswith regard to therejection of the
claim of the petitioner for rectification of
Facts: accounts, it filed writ petition against thesame.

Thepetitioner whileuploading FORM GSTR- Decision:
1(return) inadvertently reportedaparticular sale
made to registered company as unregistered The Hon’ble High Court observed that there
sale. Subsequently, after oneand half yearsof was no reason to interfere as the statute has
the period concerned, buyer informed the provided a period of limitation for seeking
petitioner that they werenot getting credit of rectification. Thewrit court cannot, by itself,
theInput Tax Credit dueto inadvertent mistake condonesuch alimitation period. Condoning
of thepetitioner.Thepetitioner thereafter made such delay would make the provision otiose
an application seeking rectification of the and open the floodgates for similar cases.
GSTR-1 FORM. Thisapplication wasrejected Therefore, i t was held that the cl ai m of
on theground that theperiod for making such petitioner for rectification of accountswasto
an application expired asper Section 37 of the berejected.
West Bengal Goods and Services Tax Act,
2017. hhh

Continued fr om page 119 Contr over sies

to be taken into account for the purpose of of the act in excess of the income under the
al lowing the deductions available to the head PGBP. The Supreme Court has further
assessee, subject to the ceiling of ‘grosstotal settled theissuerelated to theinterpretation of
i ncome’. The Hon’bl e Supreme Court the provisions of section 80AB and 80-IA of
expressed agreement with the view of the theAct by holding that the said sections are
AppellateAuthority that thereisno limitation intended merely to compute the amount of
on deduction admissibleunder Section 80-IA profitsfromeligiblebusinessanddonot restrict
of theAct to incomeunder thehead ‘business’ theclaimof deductiontotheextent of business
only. income.

Summation: - In mysview, it may even bepossibleto claim
deduction in caseswherenet result under the
- Such deci si on by the Supreme Court i n head PGBP is loss but there is positive gross
Commissioner of IncomeTax v. M/sReliance total income.
Energy Ltd considered to be welcoming in
nature settling the long outstanding issue on hhh
allowability of deduction under chapter VI-A

Ahmedabad Chartered Accountants Journal July, 2021 131

Corporate CA. Naveen M andovar a
Law Update [email protected]

M CA Updates: TheMCA hasfurther amended theprovisions
of theInvestor Educationand Protection Fund
1. Compani es (I ncor por at i on) Four t h Authority (Accounting, Audit, Transfer and
Amendment Rules, 2021: Refund) Rules, 2016, whereby anew Rule6A
pertaining to theManner of transfer of shares
The M i ni stry has made the f ol l owi ng under sub-section (9) of Section 90 of the
amendmentsin theCompanies(Incorporation) CompaniesAct, 2013totheInvestor Education
Rules, 2014: and Protection Fund (IEPF) hasbeen inserted.

Rule Effect of theAmendment Thisamendment contemplatestheprovisions
No. relatingtotransfer of sharesby way of corporate
action to the Fund in DEMAT as well as
38A Inthemarginal heading, for thewords, physical form, voting rights, benefitsaccruing
“and Opening of Bank Account”, the on such shares l i ke bonus shares, spl it,
words, “Openingof BankAccount and consolidation, fraction sharesetc.
Shops and Establ i shment
Registration’, shall besubstituted. For details, pleaserefer:

In theopening portion, f or the https://egazette.nic.in/Wr iteReadData/2021/
l etters “AGILE-PRO”, the l etters 227437.pdf
“AGILE-PRO-S” shall besubstituted.
[F. No. 05/4/2020-I EPF dated 09.06.2021]
for clauses “(c) and (d)” relating to
“Profession Tax Regi stration and 3. TheCompanies(Meetingsof Board and its
Openi ng of Bank Account’, the Power s) Amendment Rules, 2021:
following clausesshall besubstituted,
namely: -” The MCA has omitted the Rule 4 of the
Companies(Meetingsof BoardanditsPowers)
(d) Profession Tax Registration with Rules, 2014 which wasrelated to thematters
effect from the23rd February, 2020; not to bedealt with inameetingthroughvideo
conferencing or other audio-visual means.
(e) OpeningBankAccount with effect
from the23rd February, 2020; Rule No. Effect of theAmendment
4
(f ) Shops and Establ i shment (Omitted) Now, the following items can be
Registration.
considered in a Board Meeting
[F. No. 1/13/2013-CL -V Vol . I V dated held through video conferencing or
07.06.2021] other audio-visual means:
a) A pproval of the annual
2. The I nvestor Education and Pr otection
Fund Author i ty (Accounti ng, Audi t, financial statements;
Tr ansfer and Refund) Amendment Rules, b) Approval of theBoard’sreport;
2021: c) Approval of theprospectus;

132 Ahmedabad Chartered Accountants Journal July, 2021