April 2019
Ahmedabad Chartered Accountants Journal
E-mail : [email protected] Website : www.caa-ahm.org - caaahmedabad
Volume : 43 Part : 1 April, 2019
CONTENTS
To Begin with
Editorial ............................................................................................CA. Nirav Choksi.............................3
From the President............................................................................ CA. Anand Sharma.........................4
Articles
GST: Circular on the “Agents” not aligned with the intention of
the Act Unrestricted utilisation of ITC in GST..................................... CA. Kiran Tahelani.........................6
Analysis of GST provisions applicable to intermediary services where the
supplier is located in India and the recipient is located outside India.CA. Parag Shah..............................8
Stay of Income Tax Demand: Recent Developments............................CA. Anar G. Desai....................... 11
Direct Taxes
Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................15
From the Courts.................................................................................. CA. C.R. Sharedalal &
CA. Jayesh C. Sharedalal........... 16
Tribunal News.....................................................................................CA. Yogesh G. Shah &
CA. Aparna M. Parelkar............... 20
Unreported Judgements...................................................................... CA. Sanjay R. Shah...................... 25
Controversies.......................................................................................CA. Kaushik D. Shah....................27
FEMA & International Taxation
Indian Tax Administration publishes draft rules on CA. Dhinal A. Shah &
Profit Attribution to Permanent Establishment....................................CA. Sagar V. Shah.........................30
FEMA Updates................................................................................... CA. Savan R. Godiawala..............34
Indirect Taxes
GST & VAT Judgments and Updates................................................... CA. Bihari B. Shah &
CA. Vishrut R. Shah.......................37
Corporate Law & Others
Corporate Law Update....................................................................... CA. Naveen R. Mandovara............40
Allied Laws Corner..............................................................................Adv. Ankit M. Talsania...................45
From Published Accounts ................................................................. CA. Pamil H. Shah....................... 50
From the Government ......................................................................CA. Ashwin H. Shah &
CA. Kunal A. Shah........................55
New Delhi Times................................................................................CA. Aniket S. Talati...................... 57
Association News.............................................................................. CA. Shivang R. Chokshi &
CA. Ketan Mistry.......................... 59
ACAJ Crossword Contest......................................................................................................................64
Ahmedabad Chartered Accountants Journal April, 2019 1
CA. Nirav R. Choksi Journal Committee CA. Sarju Mehta
Chairman Members Convenor
CA. Ashok K. Kataria Ex-officio CA. Atul R. Shah
CA. Darshan A. Shah CA. Jayesh Sharedalal
CA. Nitesh J. Jain CA. Rajni M. Shah
CA. Ronak M. Khandwala CA. Shailesh C Shah
CA. Anand S. Sharma CA. Nirav R. Choksi
CA. Shivang R. Chokshi CA. Ketan G. Mistry
Attention
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Professional Awards
The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied
Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in the
profession. Articles and reading literatures are invited from members as well as from other professional colleagues.
Published By
CA. Nirav Choksi, on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers,
Near Gujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014. Phone : 91 79 27544232
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2 Ahmedabad Chartered Accountants Journal April, 2019
Editorial [email protected]
As I begin to pen down my first editorial of the Ahmedabad Chartered Accountants Journal for the year
2019-2020 I am a bit nervous. The fact that the Chairman post of the Journal Committee was held by CA
Ashok Kataria who has made the Journal reach enormous heights of professional excellence, is making
the challenge much difficult for me. It’s a matter of great honor for me that the President of our Association
CA Anand Sharma has selected me to Chair the most important committee of the Association. This
speaks about the amount of trust he has on me and I promise to live up to his expectations.
An editorial board of the Journal Committee has been formed and collectively the board members and the
office bearers of the association shall see to it that the Journal reaches newer and newer heights. The
contribution of the columnists and the article writers is quintessential and I wish to receive their continuous
support during the entire year.
At the outset I wish the new team of Chartered Accountants Association, Ahmedabad led by CA Anand
Sharma a very good luck and hope that they run the organisation with the best of their abilities. The
amount of talent, experience and divergent knowledge which the new team possesses is really
commendable.
The month of April witnessed the biggest festival of democracy of the world, the general elections of India.
It’s the single largest election held in the entire world and we all should be proud that we are part of this
mammoth exercise in our little manner. The new government will be formed and as the new team takes
charge of the country, it shall embark upon a new journey of hope, growth and happiness for each and every
citizen of this great country. The beauty of the entire democratic process is the efforts put in by the Election
Commission of India in seamless completion of the entire election process. It is phenomenal that in a country
as diverse as ours, the commission is conducting one election after the other in a smooth manner and every
time they are improving their management skills. The accuracy with which the results are dished out every
time is just mind boggling and unparallel. Their transparency and ethical standards has to be appreciated
irrespective of the individual political liking of all those involved in the election process.
A common man has lots of expectation from the central government because they are responsible for
policy decisions which affect the entire country. All governments have tried their bit for the development
of the country and this new government will not be different in its approach. Since the existing elected
group of political parties has been re-elected with a clear cut mandate of the Indian citizens, the onus to
prove its ability has reached to a higher pedestal for the new government.
As the Indian Government involves itself in its duties of administering the entire country, as a citizen of
India we should also honour our part of duty towards the nation. We need to contribute towards the
activity of nation building by adhering to all the laws, rules and regulations enacted by any government.
We should be prompt in the payment of our taxes and make sure that all those who are directly or
indirectly influenced by us promptly complete their part of the duty. If every citizen of this country fulfils
his duty towards the nation, there can be no bigger and better nation than our country to live in and
prosper. Lets collectively be a part in this activity of nation building and make a better India.
Feel free to write back to us on the official email ID of the association.Your feedbacks are very important
for us and we always look forward to qualitative and meaningful suggestions given to us.
Jai Hind
On Behalf of Editorial Board
CA. Nirav Choksi
Ahmedabad Chartered Accountants Journal April, 2019 3
From the CA. Anand Sharma
President [email protected]
Dear Members, completed their five years of membership, Lifetime
fees have been reduced from INR 7500 to INR
With boundless gratitude for the confidence placed 4000. Brain Trust is also a showcase of Association
in me by all the members, I feel deeply honoured and has been successful since decades, to facilitate
to become 63rd President of Chartered Accountants more and more members to take advantage of Brain
Association Ahmedabad. Let me take the Trust session we have introduced Firm and
opportunity to congratulate Immediate Past Corporate Membership whereby firm or corporate
President, CA Chintan Doshi and his team for a will be able to assign any two members from their
very successful term. While sitting on the Dais I organization by paying a single fee.
saw the stalwarts of the profession and Past
Presidents who have nurtured this August Association believes in the “Go Green” concept
Association, looking at me with faith in their eyes, and on my part, I will be making efforts for greater
to take up the charge and carry out my tenure in the spread and larger readership of the e-Journal, which
most proficient manner. It is a proud moment for should not remain confined to Gujarat but spread
me that they have allowed me to take up to the entire region of Western India. We have till
responsibility on my shoulder. But a single head date added 8000 members on a various social media
achieves nothing, so I am counting on your support platform and all programs of Association will be
to achieve growth and goals of the Association. reaching to even non-members.
While jotting down my views and thoughts process, My resolution for the year is to offer members an
I can vividly foresee challenges and opportunities enriched service experience from CAA. As
that I and my team of Office Bearers and Executive professionals, we have to update ourselves by
committee have to deal with, for the members of attending the study circle meetings and seminars.
Association. Being aware of responsibilities and Keeping this in mind, this year we have planned to
challenges I am looking forward to diligently have frequent study circle meetings on direct and
perform my duties and strive to achieve the vision indirect taxes and allied laws so as to enrich the
of the Association with the support and knowledge of the CAA members.
encouragement from Respected Past Presidents,
Chairmen of the various committees, Office bearers A successful program on recent changes in ITRs
and Executive committee. Time and again I have has enriched members with knowledge. In coming
narrated that for any Association to grow, a larger months, we shall be launching study series on GST,
and effective strength of members is inevitable, and RERA Compliances, Valuation & Concurrent
to achieve this vision I along with you all members Audit of Banks. International RRC is launched,
will try to ensure that we add minimum of 200 new where first-time mammoth 87 participants along
members to this August Association. with spouses are participating to enrich the culture
of Russia alongwith study. We received an
New ideas have come across for enrolling Young unprecedented response to International RRC and
Chartered Accountants by Executive committee had to close registration in hours of the launch of
and therefore it is a pleasure for me to announce the Program. With hard and smart work of
that Chartered Accountants who have not Committee, RRC will be beyond success and it
4 Ahmedabad Chartered Accountants Journal April, 2019
shall definitely create a benchmark in the years to From the President
come.
the subject matter and to outshine their accolades
This is an era of women and therefore first time we by gaining thorough knowledge from the speakers
have introduced Committee for Women and mentors of the study circle. I request all the
Empowerment. We will organise good women- members to attend study circle, brain trust programs
centric programs in the time to come and we will invariably and to make it more fruitful by active
thereby ensure effective participation of women in participation.
various programs of the CA Association.
CA Association has been very successful in making
This year, I will be fortunate to have two Union effective representations for members. I can assure
Budgets under my tenure-ship as President. We are you that CA Association will not stay back in
equipped with the best force to accommodate making Legal Representations at various forums
members with timely supply of Budget Booklet and whenever and wherever needed. We have always
will try to ensure that it reaches to a mass of 12000 remained part of various professional Associations
plus people across Gujarat. and our support shall continue with a view to ensure
that members at large get the advantage.
Life always brings challenges but in them there are
opportunities. May the new government which will Before concluding, I would like to draw your
form, brings us lots of opportunities and We as attention to the words of Chanakya, “A man is great
professionals stay equipped for nation building by deeds, not by birth.” He also quoted that “A
activities in terms of serving clients and government. learned man is honoured by the people. A learned
To address challenges and to cater opportunities, man commands respect everywhere for his learning.
CA Association has played a vital role in providing Indeed, learning is honoured everywhere” Let us
best guidance from seniors of the profession and at imbibe this into our minds and do justice to the hopes
the same time giving a great platform for group of countrymen by using our knowledge as a tool to
discussion and brainstorming activities in form of shape the future of the country.
various study circles.
Jai Hind !!!
The success of CA Association has always been Anand Sharma,
small but interested members who go in depth of President
Ahmedabad Chartered Accountants Journal April, 2019 5
GST: Circular on the “Agents” CA. Kiran Tahelani
not aligned with the intention [email protected]
of the Act
Section 24(vii) read with Section 2(5) of the CGST
All companies make certain end-of-year adjustments Act 2017, states that only those agents who are
to close their books of accounts. Adjusting entries supplying goods or services or both on behalf of
are made at the end of an accounting period to other persons (principal), are required to get
account for items that do not get recorded in your compulsory registration irrespective of threshold
daily transactions. However, people forget the limit (even when turnover is below 20 Lakhs).
impact of GST on booking such items like Therefore it could be said that making supply by
Commission Income. those agent is key ingredient to fall under this
category.The words here are used “make taxable
Section 24(vii) of the CGST Act 2017: supply” and hence in order to fall under the category
Compulsory registration under the Act. of section 2(vii) the supply has to be made by
agent himself on behalf of principal supplier.
As per Section 24(vii) of the CGST Act 2017,
Notwithstanding anything contained in sub-section Thus, it can be said that agents who just arrange
(1) of section 22, the followingcategories of persons or facilitate the supply of goods or services or
shall be required to be registered under this Act,–– both, between two or more, are out of the
preview of this section.
(i) ……
There was already so much confusion regards the
(ii)….. issue whetherevery agent (by whatever name
called) should be compulsory be registered under
(vii) persons who make taxable supply of goods section 24(vii) of the CGSTAct 2017, if that wasn’t
or services or both on behalf of other taxable enough the Circular No. 57/31/2018-GSTdated
persons whether as an agent or otherwise; 04.09.2018 has instead of clarifying, added to the
uncertainties.
Further as per Section 2(5) of the CGST Act 2017,
Agent means a person, including a factor, broker, Clarification by Circular:
commission agent, arhatia, del credere agent, an
auctioneer or any other mercantile agent, by To remove doubt, rather to add more confusion,the
whatever name called, who carries on the business said circular was issued. According to the said
of supply or receipt of goods or services or both circular dated 04.09.2018 only those the agents who
on behalf of another; are issuing invoices are required to register under
Section 24(vii). Basically, in the said circular, the
Analysis of Section 24(vii): whole weightage has been given on issuance of
invoice. The circular says that taxability depends
There are various Industries like Textile Industry, on the instance of issuance of invoice. If the agent
Chemical Industry, etc. which are mostly dependent is issuing invoice then only agent shall be liable to
onthe agent. In these industries agents play vital get registered under section 24(vii) GST.
role and because of them these industries are
flourishing. Hence, question arises here whether
all the agents are required to get registered
under section 24(vii)?
6 Ahmedabad Chartered Accountants Journal April, 2019
GST: Circular on the “Agents” not aligned with the intention of the Act
If we go by the circular, the question arises Which agent need not worry for compulsory
whether any person who issues invoice in his registration under Section 24(vii)?
own name will ever be treated as an agent?
1) Procurement agent:
Now if a person who is issuing invoice in his own
name, will never be treated as an agent, rather he The Act is very clear, as it says that the person
will be treated as a supplier. An Agent is person who makes taxable supply,but does not
who never deals in his own name rather he just include the person who receives taxable
facilitates buyer and seller. But circular insisted on supply. That means the Act does not impose
the issuance of invoice. Hence, question here arises the condition of compulsory registration on the
that whether the circular is legally tenable? purchaser or procurement agent. Hence,
Section 24(vii) does not bind on procurement
Impact of Circular: agents.
As circular focuses only on issuance of bill, there 2) An agent who is into non-taxable supplies:
are many agents, who do not issue invoices, but
still they are giving services to the supplier or Further the Act says that the person who makes
receiver and they earn commission out of it. And if taxable supply, hence, in order to get
we go by words of circular, these agents are not compulsory registration under section 24(vii)
required to get registered under GST Act only one has to be an agent of principal who are
because they are not issuing invoice. However, the into taxable supply. If the agent is working for
Act does not support any such contention. a principal who is into exempt supply or NIL
rated supply, then he shall not be required to
Intention of the Act: get registered under section 24(vii). Even
corrigendum to the Circular No. 57/31/2018
The Act says that the person who is supplying or was issued to clarify this issue.Hence, those
receiving goods or services or both on behalf of agents who are into exempt supplies or NIL
principal shall only be required to get registered rated Supplies shall not be required to get
under Section 24(vii). It seems that the Act wanted registered under Section 24(vii) of the CGST
to cover only consignment agents; because only Act, 2017.
consignment agents supply goods or services on
behalf of the principal. However, if this is the case Questions in consideration:
then there was no need of keeping them under
Section 24(vii). I. If we go with circular’s examples, whether
it can be said only those agents who issue
Conclusion: invoices are required to get registered under
section 24(vii)?
The Act intends to cover only those agents who
supply on behalf of other persons like Consignment II. Whether it can be said the agent who issue
Agents. However,the circular on the contrary says invoice will never be considered an agent,
that the person who issues bill in his own name rather he shall be treated as supplier?
shall only be required to take registration, but, in
that case he shall not be treated as an agent. Hence, hhh
the provisions of the Act and clarification of circular
are different. Hence,when it comes to the overruling,
the circular cannot overrule the Act. Further, the
circular is only in clarificatory in nature and hence
it does not bind.
Ahmedabad Chartered Accountants Journal April, 2019 7
Analysis of GST provisions applicable CA. Parag Shah
to intermediary services where the [email protected]
supplier is located in India and the
recipient is located outside India Place of Supply
The term “intermediary” is defined under Section Section 12 of the IGST Act, 2017 pertains to
2(13) of the Integrated Goods and Services Tax Act, “Place of supply of services where location of
2017 (“IGST Act, 2017”) as under: supplier and recipient is in India”. Section 13 of
(13) “intermediary” means a broker, an agent or the IGST Act, 2017 pertains to”Place of supply of
services where location of supplier or location of
any other person, by whatever name called, recipient is outside India”.
whoarranges or facilitates the supply of goods
or services or both, or securities, between two In the instant case, the supplier is located in India
or more persons, but does not include a and the recipient is located outside India. Therefore,
person who supplies such goods or services the provisions of Section 13 would be applicable.
or both or securities on his own account;
The provisions of Section 13(2) and 13(8) of the
Thus an intermediary may be a broker, an agent or IGST Act, 2017 are as under:
any other person who arranges or facilitates the
supply of goods and/or services between two or (2) The place of supply of services except the
more persons. An intermediary cannot alter services specified in sub-sections (3) to (13)
thecharacter of the goods and/or service, the supply shall be the location of the recipient of services:
of which he arranges on behalf of his principal.
Provided that where the location of the recipient
Let us take the following example: of services is not available in the ordinary
1. A commission agent, based at Ahmedabad, is course of business, the place of supply shall be
the location of the supplier of services.
engaged in the activity of promoting the goods
of various manufacturers (principals) based (8) The place of supply of the following services
abroad. He has registered himself under GST shall be the location of the supplier of services,
law only at Gujarat. namely:-
2. The invoice for the sale of such products is raised
by the principals directly on the Indian clients. (b) intermediaryservices;
The commission agent raises his invoice for his
commission on the principals located abroad. Taking into account the above-mentioned
provisions of Section 13(8), the place of supply of
In the instant case, the commission agent is acting the service is the location of the supplier
as an “intermediary” for the principals located (commission agent), i.e., Gujarat, India.
abroad.This article takes a look at the GST
implications on the above-mentioned supply of Whether the service supplied by the commission
service provided by the commission agent agent to the foreign principal is an export of
(intermediary) to the principals. service?
Location of the supplier and recipient The term “export of services” is defined under
Section 2(6) of the IGST Act, 2017 as under:
The location of the supplier (commission agent) is
Gujarat, India. The location of the receiver (6) “export of services” means the supply of any
(principal) is abroad. service when,––
8 Ahmedabad Chartered Accountants Journal April, 2019
Analysis of GST provisions applicable to intermediary services where
the supplier is located in India and the recipient is located outside India
(i) the supplier of service is located in India; Central Goods and Services Tax Act, 2017 (“CGST
Act, 2017”) limits the Advance Ruling Authority
(ii) the recipient of service is located outside to decide the issues earmarked for it under Section
India; 97(2). In terms of Section 97(2) of the CGST Act,
2017, the question on which the advance ruling can
(iii) the place of supply of service is outside be sought shall be in respect of the following:
India;
(i) Classification of any goods or services or both;
(iv) the payment for such service has been
received by the supplier of service in (ii) Applicability of a notification issued under the
convertible foreign exchange or in Indian provisions of the Act;
rupees wherever permitted by the Reserve
Bank of India; and (iii) Determination of time and value of supply of
goods or services or both;
(v) the supplier of service and the recipient of
service are not merely establishments of a (iv) Admissibility of input tax credit of tax paid or
distinct person in accordance with deemed to have been paid;
Explanation 1 in section 8;
(v) Determination of the liability to pay tax on any
As per Clause (iii) above, one of the conditions for goods or services or both;
a supply of service to qualify as an export is that
the place of supply of service should be outside (vi) Whether the applicant is required to be
India. However, as discussed in the preceding registered;
paragraphs, in the instant case, the place of supply
of intermediary service is the location of the supplier (vii)Whether any particular thing done by the
(commission agent), which is within India. applicant with respect to any goods or services
Therefore, the supply of service by the commission or both amounts to or results in a supply of
agent to the foreign principal does not fall within goods or services or both, within the meaning
the ambit of the term “export of service”. This view of that term.
is supported by the following case laws:
It was held that determination of place of supply
1. IN RE: Mrs. VishakharPrashant Bhave, M/ (which is necessary to be determined in order to
S. Micro Instruments 2018 (12) TMI 227 - decide whether the relevant supply falls under the
Authority For Advance Ruling, ambit of the term “export of services” or not) is not
Maharashtra a question on which an advance ruling can be
sought since ‘place of supply’is not covered under
2. IN RE: M/S. Sabre Travel Network India Section 97(2) of the CGSTAct, 2017. Therefore,the
Pvt. Ltd. 2018 (12) TMI 1006 - Authority AAR refrained from answering this question on the
For Advance Ruling, Maharashtra grounds of jurisdiction.
3. IN RE : VServGlobal Private Limited 2018 Based on the above discussion, the relevant
(11) TMI 959 - Authority For Advance statutory provisions as well as case laws, the
Ruling, Maharashtra place of supply of an intermediary service
supplied by a supplier located in India to a
4. IN RE : M/S. Global Reach Education recipient located abroad is in India and
Services Private Limited 2018 (8) TMI 392 therefore, the same is not an export of service.
- Appellate Authority For Advance Ruling,
West Bengal Whether the supply of service by the
commission agent to the foreign principal is in
It may be noted that in IN RE: M/S. the nature of “Intra-State Supply” or “Inter-State
ToshniwalBrothers (SR) Private Limited 2019 Supply” and accordingly, what is the type of
(2) TMI 126 - Appellate Authority For Advance GST which should be charged?
Ruling, Karnataka,it was observed thatthe
Ahmedabad Chartered Accountants Journal April, 2019 9
Analysis of GST provisions applicable to intermediary services where
the supplier is located in India and the recipient is located outside India
Section 8 of the IGST Act, 2017 pertains to “Intra- In this regard, the following decisions are required
State Supply”. The provisions of sub-section (2) of to be taken into account and analyzed:
Section 8 are as under:
In Re: Mrs. Vishakhar Prashant Bhave, M/s.
8. (2) Subject to the provisions of section 12, supply Micro Instruments 2018 (12) TMI 227 -
of services where the location of the supplier Authority for Advance Ruling, Maharashtra
and the place of supply of services are in the
same State or same Union territory shall be It was held that:
treated as intra-State supply:
As per intra-state provisions contained in Section
Since the location of the supplier and place of supply 8(2), the said provisions are subject to the provisions
are in the same state (Gujarat), a view may be taken of section 12 of the IGST Act. As per section 12,
that the relevant supply is an “Intra-State supply”. the provisions of section 12 would be applicable
only for determining the place of supply of service
However, the phrase “Subject to the provisions of where the location of supplier of services and the
Section 12” is employed in the above-mentioned location of recipient of the services is in India. When
sub-section. As already discussed, since the supplier recipient is located outside India the said provisions
is located in India and the recipient is located outside of section 12 cannot be made applicable and since
India, the provisions of Section 13 of the IGST Act, provisions of section 8(2) are inter-linked with
2017 (and not those of Section 12) are applicable provisions of section 12, the same cannot be made
to the instant case. Therefore, a question arises as applicable in case the recipient of service is located
to whether, since the provisions of Section 12 are outside India.
not applicable to the instant case, sub-section (2)
would also not apply. In other words, it is required Thus we find that in case the intermediary services
to be examined whether the applicability of Section are provided to the recipient located outside India,
12is a pre-requisite for the provisions of Section the inter-state provisions as contained under section
8(2) of the IGST Act, 2017 to be applicable. 7(5)(c) shall be applicable and hence IGST is
payable under such transaction.
Section 7 of the IGST Act, 2017 pertains to “Inter- The above view was also held in In Re: M/s. Sabre
State Supply”. If a view is taken that the provisions Travel Network India Pvt. Ltd. 2018 (12) TMI
of Section 8(2) are not so applicable, it is required 1006 - Authority for Advance Ruling,
to be examined whether the transaction falls under Maharashtra.
the ambit of “Inter-State Supply”. In this regard,
the provisions of Section 7(5)(c) are as under: The views of the author are different from those
reflected in the above-mentioned case laws. The
(5) Supply of goods or services or both,–– usage of the wordings in Section 8(2) bring the
focus on the location of the supplier and the place
(c) in the taxable territory, not being an intra-State of supply being in the same state rather than the
supply and not covered elsewhere in this location of the supplier and that of the recipient being
section, shall be treated to be a supply of goods in the same state as a pre-requisite. Had the
or services or both in the course of inter-State intention of the law been that only a supply of
trade or commerce. service comprising of both the supplier as well as
the recipient being located in India would come
The place of supply is in the taxable territory. within the ambit of an intra-state supply, such a
Therefore, if a view is taken that the transaction is condition having gargantuan consequences
not covered under Section 8 (meaning thereby that wouldjustify to have been separately and distinctly
it is not an intra-state supply), the same would be specified under Section 8.
covered under the provisions of Section 7(5)(c) and
would be an “Inter-State Supply”. contd. on page no. 14
1 0 Ahmedabad Chartered Accountants Journal April, 2019
Stay of Income Tax Demand:
Recent Developments
Introduction: CA. Anar G. Desai
[email protected]
Once the Assessment is done, Assessment Order is
passed by Assessing Officer along with the demand 3) If the High Court having jurisdiction has
notice u/s 156 of the Income tax Act,1961.As per adopted a contrary interpretation but the
Section 220(1) of the Income Tax Act, 1961; such Department has not accepted that judgement.
due tax is payable within 30 (thirty) days of the
service of notice. If the assessee agrees with the Hence, in such and similar cases, Assessing Officer
demand, he pays it. However, in most of the cases has the authority to grant stay of full demand.
an appeal is preferred before Higher Authority i.e. However, while granting such stayAssessing Officer
Commissioner of Income Tax -Appeals. It should may impose restrictive conditions as he may think
be noted that payment of tax on disputed demands fitsome of which could be as under:
is due unless a stay is granted by any authority for
such recovery. Hence, stay can be granted by 1) Require assessee to offer suitable security to
Assessing Officer and on appeal, by Higher safeguard the interest of revenue;
Authorities, in hierarchy.
2) Require the assessee to pay a reasonable
Guidelines by CBDT to Assessing Officer for amount in lumpsum or in instalments; etc.
granting of stay of demand:
Further, Assessing Officer is not entitled to collect
Stay of demand is a relief for assessee from payment the demand when:
of disputed tax liability for a temporary period. In
practice, generally, certain percentage of the 1) Demand which has not fallen due;
disputed tax liability is required to be paid for
obtaining of stay. The interesting point to note is 2) Demand which has been stayed by a Court or
that the phrase ‘stay of demand’ does not occur in ITAT or Settlement Commission;
section 220(6) of the Act. The Assessing Officer
may also grant full stay of demand for valid reasons 3) Demand for which a proper proposal for write
bound by the Circular No. 1914 dtd. 02-12-1993 off has been submitted; etc.
issued by Central Board of Direct Taxes. The
illustrative valid reasons as enumerated in the However in reality,Assessing Officers used to insist
circular are as under: on payment of a very high proportion of the disputed
tax demand before granting stay of demand. This
1) If the demand in dispute relates to issues that often resulted in undue hardship to the assessee
have been decided in assessee’s favour by an seeking stay of demand.
appellate authority or court earlier; or
Recent Partial Modifications in Instruction 1914
2) If the demand in dispute has arisen because the by CBDT:
Assessing Officer had adopted an interpretation
of law in respect of which there exists Hence, vide Office memorandum dated 29/02/
conflicting decisions of one or more High 2016, CBDT in order to streamline the process of
Courts; or grant of stay, partially modified Instruction No. 1914
stating thatin a case where the outstanding demand
is disputed before CIT(A), the assessing officer shall
grant stay of demand till disposal of first appeal on
payment of 15% of the disputed demand, unless he
has a view to decide otherwise. In such different
Ahmedabad Chartered Accountants Journal April, 2019 11
Stay of Income Tax Demand: Recent Developments
view, Assessing Officer has to refer the matter to As per the instruction No. 1914, “C- Guidelines
administrative Pr. CIT/CIT, who has the authority for staying demand; In case if the demand in dispute
to decide the quantum of the demand to be paid relates to issues that have been decided in
and grant stay. assessee’s favour by an appellate authority or court
earlier; stay may be granted for amount attributable
Vide Office Memorandum dated 31st July, 2017 the to such disputed points.”Hence, as per Instruction
amount calculated 15% was increased to 20%. No. 1914, Authorities in such cases had the power
Hence, as of now, for stay of demand, 20% of the to stay the entire demand. However, vide CBDT
disputed demand needs to be paid. Memorandum dtd. 29-02-2016, in clause 4(B)(b),
similar situation is discussed and the Assessing
High pitched Assessments and their stay of Officer is instructed to refer the matter to
demand- Recent Judgements: administrative Pr. CIT/CIT who will decide the
quantum/proportion of demand to be paid by the
Now, in certain cases it may happen that the demand assessee as lumpsum payment for granting a stay
may run in crores of rupees and payment of 20% of balance demand. So, as per the Memorandum,
of demand also will be detrimental to the financial when the addition on the same issue has been
health of the assessee. This would cause undue deleted by appellate authorities in earlier years or
problems to the assessee. In such highpitched the decision of the Supreme Court or Jurisdictional
assessments; Principal CIT also were not granting High Court is in favour of the assessee, if complete
relief. stay of demand is not granted then assessee should
take support of the following decisions to get relief
However, recently Supreme Court of India in case i.e. stay of demand. In case of Flipkart India(P)
of M/s LG Electronics India Pvt Ltd has held as Ltd v ACIT [2017] 396 ITR 551 (Kar) (HC it is
under; clearly held that :
“.... Having heard Shri Vikramjit Banerjee, Learned “It is true that Instruction No.4(B)(b) of the Circular
ASG appearing on behalf of the appellant, and dated 29-2-2016, gives two instances where less
giving credence to the fact that he has argued before than 15 per cent can be asked to be deposited.
us that the administrative Circular will not operate However, it is equally true that the factors, which
as a fetter on the Commissioner since it is a quasi were directed to be kept in mind both by the
judicial authority, we only need to clarify that in all Assessing Officer, and by the higher superior
cases like the present, it will be open to the authority, contained in Instruction No.2B(iii) of
authorities, on the facts of individual cases, to grant Circular No.1914, still continue to exist. For, as
deposit orders of a lesser amount than 20%, noted above, the said part of Circular No.1914 has
pending appeal.” been left untouched by the Circular dated 29-2-
2016. Therefore, while dealing with an application
[Civil Appeal No.6850 of 2018] filed by an assessee, both the Assessing Officer, and
the Principal Commissioner, are required to see if
Owing to the above decision, in genuine cases of the assessee’s case would fall under Instruction
high pitched assessment, now assessee can apply No.2B(iii) of Circular No.1914, or not? Both the
for higher relief before the Commissioner. Assessing Officer, and the Principal Commissioner,
are required to examine whether the assessment is
Accordingly, in matters of stay of demand when “unreasonably highpitched”, or whether the
the unreasonably high pitched assessment (i.e. demand for depositing 15 per cent of the disputed
assessed income is twice the returned income or demand amount “would lead to a genuine hardship
more) have been made or in cases where genuine being caused to the assessee” or not?”
financial hardship would be caused to taxpayer by
payment of tax demand, superior authorities can
exercise their powers and grant relief to the assessee.
1 2 Ahmedabad Chartered Accountants Journal April, 2019
Stay of Income Tax Demand: Recent Developments
Commissioner of Income Tax (Appeal)’s power High Court under Article 226 of the Constitution
to grant stay: for redressal of grievance.
Although mere filing/ pendency of appeal does not In a recent ruling byMadras High Court [WP No.
grant an automatic stay of demand; CIT(A) has 3849of 2019] in case of Mrs. Kannammalvs ITO,
power to grant stay of demand when an appeal is Hon’ble Court has held as under:
pending before CIT(A). It is not explicitly given in
the statute but courts have held that the power to “12. The Circulars and Instructions as extracted
grant stay of collection of tax is an inherent and above are in the nature of guidelines issued to assist
incidental power of the appellate authority for the the assessing authorities in the matter of grant of
effective exercise of appellate powers. Some of such stay and cannot substitute or override the basic
cases are as under: tenets to be followed in the consideration and
disposal of stay petitions. The existence of a prima
1) MK Mohammed Kunhi 71 ITR 815 (SC) facie case for which some illustrations have been
provided in the Circulars themselves, the financial
2) CITY ad Industrial Development Corporation stringency faced by an assessee and the balance
of Maharashtra Ltd. v. ACIT (2012) 343 ITR of convenience in the matter constitute the ‘trinity’,
102 (Bom) (High Court) so to say, and are indispensable in consideration
of a stay petition by the authority. The Board has,
3) Balaji Universal Tradelink (P) Ltd. v. UOI while stating generally that the assessee shall be
(2012) 76 DTR 132 (Bom) (High Court) called upon to remit 20% of the disputed demand,
granted ample discretion to the authority to either
Now, a question may arise that is it necessary to increase or decrease the quantum demanded
apply first before Assessing Officer for stay of based on the three vital factors to be taken into
demand and then approach CIT(A) or can an consideration.
assessee file directly an application for stay of
demand to CIT(A)? There are diverse views on this 13. In the present case, the assessing officer has
aspect. Practically, it is advisable to make an merely rejected the petition by way of a non-
application to Assessing Officer for stay of demand speaking order reading as follows:
and on rejection of the same make an application
to CIT(A) during the pendency of appeal. ‘Kindly refer to the above. This is to inform
you that mere filing of appeal against the said
Income TaxAppellate Tribunal’s power to grant order is not a ground for stay of the demand.
stay: Hence your request for stay of demand is
rejected and you are requested to pay the
As per third proviso of section 254, Appellate demand immediately. Notice u/s.221(1) of the
Tribunal has the power to stay any proceedings Income Tax Act, 1961 is enclosed herewith.’
relating to a pending appeal before them. The stay
has to be granted on the merits of the case after 14. The disposal of the request for stay by the
studying the application made by assessee. Such petitioner leaves much to be desired. I am of
stay can be granted for 180 days which can be the categoric view that the Assessing Officer
extended for another 180 days. Various courts have ought to have taken note of the conditions
taken different views on the power of Tribunal to precedent for the grant of stay as well as the
grant stay beyond period of 365 days. Circulars issued by the CBDT and passed a
speaking order. Of course the petition seeking
The procedure for application of stay petition before stay filed by the petitioner is itself cryptic.
Tribunal is given in Rule 35A of the ITAT Rules, However, as noted by the Supreme Court in
1963. the case of Commissioner of Income tax vs
Mahindra Mills, ((2008) 296 ITR 85 (Mad))
Writ Petition in High Court: in the context of grant of depreciation, the
If Assessing Officer refuses to grant a stay,
assesseee has the power to file a writ petition in the
Ahmedabad Chartered Accountants Journal April, 2019 13
Stay of Income Tax Demand: Recent Developments
Circular of the Central Board of Revenue (No. discussion as aforesaid, after hearing the
14 (SL- 35) of 1955 dated April 11, 1955) petitioner, within a period of four weeks from
requires the officers of the department ‘to assist date of receipt of a copy of this Order. I have,
a taxpayer in every reasonable way, for the aforesaid reason, consciously and
particularly in the matter of claiming and deliberately refrained from referring to or
securing reliefs. .... Although, therefore, the making any observation on the merits of the
responsibility for claiming refunds and reliefs assessment.
rests with the assesseeon whom it is imposed
by law, officers should draw their attention to 16. With these directions, the writ petition stands
any refunds or reliefs to which they appear to disposed of and consequently, the connected
be clearly entitled but which they have omitted miscellaneous petition is closed. There shall be
to claim for some reason or other......’. Thus, no order as to costs.”
notwithstanding that the assessee may not
have specifically invoked the three parameters [Emphasis supplied]
for the grant of stay, it is incumbent upon the
assessing officer to examine the existence of Conclusion:
a prima facie case as well as call upon the
assessee to demonstrate financial stringency, If it was not for the instructions and the recent
if any and arrive at the balance of decisions in favour of tax payers, assessee would
convenience in the matter. have been at the mercy of the Assessing Officer for
payment of demand and stay of such demand. The
15. I thus set aside impugned order dated above decisions are a breath of relief for the tax
25.01.2019. The Assessing Officer is directed payers and also a corrective measure for the
to pass orders de novo on the stay application recovery proceedings carried out by the Officers
filed by the petitioner in the light of the which are sometimes detrimental financially to the
tax payer when unjust additions are made.
hhh
contd. from page 10 Analysis of GST provisions applicable to intermediary services where
the supplier is located in India and the recipient is located outside India
Even assuming that the relevant supply is an Inter- Taking into account the provisions of Section 9 of
State supply and IGST is payable on the same, the CGST Act, 2017 (the charging Section), the
IGST can be practically paid only if the place of supplier (commission agent) is liable to charge
supply is other than Gujarat (since the supplier is CGST and SGST.
registered only in the state of Gujarat and therefore,
the location of the supplier is Gujarat).The place of Taking into account the above discussion and
supply as per the applicability of provisions of analysis, inspite of the above-mentioned case laws,
Section 13(8) of the IGST Act, 2017 is Gujarat. In in which it has been held that a supply of an
order to pay IGST, the place of supply would have intermediary service by a supplier located in India
to be entered as “Other Territory” or a place other to a recipient located outside India is an Inter-State
than Gujarat, which would be factually incorrect. supply on which IGST is chargeable, the author’s
The intention of the law cannot be to enter any view is that the same is in the nature of an Intra-
incorrect factual information on the GST Portal. By State supply on which CGST and SGST are
this practical logic also, the view that the relevant chargeable.
supply is an Intra-State supply is strengthened.
hhh
1 4 Ahmedabad Chartered Accountants Journal April, 2019
Glimpses of Advocate Samir N. Divatia
Supreme Court [email protected]
Rulings
1 Sec.12AA – remanded back to CIT(E) compliance of requirements sub-section (4) & (5)
for fresh adjudication of 260A. Hence order was aside and remanded to
High Court to decide the appeal fresh.
The tribunal remanded the matter to primary
authority in view of the allegations that no CIT v Rashtadhoot (HUF) [2019] 307 CTR 376
opportunity of cross examination was given to
representative of the donor whose statement was 3 Interest on borrowed capital – Paucity
relied upon in cancellation of 12AA. High Court of funds
quashed the order of cancellation of registration and
held that while it is possible that a particular donation Tribunal having found that the interest free funds
may be bogus or fictitious but the single donation available to the assessee were sufficient to meet its
which is allegedly bogus, would not establish that investment, it could be presumed that loans were
the activities of the trust not genuine and not being given to subsidiaries out of interest free funds and
carried out in accordance with the objects of the therefore interest referable to funds given to
trust. On appeal, the Apex Court quashed and set subsidiaries is allowable as deduction u/s 36(1)(iii).
aside the order of High Court in view of serious
allegations against respondent trust so that it was CIT v Reliance Industries Ltd [2019] (307 CTR 123)
error committed by High Court in entertaining the
appeal. It was made clear that CIT(E) would 4 Capital gain – Full value of
consider all the issues on its own merit, uninfluenced consideration u/s 48
by the observations made by appellate authority,
the High Court or by this Court. SLP dismissed against High Court ruling that in case
of sale of property, assessee was required to offer
(CIT(E) v Jagannath Gupta Family Trust (Civil capital gain only in respect of amount actually
Appeal no 1381 OF 2019 dated Feb 1ST, 2019) received by him as per sale deed even though a part
consideration was also received by confirming party.
Order suffers from Jurisdictional error
Pr. CIT v Lalitaben Govindbhai Patel [2019]
2 when substantial question of law not 261 Taxman 453
framed
5 No action u/s 153C and addition was not
The order must contain the reason/ ground for sustainable u/s 69C
arriving at a particular conclusion. In order to decide
as to whether the order is legally sustainable or not, SLP dismissed against High Court order where
the appellate Court is entitled to know as to what seized documents were not in the name of assessee,
impelled the Court below to pass such order. That no action could be undertaken in case of assessee
apart, High Court heard both the parties, yet did u/s 153C and further entire decision being based
not frame any substantial question of law even on huge amounts revealed from seized documents
though appeal was not dismissed in-limine. Thus not being supported by actual cash passing hands,
the order suffers from jurisdictional errors and additions u/s 69C were not sustainable.
therefore, legally unsustainable for want of
Pr CIT v Krutika Land P Ltd [2019] 261
Taxman 455
contd. on page no. 19
Ahmedabad Chartered Accountants Journal April, 2019 15
From the
Courts
CA. C. R. Sharedalal CA. Jayesh C. Sharedalal
[email protected] [email protected]
Beneficial Provision and Retrospective Conditions and procedure for reopening
1 Application. 2 of assessment after four years.
Pr. CIT v/s. Manoj Kumar Singh (2018) Karti P. Chidambaran v/s. Asst. CIT
402 ITR 238 (All)
(2018) 402 ITR 488 (Mad)
Issue: Issue:
Whether in absence of specific provision of What are the requisite conditions and the procedure
retrospectivity, beneficial provision is to be given in reopening of assessment beyond four years?
effect to in favour of assessee?
Held:
Held :
Two conditions are required to be satisfied before
When a provision is made in fiscal statute for the the Assessing Officer could issue notice under the
benefit of the assessee,in the absence of any express proviso to section 147 namely (a) he must have
provision or a provision which by necessary reason to believe that income chargeable to tax has
implication gives a different impression, such escaped assessment and (b) such income has
provision which is beneficial to the assessee must escaped assessment by reason of omission or failure
be read and given effect to retroactively. on the part of the assessee to disclose fully and truly
material facts necessary for assessment for the year.
The second proviso to section 40(a)(ia) of the The settled legal position is that both these
Income-tax Act, 1961 introduced by the Finance conditions must co-exist inorder toconfer
Act, 2012, (which provides that where an assessee jurisdiction on the Assessing Officer. Further, the
fails to deduct the whole or any part of the tax in Assessing Officer should record his reasons before
accordance with the provisions of Chapter XVII- initiating proceedings under section 148(2) of the
B but is not deemed to be an assessee-in-default Act; by issuing the notice after the expiry of four
under thefirst proviso to section 201(1), i. e., the years from the end of the relevant assessment
payee has filed a return taking into account such year.The assessee is expected to make a true and
sum for computing his income, has paid the tax full disclosure of the primary facts. It is thereafter
due on such income declared and furnishes a for the Assessing Officer to draw an inference from
certificate to this effect from an accountant, the those primary facts.If on a further examination
assessee shall not be subject to disallowance in either by the same officer or by a successor,
respect of such sum, has retrospective application. theinference arrived at appears to be erroneous,
mere change of opinion would not be a justification
to reopen the assessment. If from the primary facts
more than one inference can be drawn, it would
1 6 Ahmedabad Chartered Accountants Journal April, 2019
not be possible to say that theassessee should have From the Courts
drawn a particular inference nor can he be charged
for any such failure. The assessee is entitled to file Search Proceedings: Statement u/s
objections for issuance of notice and the Assessing
Officer is bound to dispose of the same by passing 4 132(4):Evidential value in third party’s
a speaking order. case
Pr. CIT v/s. Manoj Hora (2018) 402 ITR
Sec. 148: Reopening after four years: 175 (Delhi)
3 Change of opinion Issue:
Lambda Therapeutic Research Ltd.
v/s. Asst. CIT (2018) 402 ITR 177 (Guj) What is the evidential value of statement recorded
u/s 132(4) in search cases so far as it relates to third
Issue: party’s case?
When there was no failure on the part of the Held:
assessee to disclose the materials for the purpose of
assessment, whether reopening after four years is The statement under section 132(4) could not bind
permissible? the assessee. According to section 132(4) a
presumption arose in the case of the searched party.
Held: In the case of statements by the party whose
premises were searched, or attributed to a third party,
After a period of four years, the Assistant there had to beconnect or corroboration and there
Commissioner issued a notice under section 148 was none in the case of the assessee. No
invoking the provisions of section 147 that income incriminating material was found in the premises
had escaped assessment. of the assessee. The addition made by the Assessing
Officer was unsustainable.
During the course of the original assessment,in
response to the notice issued by the Assessing Yoga is education and medical relief:
Officer, the assessee had furnished the details of its
activities. The Assessing Officer, when he reworked 5 CIT (Exemption) v/s. Patanjali Yogpeeth
the deduction, had held that, “the detailed scrutiny (NYAS) (2018) 402 ITR 164 (Delhi)
of the claim of the assessee revealed that he had
not excluded the ‘notice pay income’ and ‘other Issue:
income’which were not eligible for deduction under
section 80-IB(8A)”. Thus it was evident that the Whether “Yoga” is education and medical relief
claim of the assessee was processed in detail after under the exemption provisions of Income tax Act?
calling for explanations from the assessee. It was
accepted after forming an opinion on the activities Held:
carried out by the assessee. There was no failure
on the part of the assessee as to true and full The Tribunal concluded upon analysis of the
disclosure of all material facts. Therefore, the practice of yoga that it confers positive relief to
reopening of the assessment under section 147 was certain ailments such as asthma, migraine,
based on change of opinion and hence wasnot hypertension, stress, etc. and promotes wellness and
justifiable.The notice issued under section 148 was well being generally. Having regard to the
quashed and set aside. observations, the court is of the opinion that the
mere inclusion of yoga specifically with effect from
April 1, 2016 did not per se imply that it came to be
included as a specific charitable category on the
same lines as education, medical relief, relief to the
poor, etc., but that dissemination of yoga or Vedic
philosophy or the practice of yoga or education with
respect to yoga was well within the larger term
“medical relief.”
Ahmedabad Chartered Accountants Journal April, 2019 17
From the Courts Held:
Sec. 54-B : Investment in agricultural The assessment orders passed were based on the ipse
land : dixit of the Assessing Officer without adverting to
consider the relevant materials produced before him
6 (1) In the name of wife valid. and the objections raised by the assessees. In his
(2) Investment in Tubewell etc is orders, the Assessing Officer had referred to the
investment in agricultural land. appearance of the authorized representatives and
Laxminarayan v/s. CIT (2018) 402 ITR advocates of the assessees, the submission of various
117 (Raj) documents, like copies of returns, the details of bank
accounts and other documents and had mentioned
Issue: that on various dates discussions had taken place.
But in the orders he had proceeded on the basis of
(1) To avail benefit u/s 54B investment in the various legal principles derived and the findings
agricultural land in the name of wife can be had been recorded without referring to the objections
done? of the assessee. Various legal principles had been
detailed, but they had not been discussed or applied
(2) Whatever investment in Tubewell etc is properly by referring to the objections of the assesses,
investment in agricultural land? the facts of the cases and documents filed by them.
The orders had been passed in violation of the
Held: principles of natural justice. The assessment orders
were, therefore, quashed.
“It is true that the contention which have been raised
by the Department is that the investment is made Cessation of liability: Applicability of
by the assessee in his own name but the Legislature
while using language has not used specific 8 Sec. 41(1) :
language with precision and the second reason is CIT v/s. Banaras House Ltd (2018) 402
that view has also been taken by the Delhi High ITR 88 (Delhi)
Court that it can be in the name of wife. In that
view of the matter, the contention raised by the Issue:
assessee is required to be accepted with regard to
section 54B regarding investment in tubewell and Whether provision of Sec. 41(1) can be invoked
others. when assessee acknowledges the liability?
In our considered opinion, for the purpose of Held:
carrying on the agricultural activity, tubewell
andother expenses are for betterment of land and The assessee was a company and accounts were
therefore, it will be considered a part of investment audited in accordance with the mandate of the
in the land and the same is required to be accepted.” Companies Act, 1956. In the accounts, the assessee
had accepted and acknowledged its liability. The
Note: Delhi High Court decision referred above is creditors could rely on the acknowledgment. Even
CIT v/s. Ravinder Kumar Arora (2012) 342 ITR otherwise many of the creditors were paid, adjusted
38 (Delhi) or ceased in the subsequent years as accepted by
the Commissioner (Appeals) and the Tribunal. No
Non consideration of materials special facts or reasons were given by the Assessing
Officer to hold that the liabilities hadceased, and
7 produced; Principle of Natural Justice: the amounts should be added under section 41(1)
Dhananjay Kumar Singh v/s. Asstt. CIT of the Act. The tribunal was right in holding that
(2018) 402 ITR 91 (Patna) the provisions of section 41(1) of the Act were not
attracted.
Issue:
Whether non consideration of materials produced
by assessee would violate the principle of natural
justice?
1 8 Ahmedabad Chartered Accountants Journal April, 2019
Notice u/s 148: Change of opinion From the Courts
9 Ajanta Pvt. Ltd. v/s. Deputy CIT (2018) Assessment on a non-existingentity: Void
402 ITR 72 (Guj)
10 Pr. CIT v/s. Nokia Sol.& Net. India Pvt.
Issue: Ltd. (2018) 402 ITR 21 (Delhi)
When previous officer had examined the accounts
in details, notice u/s 148 for same issue is permissible? Issue :
Whether assessment order madeon anon-existing
Held: company is valid and can be cured u/s 292B?
The assessee’s claim to deduction under section 80-
IA was examined by the previous Assessing Officer Held
minutely during the scrutiny assessment For A.Y. 206-07, a notice u/s 143(2) of the Income
proceedings. He had given detailed reasons for tax Act, 1961 was passed against a company which
reducing the claim by Rs. 3.8 lakhsand had accepted was merged with assessee company. The original
the rest of the claim. Any attempt on the part of the assessment was made in the name of a non-existing
succeedingAssessing Officer to modify that position entity. The Tribunal directed DRP to examine the
would be based on change of opinion. If an angle issue. DRP acknowledged the fact that assessment
or an element of the claim had not been directly was made in the name of the non-existing entity
addressed by the previous Assessing Officer during and directed Assessing Officer to make assessment
the original assessment to the satisfaction of the in name of assessee company. The Tribunal
succeeding Assessing Officer, it would not be a accepted assessee’s contentions that the order passed
ground or reopening of the assessment which was by DRP was a nullity since, DRP cannot direct to
previously made after scrutiny. The notice issued require the Assessing Officer to “better” the original
under section 148 was set aside. illegality, which was not curable, under section
292B. No Question of law arose.
contd. from page 15
hhh
6 Warrant of Authorization in consonance
with the Act Glimpses of Supreme Court Rulings
SLP dismissed against the order of High Court no allowance or deduction claimed by assessee for
where High Court took a view that warrant of previous years, when creditor waived repayment
authorization was based on definite information that of said amount, it amounted to capital receipt not
assessee – society was engaged in siphoning off liable to tax. SLP against the order of High Court
funds by way of advancing loans to shell companies was dismissed.
and, therefore, order passed u/s 133A(3)(ia)
whereby documents and books of accounts CIT v Compaq Electric Ltd [2019] 261 Taxman
belonging to assessee were seized, was also in 71
consonance with the provision of Act.
Liability of Interest u/s 201(1A) even if
Adarsh Credit Coop. Soc. Ltd v JDIT [2019]
261 Taxman 345 8 payee had filed a nil return or a return
showing loss
No deduction claimed in respect of
SLP against the order of High Court was granted
7 waiver of repayment amounted to capital wherein when the payer failed to deduct TDS u/s
receipt not liable to tax u/s 41(1) 194C, it was liable to pay interest u/s 201(1A) even
if payee of such amounts had filed a nil return or a
The unsecured loan partly converted into equity return showing loss.
share capital and waived the balance as not
recoverable. The High Court held that in view of Punjab Infrastructure Dev. Board v CIT [2019]
fact that in respect of amount in question, there was 261 Taxman 249
hhh
Ahmedabad Chartered Accountants Journal April, 2019 19
Tribunal
News
CA. Yogesh G. Shah CA. Aparna Parelkar
[email protected] [email protected]
GATI Ltd. vs. ACIT102 taxmann.com The Tribunal observed that for the purpose of
computing book profit under section 115JB, the
1 40/ 175 ITD 310 (HYD) financial statements including profit and loss
Assessment Year 2013-14 Order dated: account should be prepared after duly complying
31st January, 2019 with the accounting standards and shall be laid
before the annual general meeting (hereinafter
Basic Facts referred to as ‘AGM’). The proviso to section 115JB
is very clear that the profit adopted by the company
During the year under consideration, the assessee in the AGM overlooking the qualification of auditor
deductedloss on sale of investments from the total is the final book profit under section 115JB and the
income in the statement of computation of total assessee cannot alter the same by claiming that it
income and computation of book profit under had not followed certainAccounting Standards. The
section 115JB even though the same was not assessee can under no circumstances modify the
debited in the profit and loss account prepared not profit declared as per Companies Act and adopt
in accordance with the Accounting Standards. The differently for the purpose of MAT provisions. Else
accounts were also qualified by the statutory the AO shall have the power to redo the book profit
auditors. After going through the submissions of by making suitable adjustment. Therefore the wrong
the assessee, theAO accepted its contention without interpretation of law empowered the Pr. CIT to
discussing it in his order.The ‘Pr. CIT by invoking invoke provisions of section 263. Theground raised
powers under section 263,termed the assessment by the assessee on jurisdiction under section 263
as erroneous as well as prejudicial to the interests and on merit were dismissed.
of the revenue and set aside the order of the AO
with a direction to disallow the said deduction and M/s. Nippon Paint (India) Pvt Ltd vs.
re-compute the book profits.Aggrieved, the assessee
preferred an appeal before the ITAT. 2 DCIT (Intl. Tax) TS-171-ITAT-2019
(Chennai)
Issue Assessment Year 2010-11 Order dated:
29th March, 2019
Whetherthe AO can modify book profit under
section 115JB where the assessee fails to comply Basic Facts
with the accounting standards as per the
Companies Act? During the year under consideration, the assessee
made a remittance to a non-resident for providing
Held technical support, training and accompanying
activities. Further, the assessee also made salary
The Hon’ble ITAT by placing reliance upon the reimbursement to foreign nationals taken on
decision of Apex Court in the case of Malabar secondment from the group company for taking
Industrial Co. Ltd. v. CIT [109 Taxman 66] held employment inIndia after deducting TDS under
an incorrect assumption of facts or an incorrect section 192 of the Act. The said remittances were
application of law will satisfy the requirement of made without deducting TDS under section 195 of
the order being erroneous. The AO has incorrectly
interpreted the law and this was good enough reason
to term the order erroneous.
2 0 Ahmedabad Chartered Accountants Journal April, 2019
the Act, thereby holding the assessee to be an Tribunal News
‘assessee-in-default’ under section 201(1) and
accordingly liable to tax and interest. In view of order of the CIT (A) was upheld and the appeal by
the above, the AO placed reliance on the ruling of assessee was dismissed.
the AAR in the case of Target Corporation ofIndia
(P) Limited wherein it was held that salary ONGC Ltd. vs. DCIT [2019] 103
reimbursements partake the nature of income and
the Supreme Court decision in the case of Centrica 3 taxmann.com 396 (Mumbai)
India Offshore(P)Limited wherein it was held that Assessment Year: 2008-09 Order dated:
salary reimbursements are payment in the nature of 30th November, 2018
Fees for Technical Services (FTS). On appeal, the
CIT (A) upheld the action of AO. Aggrieved, the Basic Facts
assessee preferred an appeal before the ITAT.
The assessee company during the year under
Issue consideration followed the decentralized
mechanism for deduction of tax at source.The
Whether travel expenses incurred by technical assessee had filed an offline e-TDS return in Form
personal during their stayin India would partake No. 27Q for the first quarter of the financial year
the nature of payment for FTS? 2007-08, which was processed by the TDS
Reconciliation Analysis and Correction Enabling
Whether salary reimbursements to seconded System.On the basis of an online justification report
employees who exchange their experience and obtained by the assessee from ‘TRACES’, it was
skills would give rise TDS obligation? found that interest was levied under section 201(1A)
for late deposit of TDS.The contention of the
Held assessee before the CIT (A) was that though the
cheque towards payment of TDS was tendered to
The Hon’ble ITAT held that the necessity of visit the bank, well within the stipulated ‘due date’ ,
of personnel is a partof the scope of service however the bank had delayed the remittance to
rendered without which services would not have the Government account. It was submitted by the
been rendered at all or at the most could nothave assessee that the Dy. CIT (TDS), considering the
been performed to the extent of service delay on the part of the bank as the delay in payment
requirements. Reliancein this regard was placed on of TDS by the assessee, had wrongly levied interest
the decisions by ITAT Chennai in the case of Ashok under section 201(1A). The CIT (A) upheld the
Leyland Ltd vs DC1T [120 1TD 14] and ITAT order of the TDS officer.
Delhi in the case of CSC Technology Singapore
[50 SOT 399] wherein it is held that the Issue
consideration paid to meet traveland lodging needs
of the service personnel forms part of the FTS. Whether interest under Section 201(1A) of the
Thus, said expenses bearing a clear nexus with the Income Tax Act, 1961 can be levied even when
technical services rendered have been incurred for bank causes delay in remittance of said amount
earning royalty/ FTS. Further, the ITAT held that to Government account?
theseconded employees exchanged experience and
skilltraining by the employer seconding them and Held
once the term of the secondment is over, they
willreturn back to their original employer and will As per CBDT Circular No. 261 [F.No. 385/61/79-
not lose theemployer-employee relationship of the IT (B)], dated 8-8-1979, date of tendering of cheque
parent organization.Accordingly, what theassessee for payment of Government dues would be deemed
paid to Nippon Paint Company Limited and to be the date of payment of such taxes. The
Wuthela Holdingsis the income of those companies aforesaid CBDT circular was applicable to all
andnot reimbursement of salary.Resultantly, the Government dues, and made no distinction whether
the payment was by way of TDS, advance tax, self-
assessment tax etc.The CIT(A) drawing support
Ahmedabad Chartered Accountants Journal April, 2019 21
Tribunal News assesse accordingly claimed that the rate of interest
of CCTPL could be taken as a comparable case
from the Central Government Account (Receipts but after giving certain adjustment due to difference
and Payments) Rules, 1983, had concluded that as in debt equity ratio, credit rating, collateral furnished
per the amended rules the Government dues by CCTPL, as against no collateral offered by the
tendered in form of a cheque or draft shall be deemed assessee etc. During the course of assessment
to have been paid on the date on which it is cleared proceedings, the TPO had benchmarked the rate
and entered in the receipt of scroll.However, the of interest for the assessee at the rate of LIBOR +
tribunal found that the CBDT Circular No. 261, 0.77% by comparing the interest rate of the assessee
dated 8-8-1979 had not been withdrawn even after with that of third party company i.e. Torrent
amendment of Central Government Account Pharmaceuticals Ltd. (‘TPL’) and disallowed the
(Receipts and payments) Rules 1979 and as such excess amount of interest expense.
holds the ground as on date. Rather, the CBDT in
all its wisdom had not even modified the Circular Aggrieved, the assessee filed an appeal before the
No. 261, dated 8-8-1979 which was issued prior to CIT (A). The assessee submitted that on the same
the ‘Central Government Account (Receipt and set of facts the TPO, in the assessment year 2006-
Payments) Rules, 1983’. The aforesaid ‘benevolent 07, had accepted the rate of interest on the money
circular’ regarding date of tendering of the cheque borrowed from the AE. The assessee also submitted
by the assessee towards the amount of TDS to the that TPL could not be considered as the comparable
bank, was thus binding on the revenue. The company due to difference in nature of business,
Hon’ble ITAT noted that the assessee had risk profile, low debt equity ratio of TPL in
admittedly tendered the cheque with the bank well comparison to the assessee, different credit rating
within the stipulated ‘due date’, therefore, it cannot and earning per share ratio etc. The CIT(A) after
be held as being in default for the delay on the part considering the submission of the assessee
of the bank or the clearing house in making the considered CCTPL as a right comparable company
remittance of the said amount to the Government and held that it would be justifiable to take the
Account. Accordingly, the Hon’ble ITAT deleted interest rate at LIBOR + 2.80% as arm’s length
the interest under Section 201(1A) levied by the rate.
AO.
Further aggrieved, both Revenue and the assessee
DCIT v. Mudra International Container are in appeal before the Hon’ble ITAT.
4 Terminal Private Limited TS-190-ITAT- Issue
2019-TP (AHD)
Assessment year: 2007-08 Order Dated: Whether the rule of consistency should be
4th April 2019 applied in benchmarking the same transaction
in two or more years if facts remained same?
Basic Facts
Held
The assessee is a private limited company and
engaged in the business of cargo handling. It had The Tribunal noted that the assessee had paid
taken working capital loan taken from its AE and interest on the money borrowed from its AE at the
paid interest at the rate LIBOR + 3% p.a. as agreed rate of LIBOR+300 basis points in the assessment
with the AE. The assesse, justified the rate of year 2006-07 which was accepted by the TPO in
interest, on basis of interest paid by another the assessment framed under section 143(3) read
company namely Chennai Container Terminal Pvt. with section 92CA(3) of the Act. Thus, the order
Ltd. (“CCTPL”) belonging to the same group of of the TPO for the assessment year 2006-07 had
DP world and also engaged in the same business reached its finality. Therefore, as per the Tribunal
activities. The said CCTPL had obtained term loan the TPO cannot take different view until and unless
at the rate of LIBOR + 2.2% in terms of ECB. The there is a change in the facts and circumstances.
2 2 Ahmedabad Chartered Accountants Journal April, 2019
There was noambiguity that the assessee has paid Tribunal News
the interest in the year under consideration which
was also there during the assessment proceedings During the assessment proceedings, the AO
for the assessment year 2006-07. As there was no observed that, the assessee had earned an amount
change in the facts and circumstances, the tribunal from the provision of consulting engineering
was of the view that no disallowance on account services. Interpreting the provisions of article-
of interest expenses for the year under consideration 13(4)(c), the AO observed that the words ‘make
was warranted. The Tribunal also relied on upon available’ go with technical knowledge, experience,
the judgement of Hon’ble Supreme Court in the skill, know-how, etc., but do not go with ‘the
case of Radhasoami Satsang[193 ITR 321] and development and transfer of a technical plan or a
followed the rule of consistency in determining technical design’. Thus he held that the amount
arm’s length price of the same transaction for two being in nature of fees for technical services under
or more years wherein facts remained same. article-13(4) (c) of DTAA between India and UK
is taxable in India and levied tax at the rate of 15
The Tribunal also noted that the rate of interest paid per cent on the gross amount as per India-UK
by the assessee cannot becompared with the Torrent DTAA.On Appeal, the CIT (A) observed that
pharmaceutical Ltd as proposed by the AO on technical services in the form of designing and
account of difference in nature of business, risk planning could not have been rendered by the
profile, low debt ratio etc., as submitted by the assessee without locating technical personnel,
assessee. In respect of CCTPL the Tribunal found wherein they needed thorough application of mind
that the CIT (A) had madeadjusted on a consolidated in India for execution of the designs and drawing.
basis without adjusting individual factors. As such Thereby the CIT (A) upheld the order of the AO.
in their considered view, the CIT (A) should have Aggrieved, the assessee preferred an appeal before
made the adjustments in the rate of interest after the Hon’ble ITAT.
considering all the factors individually. Accordingly,
Tribunal did not confirm the order of the learned Issue
CIT (A) considering CCTPL as comparable.
Whether the amount received by the assessee
Accordingly in the given facts and circumstances, towards supply of technical designs, drawings,
it was held that the rate at which the interest paid plans, etc., under the consulting engineering
by the assessee to AE is at arm’s length and no services is to be treated as fees for technical
adjustment is warranted. But the Tribunal made is services under the India-UK tax treaty.
clear that the finding should not be used /quoted as
a precedent in other cases as since the appeal of the Held
assessee was allowed on the basis of the rule of
consistency. On perusal of the sample copies of the agreement,
the tribunal found that the work of the assessee is
Buro Happold Ltd. v. DCIT(IT) [2019] basically to provide consultancy services relating
to the projects and in that context to provide
5 103 taxmann.com 344 (Mumbai) technical designs/drawings/plans. Further, the
Assessment Year: 2012-13 Order dated: technical designs/drawings/plans supplied by the
15th February, 2019 assessee under contract were project specific.On a
careful reading of article-13(4)(c) of the India-UK
Basic Facts tax treaty, and applying the rule of ejusdem
generis,as per tribunal it becomes clear that the
The assessee company, a tax resident of UK was words ‘or consists of the development and transfer
registered in UK and was involved in the business of a technical plan or technical design’, appearing
of providing engineering design and consultancy in the second limb has to be read in conjunction
services. with ‘make available technical knowledge,
experience, skill, know-how or processes’. The
Tribunal further held that the reasoning of the AO
Ahmedabad Chartered Accountants Journal April, 2019 23
Tribunal News be an admitted fact that the impugned interest
income was earned on short term deposit of funds
that the second limb of article-13(4)(c) of the India- derived from Central and the State Government for
UK tax treaty has to be read independently, is not infrastructure project undertaken by the assessee
the correct interpretation of the said Article. The andalso noted that the assessee had treated the
Hon’ble ITAT noted that as per the settled principle impugned amount as capital receipts in its audited
of law, technology is considered to have been made accounts, as amount received during pre-operative
available when the recipient of such technology is period. Aggrieved, the department preferred an
competent and authorised to apply the technology appeal before the Hon’ble ITAT.
contained therein independently as an owner
without depending upon the service provider. In Issue
the instant case, the technical design/drawings/plans
supplied by the assessee to the Indian entity are Whether interest earned on bank deposit could
project specific, hence, cannot be used by the Indian be brought to tax under head ‘income from
entity in any other project in future. Thus, the other sources’ in the hands of assessee even
Hon’ble ITAT held that the amount received by the though entire fund entrusted and interest
assessee has to be treated as business profit and in accrued therefrom on deposits in bank had to
the absence of a PE in India, it cannot be brought be applied only for purpose of welfare of State?
to tax in India. Accordingly, the appeal was allowed
in favour of the assessee. Held
ITO vs. Kolkata Metro Corpn. Ltd. The Hon’ble ITAT noted that the interest income
earned on the short term deposits during construction
6 [2019] period was fully utilized for the construction of the
102 taxmann.com 419 (Kolkata) project and resulted in reduction of project costs.
Assessment Year: 2010-11 & 2011-12 The Hon’ble ITAT further observed that the income
Order dated: 22nd December, 2017 derived by parking the funds temporarily with bank
shall be an income connected with business and
Basic Facts hence it could not be taxed under the head ‘Income
from other sources’. Further, the Hon’ble ITAT also
The assessee-company was engaged in the noted that there is no profit motive of the assessee
construction work for metro rail under metro project as the entire fund entrusted and the interest accrued
in the capacity of joint venture with Government therefrom on deposits in bank though in the name
of India and Government of West Bengal. The of the assessee has to be applied only for the purpose
assessee had received money both from State and of welfare of the State as provided in the guidelines.
Central Government for execution of construction Therefore, the Hon’ble ITAT held that since the
work for metro project. The assessee had parked income was earned in a period prior to
money so received in bank during unutilized period commencement of business, it was in the nature of
and earned interest on same. The assessee stated capital receipt and hencethe assessee has rightly set
that interest accrued out of investment made in the off the interest income against the pre-operative
banks from the said borrowed loan, were to be expenses in its books of account.Accordingly, the
treated as capital receipts and, accordingly, Hon’ble ITAT confirmed the order of the CIT (A).
accounted same in the accounts of the company.
The AO rejected the contention of the assessee and hhh
held that the interest so received from bank deposits
should be taken as ‘income from other sources’.On
appeal, the CIT (A) observed that it was found to
2 4 Ahmedabad Chartered Accountants Journal April, 2019
Unreported
Judgements
CA. Sanjay R. Shah
[email protected]
Recently, Hon’ble Ahmedabad Tribunal in the case Kansa Road Char Rasta, Shree Complex,
of Shree Leuva Patidar Vidyottejak Mandal dealt
with the facts of the case where the trust registered Gunj Bazar Road, Abu Road, Highway
u/s 12A of the Act had inadvertently forgotten to
mention the purpose for which the income is Visnagar - 384 715 Palanpur.
accumulated while filing Form No.10 before the
Assessing Officer. The said defect was not in the [PAN NO. AAATS8368K]
knowledge of the trust while filing Form No.10 nor
was it brought to its notice during the course of Appellant by : Shree Vijay ranjan &
assessment proceedings by the Assessing Officer. Respondent by : Ira Kapoor, A.R.
The trust, however, cured the same at the time of Shri G.C. Daxini, Sr. D.R.
first appellate proceedings. However, CIT(A) did
not consider the same and did not grant relief to Date of Hearing 07/05/2019
the assessee trust. The trust succeeded in the second
appeal before Hon’ble Tribunal which restored the Date of Pronouncement 17/05/2019
issue to the file of CIT(A) to consider the amended
Form No.10 as additional evidence and to decide Order
on the merits of the case.
Per Ms. Madhumita Roy - JM:
We are giving full text of the decision in this issue, Both the captioned appeals filed by the Assessee
which we hope the readers would find useful. are directed against the separate order dated
09.01.2015 & 02.03.2017 passed by the
Commissioner of Income Tax (Appeals)-
Gandhinagar, Ahmedabad under section 143(3) and
271(1)(c) of the Income Tax Act, 1361 arising out
of the orders dated 18.10.2013 & 19.02.2016
respectively for the Assessment Year 2011-12.
In the Income Tax Appellete Tribunal ITA No. 903/Ahd/2005 for A.Y. 2011-12
“SMC” Bench, Ahmedabad
2. The assessee, a public charitable trust engaged
Before Shri Waseem Ahmed, in education activities, filled its return of income
Accountant Member & on 27.07.2012 declaring total income of Rs.
1,63,420/- which was processed u/s 143(1) of
Ms. Madhumita Roy, Judicial Member the Act on 28.12.2012 subsequently, under
scrutiny notice u/s 143(2) dated 07.08.2013 was
ITA NO. 90903/Ahd/2015 issued. In response whereof the assessee by and
(Assessment Year : 2011-12) under a forwarding letter dated 04.09.2013 filed
a copy of audit report dated 18.06.2012 with
Shree Leuva Patidar Vs. DCIT the copies of various TDS statement along with
the order passed by the Learned CIT,
Vidyottejak Mandal, Kansa Patan Circle, Gandhinagar on application for grant of approval
for renewal u/s 80G(5) of the Act. On
Road Char Rasta, Gunj Bazar Patan. 08.10.2013 an adjournment was sought for on
behalf of the assessee and same was adjourned
Road, Visnagar - 384 715 till 17.10.2013 On 17.10.2013, the Accountant
And
ITA No. 717/Ahd/2017
(Assessment Year : 2011-12)
Shree Leuva Patidar Vs. ITO (Exemption)
Vidyottejak Mandal, 2nd Floor,
Ahmedabad Chartered Accountants Journal April, 2019 25
Unreported Judgments but the said Form No. 10 was not blank. Only
specific purpose of the accumulation was left
of the assessee appeared and produced cash out inadvertently as contended by the Learn
book, ledger, donation receipts, trust deed etc. Counsel appearing for the assessee. It was a
Subsequently, on 22.10.2013, the accountant of mistake committed by the Learned Counsel
the assessee again appeared and filed Form No. appearing for the assessee. It was a mistake
10 details of fund donation computation of total committed by the computer operator which was
income, general fund donation. In this particular not noticed by the trustee and even by authorizes
case, the said Form No. 10 was filed with the representative who represented the case before
signature of the main trustee Mr. Gordhandas the revenue. This particular fact was made
C. Patel who also signed in the audit report on known to the first appellate authority by way of
02.08.2011. The return of income was also written submission before the Learned CIT(A)
signed by the said trustee. It was the contention along with copy of the resolution dated
of the Learned AO that the said Form No.10 06.08.2011 of the meeting of the trustee held
was blank. The scrutiny proceeding continued and it was resolved that excess income over
from 07.08.2012 till passing of the assessment expenditure will be used for construction of trust
order in the month of October, 2013, during the building in five years, the details of construction
said period of 17 months the concrete object of expenditure incurred in financial year 2011-12
the trust was not filled by the duly filled up Form and the certificate issued by the trustee for
No. 10 r.w.r. N17 of the Income Tax Rule, 1962, expenditure made for the purpose of building
it is established to have filed as blank at all construction out of accumulated funds u/s 11(2)
because objects are not at all specified, spelt out of the Act was also furnished. An application,
or set out in the Form No. 10. Neither the thus, for accepting the additional evidences under
resolution was filed with the said Form No. 10 Rule 46A of the I.T. Rule, 1962 was filed by
from the date of filing of the return u/s 139(4) of the assessee before the first appellate authority.
the Act till the conclusion of the proceeding. In support of hiscontention regarding acceptance
since nothing specified regarding the object of of Form No. 10, the assessee relied upon the
the trust in the Form No.10 over and again the different judgments passed by the Court of law.
exemption claimed by the assessee was denied However, the contention made by the assessee
to the tune of Rs. 17,50,000/- and added to the was not accepted by the Learned CIT(A) neither
total income of the assessee. In appeal, the the application under Rule 46A. He then upheld
contention made by the Learned AR was the addition made by the Learned AO basically
accepted by the Learned CIT(A) and the addition solely on the ground that the object of the
was unhelped. Hence, the instant before us. accumulated fund was not sufficient in Form No.
3. At the time of hearing of the instant appeal, the 10 submitted before the Learned AO.
Learned Counsel appearing for the assessee
submitted before us that the Form No. 10 It is the case of the assessee the such defect was
submitted by the assessee inadvertently was not subsequently cured and submitted before the
filled up in the column qualifying the purpose Learned CIT(A) though the same was not taken
of the accumulated sufficient funds of the trustee. in consideration by the Learned CIT(A) in its
Though the same discrepancy was detected by proper prospective. Such mistake is curable on
the Learned AO during the course of assessment and the same ought to have been accepted by
proceeding, the same was never communicated the Learned CIT(A) in appeal while deciding
to the appellant. Had it been communicated to the issue as also submitted by the Learned CIT
the appellant in due time, the appellant could AR in view of the basic principle of natural
have filed duly filled up Form No. 10 before the justice by offering an opportunity of being heard
Learned AO itself. Furthermore, it was pointed
out the LearnedAO in the assessment order that contd. on page no. 44
the Form No. 10 filed by the appellant was blank
2 6 Ahmedabad Chartered Accountants Journal April, 2019
Controversies
Deduction claimed on the basis of Judicial CA. Kaushik D. Shah
decisions- Whether penalty u/s 271(1)(C)- [email protected].
leviable?
• Their Lordships of Delhi High Court further held
Issue: as under :
Assesse claimed deduction based on Judicial “If we take the view that a claim which is wholly
Decisions- AO disallowed the claims and also untenable in law and has absolutely no
imposed penalty u/s 271(1)(C) for concealment of foundation on which it could be made, the
particulars of Income and/ or filing of inaccurate assessee would not be liable to imposition of
particulars of Income. penalty, even if he was not acting bonafide while
making a claim of this nature, that would give a
Propositions: licence to unscrupulous assessees to make
wholly untenable and unsustainable claims
When assessee’s claim for deduction is based on without there being any basis for making them,
Judicial Decisions, penalty u/s 271(1)(C) for in the hope that their return would not be picked
concealment of income and/ or filing of inaccurate up for scrutiny and they would be assessed on
particulars of income cannot be charged. the basis of self Assessment under Section
143(1) of the Act and even if their case is selected
View against the proposition: for scrutiny, they can get away merely by paying
the tax, which in any case, was payable by them.
• Let me refer to the decision in the case of CIT v. The consequence would be that the persons who
Zoom Communication Private Limited: 327 ITR make claims of this nature, actuated by a
510 (Del), where in this Court, after examining malafide intention to evade tax otherwise payable
the decision of the Supreme Court in Reliance by them would get away without paying the tax
Petroproducts Private Limited ,had observed that legally payable by them, if their cases are not
the Court cannot overlook the fact that only a picked up for scrutiny. This would take away
small percentage of the income tax returns are the deterrent effect, which these penalty
picked up for scrutiny and if the assessee makes provisions in the Act have.”
a claim which is not only incorrect in law but is
also wholly without any basis and the • It was further held by theie Lordships of Delhi
explanation furnished by him for making such a High Court as under
claim is not found to be bonafide, it would be
difficult to say that he would still not be liable to “We find that the assessee before us did not
penalty under Section 271(1)(c) of the Act. explain either to the Income Tax Authorities or
Therefore, the issue to be examined in the present to the Income Tax Appellate Tribunal as to in
case is whether the claim made by the assessee what circumstances and on account of whose
is wholly without any basis and the explanation mistake, the amounts claimed as deductions in
furnished by the assessee for making such a this case were not added, while computing the
claim is not bonafide. income of the assessee company. We cannot lose
sight of the fact that the assessee is a company
which must be having professional assistance
Ahmedabad Chartered Accountants Journal April, 2019 27
Controversies regard suffers from the vice of perversity. We
cannot accept the general proposition that no
in computation of its income, and its accounts person would ever claim the amount of income
are compulsorily subjected to audit. In the tax as a deduction with a view to avoid payment
absence of any details from the assessee, we fail of tax. No hard and fast rule in this regard can
to appreciate how such deductions could have be laid down and every case will have to be
been left out while computing the income of the decided considering the facts and circumstances
assessee company and how it could also have in which such a deduction is claimed, coupled
escaped the attention of the auditors of the with as to whether the explanation offered by
company.” the assessee for making the claim, is shown to
be bonafide or not.”
View in favour of proposition:
Summation
• In the case of Pr. CIT Vs. Dhariwal Industries
Limited (Bom) [408 ITR 12]. Their Lordships • I would like to rely on the decision in the case
of Bombay High Court held as under : of Pr. CIT Vs. Dhariwal Industries Limited
(Bom). Their Lordships of Bombay High Court
“The explanation offered by the assessee held as under:
company was not accepted either by the
Assessing Officer or by the Commissioner of “We do not agree, as the assessee had furnished
Income Tax(Appeals). The view of Income Tax all the details of its expenditure as well as income
Appellate Tribunal regarding admissibility of the in its return, which details, in themselves, were
deduction on account of written off of certain not found to be inaccurate nor could be viewed
assets, under Section 32(1)(iii) of the Act is as the concealment of income on its part. It was
wholly erroneous. The Tribunal has not recorded up to the authorities to accept its claim in the
a finding that the explanation furnished by the return or not. Merely because the assessee had
assessee in respect of the deduction due to certain claimed the expenditure, which claim was not
assets being written off was a bonafide accepted or was not acceptable to the Revenue,
explanation. The Tribunal has nowhere held that that by itself would not, in our opinion, attract
it was due to oversight that the amount of this the penalty under Section 271(1)(c).
deduction could not be added while computing
the income of the assessee company.” If we accept the contention of the Revenue then
in case of every return where the claim made is
“As regards deduction on account of income tax not accepted by the assessing officer for any
paid by the assessee, the Tribunal felt that since reason, the assessee will invite penalty under
no person would claim the same as deduction, Section 271(1)(c). That is clearly not the
to evade payment of tax, the claim made by the intendment of the legislature.”
assessee was not malafide. In the absence of the
assessee company telling the Assessing Officer • It was further held by their lorships of Bombay
as to who committed the oversight resulting in High Court as under:
failure to add this amount while computing the
income of the assessee, under what “In this regard, we would also like to refer to a
circumstances the oversight occurred and why decision of the Supreme Court in the case of
it was not detected by those who checked the CIT, Ahmedabad v/s Reliance Petro Products
Income Tax Return before it was filed and later Pvt. Ltd, reported in (2010) 11 SCC 762 wherein
by the auditors of the assessee company, we it has inter alia been held that an incorrect
cannot accept the general view taken by the expenditure claimed in the return was held not
Tribunal. In our view, no such view could have to be liable to penalty. The Supreme Court inter
reasonably been taken, on the facts and alia held that merely because the claimed
circumstances prevailing in this case and, expenditure was not accepted or was not
therefore, the decision of the Tribunal in this
2 8 Ahmedabad Chartered Accountants Journal April, 2019
acceptable to the Revenue, the same would not Controversies
attract penalty under section 271(1)(c) of the
Income Tax Act, 1961. on any business certain expenses necessary for
corporate existence has be allowed as deduction.
The Supreme Court clearly held that in order to
impose penalty, there should be (i) concealment • In actual practice it is seen that where any
of particulars of income by the Assessee; or (ii) addition is made penalty u/s 271(1)(C) is
the Assessee must have furnished inaccurate invariably charged even if the issue is covered
particulars of his income. Submitting an incorrect by Judicial Decisions in favour of the assessee.
claim in law would not tantamount to furnishing The Income Tax Department either ignores such
inaccurate particulars of income or its decisions or standard response is “Facts are
concealment, was the final finding of the different”.
Supreme Court. Paragraphs 17 to 21 of this
decision and which are relevant for our purpose • It is interesting to refer to the decision of their
read thus :- Lordships of Delhi High Court in the case of
Dhoomketu Builders & Development Private
“ We are not concerned in the present case with Limited, which upheld the decision of Delhi
mens rea. However, we have to only see as to Bench of Income-tax Appellate Tribunal which
whether in this case, as a matter of fact, the has acknowledged the distinction between the
assessee has given inaccurate particulars. In commencement of a business and setting up of
Webster’s Dictionary, the word “inaccurate” has a business and applied the test laid down by the
been defined as: Bombay High Court in the case of Western India
Vegetable Products Ltd.
“not accurate, not exact or correct; not according
to truth; erroneous; as an inaccurate statement, • I also invite attention to the decision ofAllahabad
copy or transcript.” High Court in the case of CIT vs. Rampur
Timber/129/ITR/58.
We have already seen the meaning of the word
“particulars” in the earlier part of this judgment. Their lordships ofAllahabad high court held that
Reading the words in conjunction, they must even if the assesse is not carrying on any
mean the details supplied in the return, which business, certain expenses necessary for
are not accurate, not exact or correct, not corporate existence has to be allowed as
according to truth or erroneous. deduction.
We must hasten to add here that in this case, It is submitted that as per the following
there is no finding that any details supplied by authorities the expenditure to keep business
the assessee in its return were found to be status alive though business has stopped is
incorrect or erroneous or false. Such not being allowable business expenditure
the case, there would be no question of inviting
the penalty under Section 271(1)(c) of the Act. 1. Kesha Appliances Pvt. Ltd. 63 ITR (Trib)
A mere making of the claim, which is not (Delhi)
sustainable in law, by itself, will not amount to
furnishing inaccurate particulars regarding the 2. Sai Fragrance and Flavours 169 ITD 235
income of the assessee. Such claim made in the (Mumbai)
return cannot amount to inaccurate particulars.
• In view of the above it is submitted that When
• It is to be noted that in many cases assessee has assessee’s claim for deduction is based Judicial
set up business but business has not commenced. Decisions, penalty u/s 271(1)(C) for
The AO disallows the expenditure. Assessee concealment of income and/ or filing of
claims that that even if assessee is not carrying inaccurate particulars of income cannot be
charged.
hhh
Ahmedabad Chartered Accountants Journal April, 2019 29
Indian Tax Administration
publishes draft rules on Profit
Attribution to Permanent
Establishment
CA. Dhinal A. Shah CA. Sagar Shah
[email protected] [email protected]
Executive summary Public comments on the report can be sent
electronically by 18 May 2019 to the CBDT at the
Recognizing the significance of issues relating to email address [email protected].
profit attribution to a permanent establishment (‘PE’)
as well as the need to bring greater clarity and Detailed discussion
predictability, a Committee was formed by the
Indian Tax Administration i.e. Central Board of Background
Direct Taxes (‘CBDT’) to examine the existing
scheme of profit attribution to PE and to recommend The taxation of a non-resident in India is governed
changes to the existing rule contained in the Indian by the provisions of the Indian ITL and the
Income Tax Law (‘ITL’). The Committee’s report provisions of the relevant tax treaty. Business
was released for public consultation on 18 April income of a non-resident can be taxed in India if it
2019. satisfies the requisite thresholds provided under the
Indian ITL as well as in the applicable tax treaty.
After considering various options, the Committee The threshold is measured by applying the concept
has recommended a mixed or balanced approach of business connection (‘BC’) under the Indian ITL
that allocates profits between the jurisdiction where and PE under the tax treaty.
sales take place and the jurisdiction where supply
is undertaken, with necessary safeguards to prevent In either case, the profits that may be taxed in India
excessive attribution on one hand and protect the is limited to income which is reasonably attributable
interests of Indian revenue on the other. The report to operations in India if a BC exists under Indian
therefore concludes that the option of ‘fractional ITL or, as the case may be, profits attributable to
apportionment’ based on apportionment of profits the PE. The profit attribution principles, which are
derived from India would be acceptable under the typically contained in Article 7 of tax treaties,
tax treaties as well as the Indian ITL. require profits to be attributed to the PE as if it were
a distinct and separate entity.
Overall, the Committee’s recommendations seem
to consider the needs of India as a capital-importing Under the Indian ITL, the rules for attribution of
country and seek to develop a new configuration profits to a BC are contained in Rule 10 of the
of the source principle to tax profits derived from Income Tax Rules, 1962 (the Rules) which
the ‘market jurisdiction’. However, some generally grant the tax authorities wide powers to
refinements and modifications need to be determine profit attribution, including use of
considered to the recommendations in order to better formulary apportionment methods. While not
align the outcome with international tax principles explicitly provided in the Indian ITL, the tax
emerging from the Organization for Economic Co- authorities generally take a view that the provisions
operation and Development (‘OECD’) guidance on of Rule 10 can also be applied for determining
PE attribution as well as the OECD Transfer Pricing profits attributable to a PE under a tax treaty in
Guidelines for Multi-National Enterprises and Tax certain circumstances.
Administrations (‘OECD TPG’).
Recognizing the significance of issues relating to
profit attribution to a PE as well as the need to bring
3 0 Ahmedabad Chartered Accountants Journal April, 2019
Indian Tax Administration publishes draft rules on Profit Attribution to Permanent Establishment
greater clarity and predictability, a Committee was the adoption of theAuthorized OECD Approach
formed by the CBDT to examine the existing (AOA) by the OECD, of necessitating reliance
scheme of profit attribution to PE and to recommend upon the FAR analysis for profit attribution and
changes to Rule 10. The mandate of the Committee excluding the option of apportionment, was that
was as follows: in cases where business profits could not be
readily determined on the basis of accounts, the
· Examine the existing scheme of profit attribution same were required to be determined by taking
to PE under Article 7 of tax treaties; into account the function, assets and risk.
However, such approach completely ignores the
· Examine the contribution of demand side and sale receipts derived from source tax jurisdiction.
supply side factors in profit attribution; This is a major deviation from the generally
applicable accounting standards for determining
· Recommend the changes needed in Rule 10 to business profits, where business profits cannot
provide specific rules on how profits are to be be determined without taking sales into account.
attributed to a non-resident person having PE in
India. · Implications of demand and supply factors
in the economy
The Committee deliberated on the following aspects
and arrived at their conclusions and The Committee observes that the business profits
recommendations: are contributed by both demand and supply of
the goods. Accordingly, a jurisdiction
· The history and evolution of different standards contributestowards demand:
of profit attribution rules thatcurrently prevail in
the model tax conventions, along with the formal (A) by facilitating the economy and the ability
Indian position adoptedin respect of them as well of their resident to pay or;
as the decisions of the Indian courts in relation
to profitattribution to PEs; (B) by maintenance of markets that enable the
sales.
· The economic impact for different economies
and in particular their impact for Indian economy Further, the jurisdiction contributes to the
and tax collections; production or supply of goods, contribute
towards the business profits of an enterprise. This
· The views and opinions of academicians and gives rise to a valid justification of taxation by
experts as also some of the internationalpractices them of the profits to which their economies have
prevailing or proposed to be adopted across the contributed. Where, the economies of both
world. Contracting States in a tax treaty contribute to
the business profits, there exists sufficient
Key observations of the Committee on the economic justification for profits to be allocated
approach to profit attribution among them in a manner that avoids double
taxation.
· Use of functions, assets and risks
(FAR)analysis · International practices on profit attribution
The Committee observes that at present three There are three possible approaches for profit
standard versions of Article 7 exist in the attribution:
taxtreaties and OECD Model Tax Convention
(OECD MTC) viz. the two versions that existed i) The purely supply approach allocating all
in the OECD MTC pre and post 2010 and the business profits exclusively to the jurisdiction
one that continues to be a part of United Nations where factors of production are deployed and
(UN) Model Tax Convention (UN MTC). One supply side activities are undertaken;
of the primary implications of the revisions
introduced in Article 7 of the OECD MTC and
Ahmedabad Chartered Accountants Journal April, 2019 31
Indian Tax Administration publishes draft rules on Profit Attribution to Permanent Establishment
ii) The purely demand side approach allocating all alone. The revised Article 7 of OECD MTC has
business profits exclusively to the jurisdiction also not been incorporated in any of India’s tax
where the consumer is located; and treaties and therefore, the additional guidance issued
by OECD with reference to AOA cannot apply to
iii) A mixed or a balanced approach that allocates India’s tax treaties. Accordingly, the
profits between (A) the jurisdiction where the recommendations proposed by the Committee are
consumers are located and (B) the jurisdiction based on the rationale that both demand and supply
where factors or production are located & where factors of economy affect and contribute to the
supply side activities are undertaken. business profits.
The analysis of international practices shows that Possible options for PE profit attribution by
among these, the mixed approach ismost commonly apportionment
adopted, though there are also instances of purely
demand approach, especially incertain US states. The Committee states that profit attribution by
The pure supply side approach does not appear to apportionment under Rule 10 should be in
be practiced within any ofthese countries. The accordance with India’s position and views.
Committee also observes that the revision ofArticle Accordingly, the Committee broadly considered the
7 of the OECD MTC in 2010 amounted to a shift formulary apportionment method and the fractional
from a broader approach that permitted either of apportionment method as options to attribute profits
the three approaches followed under the domestic to a PE.
law of a Contracting State, toa purely supply
approach, by seeking to determine profits With respect to the formulary apportionment
exclusively with reference to FAR analysis, and method, the Committee did not consider it to be
thereby completely excluded the role of demand.
feasible and practical as it requires anapportionment
Objectives and policy rationale having regard to of consolidated profits of the enterprise derived from
India’s the position on the AOA different jurisdictions and that it may not be feasible
to obtain details relatedto operations in other
The Committee is of the opinion that the AOA jurisdictions. However, the Committee considers
approach restricts the taxing rights of the jurisdiction the option of fractional apportionmentmethod to
that contributes to business profits by facilitating be in line with India tax treaties and Rule 10. It also
demand, and thereby has the potential to break the considers the option to be more feasible and practical
virtuous cycle of taxation thatbenefits all since it would largely be based on information
stakeholders in the global economy. Instead, it can related to Indianoperations. For this purpose, the
set a vicious cycle in place that is destined to lead Committee
to losses for all stakeholders.Thus, while AOA
approach may be favourable to the interests of prescribes a three-factor method based on equal
certain countries that are netexporters of capital and weight accorded to sales, representing demand, and
technology, it is likely to have a very significant manpower and assets, which represent supply
adverse impact on all other stakeholders, especially including marketing activities.
the developing economies like India, which are
primarily importers of capital and technology. To determine the profits derived from India, the
Further, India has consistently communicated and Committee recommends that the same can be
shared its view that since arrived at by multiplying the revenue derived from
India with the global operational profit margin. In
business profits are dependent on the sales revenue cases where the enterprise is having global losses
and costs, and since the sale revenue depends on or where its global operational profit margin is
both demand and supply, it is not appropriate to lessthan 2%, the same can be arrived at by deeming
attribute profits exclusively on the basis of FAR the global operational profit margin to be 2%.
3 2 Ahmedabad Chartered Accountants Journal April, 2019
Indian Tax Administration publishes draft rules on Profit Attribution to Permanent Establishment
Accordingly, the Committee has prescribed Implications
formulas for derivation of the profits taxable inIndia.
Profit attribution to a PE is one of the most complex
Profit attribution to significant economic presence subjects in international tax. The complexity is
further exacerbated by the diversity in the business
On the profit attribution issue in case of a digital models, lack of consensus among the countries on
economy business, the Committee arrived at a the most
unanimous view that the user contribution can be a
substitute to either assets or employees and appropriate way of profit attribution as well as the
supplement their role in contributing to profits of uncertainty caused on account of limited judicial
the enterprise. The Committee considered the option and administrative guidance on the topic. The
of following the approach of the EU CCCTB and OECD guidance on profit attribution also
assigning users the same weight as other three. recognizes that the AOA should not be understood
However, the Committee noted that different as representing theonly appropriate approach to
weights are to be assigned to different categories attributing profits to a
of digital businesses depending upon the level of
user intensity. Accordingly, the Committee decided PE. Many tax treaties contain a version of Article
to assign a lower weight of 10 per cent to the users 7that does not require the use of the AOA. In cases
for those business models involving low or medium governed by those tax treaties, the method of
user intensity and assigning a weightage of 20 per attributing profits to a PE for the purpose of Article
cent to users in those business models involving 7 of the applicable treaty might be a function of the
high user intensity. The Committee also decided interrelation between the tax treaty and the domestic
that since the users carry out the work of employees law of the jurisdiction where the PE is located. Thus,
and are also assets to the company, the relative a case-by-case analysis is required. Further, in the
weightage of employees and assets will be adjusted Indian context a number of disputes have arisen on
downwards, keeping the weightage of sales fixed the appropriate approach to attribution of profits to
at 30 per cent in both the cases. The Committee a PE. Therefore, the CBDT’s intention to provide
has prescribed formulas for derivation of the profits guidance on the subject is welcome and can be
taxable in India. expected to be provide certainty.
Need to avoid double taxation of profits derived Overall, the recommendations on profit attribution
from Indian operations to PE seem to consider the needs of India as a
capital-importing country and seek to develop a
Recognizing the need to avoid double taxation of new configuration of the source principle to tax
profits from Indian operations in the hands of a PE, profits derived from the ‘market jurisdiction’.
which may primarily be brought into existence However, some refinements and modifications need
either by the presence of an Indian subsidiary to be considered to the recommendations in order
carrying on parts of an integrated business, whose tobetter align the outcome with international
profits are separately taxed in its hands in India, the taxprinciples emerging from the OECD guidance
Committee found it justifiable that the profits on PE attribution as well as the OECD TPG. The
derived from Indian operations that have already CBDTshould consider the potential risk of double
been subjected to tax in India in the hands of a taxation and compliance burden on taxpayers before
subsidiary should be deducted from the apportioned finalizing the rules. MNEs with business operations
profits. The Committee observed that in a case in India should review the implications of the
where no sales take place in India, andthe profits recommendations on their business models as well
that can be apportioned to the supply activities are consider any risk of double taxation. It is
already taxed in the hands of an Indian subsidiary, importantfor companies to continue to monitor the
there may be no further taxes payable by the developments in this area and to consider actively
enterprise. engaging with policymakers.
hhh
Ahmedabad Chartered Accountants Journal April, 2019 33
FEMA CA. Savan Godiawala
Updates [email protected]
1 Export and Import of Indian Currency The amendments pertained to Authorised Dealer
(Category I) banks and drew their attention to A.P.
The Reserve Bank of India made an announcement (DIR Series) Circular No.84 dated February 29,
regarding Export and Import of Indian Currency. 2012, A.P. (DIR Series) Circular No.15 dated July
28, 2014 and A.P (DIR Series) Circular No.50
The amendments pertained to Authorised Persons dated February 11, 2016 giving guidelines for
and drew their attention to Regulation 8 of Foreign compilation of R-Returns for reporting under the
Exchange Management (Export and import of Foreign Exchange Transactions Electronic
currency) Regulations, 2015, in terms of which a Reporting System (FETERS).
person may take or send out of India to Nepal or
Bhutan and bring into India from Nepal or Bhutan, In order to facilitate compilation of estimates of
currency notes of Government of India and Reserve bilateral trade in services, it has been decided to
Bank of India for any amount in denominations up incorporate an additional field for capturing the
to ¹ 100/-. Further, an individual may carry to Nepal country code of ultimate exporter/importer in the
or Bhutan, currency notes of Reserve Bank of India BoP file-format under FETERS. In case of export
denominations above ¹ 100/-, i.e. currency notes of of services, bank may use the transaction
¹ 500/- and/or ¹ 1000/- denominations, subject to a information available with them to report country-
limit of ¹ 25,000/-. code of the ultimate exporting country, whereas
Form-A2 is being revised here for capturing the
2. It has now been decided that an individual required country information for import of services.
travelling from India to Nepal or Bhutan may
carry Reserve Bank of India currency notes in The details of the additional field is as follows:
Mahatma Gandhi (New) Series of
denominations ¹ 200/- and/or ¹ 500/- subject to i. BoP file-format under FETERS
a total limit of ¹ 25,000/- Instructions regarding
currency notes of Government of India and Field Format Remarks
Reserve Bank of India for any amount in
denominations up to ¹ 100/- shall continue as Country Code Char(2) To be added at the end
hitherto. (SWIFT Code) of of BOP file format
ultimate exporter/
Source: RBI/2018-19/144 A.P. (DIR Series) importer
Circular No. 24 dated March 20, 2019
ii. Form A2 - If payment is for import of
For full text refer: https://rbi.org.in/Scripts/ services (Purpose Group Nos. 02, 03, 05, 06,
BS_CircularIndexDisplay.aspx?Id=11504 07, 08, 09 10, 11, 15, 16 or 17), please
indicate:
2 Compilation of R-Returns: Reporting
under FETERS “Name of the country providing ultimate
services:.................”
The Reserve Bank of India made an announcement
regarding Compilation of R-Returns. The Form A2 (revised) and the file format (revised)
of the BOP file for reporting under FETERS are
given in Annex I and Annex II, respectively.
3 4 Ahmedabad Chartered Accountants Journal April, 2019
FEMA Updates
The revised format is for reporting of R-Returns Establishment of Branch Office (BO) /
on fortnightly basis (15th and end-month) for forex
transactions performed w.e.f. April 01, 2019. AD 4 Liaison Office (LO) / Project Office (PO)
Banks should make the required changes in their or any other place of business in India
work-flows and information systems to capture the by foreign entities
required additional data accordingly to comply with
the guidelines. This refers to the Foreign Exchange Management
(Establishment in India of a Branch Office or a
Source: RBI/2018-2019/145A.P. (DIR Series) Liaison Office or a Project Office or any Other
Circular No. 25 dated March 20, 2019 Place of Business) Regulations, 2016, notified by
the Reserve Bank vide Notification No. FEMA
For full text refer: https://rbi.org.in/Scripts/ 22(R)/RB-2016 dated March 31, 2016, as amended
BS_CircularIndexDisplay.aspx?Id=11505 from time to time and the relevant directions issued
thereunder.
3 Investment by Foreign Portfolio
Investors (FPI) in Government Securities The extant Regulations regarding requirement of
Medium Term Framework prior approval of the Reserve Bank of India, for
opening of a Branch Office (BO) / Liaison Office
This refers to Schedule 5 to the Foreign Exchange (LO) / Project Office (PO) or any other place of
Management (Transfer or Issue of Security by a business in India, where the principal business of
Person Resident outside India) Regulations, 2017 the applicant falls in the Defence, Telecom, Private
notified vide Notification No. FEMA.20(R)/2017- Security and Information and Broadcasting sector,
RB dated November 07, 2017, as amended from have since been reviewed in consultation with the
time to time and the relevant directions issued Government of India and the amendments have been
thereunder. A reference is also invited to AP (DIR notified by Government vide Notification No.
Series) Circular No. 22 dated April 6, 2018 on the FEMA 22(R)(2)/2019-RB dated January 21, 2019.
captioned subject.
Accordingly, it is advised that for opening of a BO/
Revision of investment Limits for 2019-20 LO/PO or any other place of business in India, where
the principal business of the applicant falls in the
a. The limit for FPI investment in Central Defence, Telecom, Private Security and Information
Government securities (G-secs), State and Broadcasting sector, no prior approval of the
Development Loans (SDLs) and corporate Reserve Bank of India shall be required, if
bonds shall be 6%, 2%, and 9% of outstanding Government approval or license/permission by the
stocks of securities, respectively, in FY 2019- concerned Ministry/ Regulator has already been
20. granted. Further, in the case of proposal for opening
a PO relating to defence sector, no separate reference
b. The allocation of increase in G-sec limit over or approval of Government of India shall be required
the two sub-categories – ‘General’and ‘Long- if the said non-resident applicant has been awarded
term’ – has been set at 50:50 for the year 2019- a contract by/entered into an agreement with the
20. The entire increase in limits for SDLs has Ministry of Defence or Service Headquarters or
been added to the ‘General’ sub-category of Defence Public Sector Undertakings. It is clarified
SDLs. that the term “permission” used in the Notification
does not include general permission, if any, available
c. In terms of para 3 (g) of the circular dated April under Foreign Direct Investment in the automatic
06, 2018, the coupon reinvestment arrangement route, in respect of the above four sectors.
for G-secs shall be extended to SDLs.
Source: RBI/2018-19/154 A.P. (DIR Series)
Source: RBI/2018-19/152 A.P. (DIR Series) Circular No. 27 dated March 28, 2019
Circular No. 26 dated March 27, 2019
For full text refer: https://rbi.org.in/Scripts/
For full text refer: https://rbi.org.in/Scripts/ BS_CircularIndexDisplay.aspx?Id=11516
BS_CircularIndexDisplay.aspx?Id=11513
Ahmedabad Chartered Accountants Journal April, 2019 35
FEMA Updates
Foreign Exchange Management Registration Office (FRRO) concerned. The
(Deposit) Regulations, 2016 - Opening of opening of such NRO accounts will be subject to
reporting of the details of the accounts opened by
5 NRO Accounts by Long Term Visa the concerned Authorised bank, to the Ministry of
(LTV) holders, changes related to Home Affairs (MHA) on a quarterly basis. The
Special Non-Resident Rupee (SNRR) report shall contain details of (i) name/s of the
Account and Escrow Account individual/s; (ii) date of arrival in India; (iii) Passport
No. and place/country of issue; (iv) Residential
The Reserve Bank of India made an announcement Permit/Long Term Visa reference and date & place
regarding Opening of NRO accounts. of issue; (v) name of the FRO/FRRO concerned;
(vi) complete address and contact number of the
The amendments pertained to Authorised Dealers branch where the bank account is being maintained.
and drew their attention to Foreign Exchange The Head Office of the AD bank shall furnish the
Management (Deposit) Regulations, 2016 notified above details on a quarterly basis to the Under
vide Notification No. FEMA 5(R)/2016-RB dated Secretary (Foreigners), Ministry of Home Affairs,
April 1, 2016 and A.P.(DIR Series) Circular No.67/ NDCC-II Building, Jai Singh Road, New Delhi –
2015-16[(1)/5(R)] dated May 5, 2016. The FEM 110 001. AD banks are advised to ensure strict
(Deposit) (Amendment) Regulations 2018 i.e compliance to these instructions.
FEMA 5(R)(1) have since been notified by the
Government of India vide GSR No 1093(E) dated In terms of extant instructions, SNRR accounts
November 9, 2018 necessitating following changes cannot be held for more than seven years. It has
to the extant instructions. now been decided that SNRR accounts opened by
persons resident outside India may remain operative
Authorized Dealers may allow a Foreign Portfolio beyond the stipulated period of seven years with
Investor (FPI) and a ForeignVenture Capital Investor RBI approval. Further, the restriction of seven years
(FVCI), registered with the Securities and Exchange will not be applicable to SNRR accounts opened
Board of India (SEBI) to open and maintain a non- by persons resident outside India who are registered
interest bearing foreign currency account for the with SEBI and wish to make investment in India in
purpose of making investment in accordance with accordance with Foreign Exchange Management
the Foreign Exchange Management (Transfer or (Transfer or Issue of Security by a Person Resident
Issue of Security by a Person Resident Outside India) Outside India) Regulations, 2017, as amended from
Regulations, 2017, as amended from time to time. time to time.
Authorized Dealers may open only one Non- The extant Schedule 5 of the Foreign Exchange
Resident Ordinary (NRO) Account for a citizen of Management (Deposit Regulations) 2016 pertaining
Bangladesh or Pakistan, belonging to minority to Escrow Accounts has been replaced to align the
communities in those countries, namely Hindus, same with the provisions of Foreign Exchange
Sikhs, Buddhists, Jains, Parsis and Christians, Management (Transfer or Issue of Security by a
residing in India and who has been granted a Long Person Resident Outside India) Regulations, 2017,
Term Visa (LTV) by the Central Government. The in terms of which, Escrow Accounts can be opened
account will be converted to a resident account once by residents and non-residents for acquisition/transfer
such a person becomes a citizen of India within the of capital instruments/convertible notes and can also
meaning of the Citizenship Act, 1955. This account be funded by guarantee(s).
can also be opened if such person has applied for
LTV which is under consideration of the Central Source: RBI/2018-19/155 A.P.(DIR Series)
Government, in which case, the account will be Circular No.28 datedMarch 28, 2019
opened for a period of six months and may be
renewed at six monthly intervals subject to the For full text refer: https://rbi.org.in/scripts/
condition that the individual holds a valid visa and FS_Notification.aspx?Id=11515&fn=5&Mode=0
valid residential permit issued by Foreigner
Registration Office (FRO)/ Foreigner Regional hhh
3 6 Ahmedabad Chartered Accountants Journal April, 2019
GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
March 1996 and for the period 1st April, 1996
Important Judgments: to 31st March 1997 under the Bombay Sales
Tax Act, wherein, the impugned bond sales
[1] Hon. Bombay High Court in case of were assessed to Sales Tax by disallowing the
Commissioner of Sales Tax v/s. Radhasons claim of high sea sales.
International
The assessee filed appeals against the said
Issue: assessment orders aggrieved by disallowance
of claim of high sea sales and subjecting to tax
Whether Sale of goods kept in bonded @ 4% under the Bombay Act. The goods being
warehouse is sale in the course of Import ? iron and steel coils covered by Schedule Entry
B-6, it was contended before the first appellate
Facts of the Case: authority that the bond sales were effected on
high sea basis by transfer of documents of title
The assessee is a dealer registered under the to the goods before the goods have crossed the
Local Act as well as the CST Act. The assessee customs frontiers of India and hence were
is carrying on the business as reseller and exempt from tax under the second limb of
importer in HR/CR sheets, chashew, carnals section 5(2) of the CST Act. Alternatively, it
import licence etc. The assessee’s place of was contended that the sales were in the course
business was visited by the Sales Tax Officer. of import occasioning the import of goods into
The main purpose of the enforcement vist was India covered by the first limb of section 5(2)
to examine the validity of turnover of sales of the CST Act.
claimed as ‘high sea sales’ exempt from the tax
under the second limb of section 5(2) of the The first appellate authority rejecting the
Central Sales Tax Act, 1956 (CST Act). The submissions of the assessee confirmed the
enforcement authority, on verification of the disallowance of the claim of the assessee of high
relevant documents, found that the assessee’s sea sales by passing order dated 25.04.2003.
claim of high sea sales for the year 1995-96 and Being aggrieved, the assessee filed the second
1996-97 in the context of the sales of the goods appeal before the Tribunal challenging the
while being in customs bonded warehouse was decision of the first appellate authority.
erroneous and it insisted that the assessee should
pay taxes on the impugned sales. Accordingly, Submissions of the Revenue before the
the assessee made certain advance payments Tribunal.
also. Thereupon, the enforcement authority
communicated the findings of its scrutiny to the It was submitted on behalf of the Revenue that
concerned assessing officer with a request to the cases of M/s. Indo Text Export Pvt. Ltd.
consider them appropriately in the assessment (S.A. Nos. 284 and 285 decided on 17th June
for the relevant periods. 1995) and M/s. Sheventilal and Brothers
(Appeal No. 104 of 1980 decided on 15th April,
Held: 1983) are applicable to the present matter. The
above cited judgments decide the issue that once
The assessing officer thereafter assessed the
assessee for the period 1st April, 1995 to 31st
Ahmedabad Chartered Accountants Journal April, 2019 37
GST and VAT - Judgements and Updates
the imported goods are cleared from the area in bonded warehouse would qualify as exempt
of custom station for being kept in the customs under the second limb of section 5(2) of the
bond, the custom frontiers of India are crossed CST Act. Being aggrieved, the revenue filed
and the course of import comes to an end. present appeal before the Bombay High Court.
Therefore, such bond sales do not qualify as
‘high sea sales’. Decision of Bombay High Court:
Submissions of the Assessee before the The Bombay High Court held that the imported
Tribunal: goods unloaded in a customs area have to
remain in the custody of the customs authorities
The assessee, in support of its claim of high sea until they are cleared for home consumption or
sales placed reliance on the Madras High Court are warehoused, then, presenting a bill of entry
judgment in the case of M/s. State Trading for home consumption or warehousing denotes
Corporation (12 STC 294)-VIL-10-MAD that such goods which are imported have been
which was based on the Apex Court judgment cleared. The importation in that sense and as
in the case of M/s. Kiran Spinning (113 ELT understood by the Customs Act, 1962 is
753). On interpretation of the definition of the complete. The goods themselves ceased to be
term ‘crossing the customs frontiers of India’ in imported goods when they have been cleared
section 2(ab) of the CST Act, the Madras High for home consumption. The clearance of goods
Court has unequivocally held that the bond sales for home consumption is dealt with by section
do qualify as high sea sales. 47 of the Customs Act, 1962, but storage of
imported goods in warehouse only because
Decision of the Tribunal: they are not cleared after unloading having been
dealt with by the Customs Act, 1962 and
The Tribunal held that interpretation of section particularly section 48 thereof, does not mean
2(ab) of the CST Act, as made by the Madras that for the purposes of the CST Act the goods
High Court is contrary to that made by this have not crossed the customs frontiers of India.
tribunal in the case of Sheventilal and Brothers This is not a case where the deeming fiction in
(supra) and M/s. Indo Text Export Pvt. Ltd. sub-section (2) of section 5 of the CST Act
(supra). However, it has to be noted that Madras operates. Admittedly, this is not a case of a sale
High Court judgment in the case of M/s. State of goods occasioning the import, but what is
Trading Corporation of India (supra) in based claimed is that the sale is effected by transfer
on the Hon. Supreme Court’s judgment. of documents of title to the goods before the
Further, when this tribunal interpreted the goods have crossed the customs frontiers of
provisions of the CST Act, at that time, no India. This is, therefore, a local sale. The
judgment of the Hon. Supreme Court or High question came to be answered in favour of the
Court to interpret the said provision of the CST applicant/department and against the assessee.
Act was available. The situation has undergone
a material change. Now, the Madras High Court [2] An important observation of the Hon.
judgment (based on the Hon. Supreme Court Kolkata High Court regarding GST 2 can
judgment) is available to us, in which, it on be revised or rectified in the case of Optival
profound consideration, has interpreted the Health Solutions P. Ltd. v. Union of India.
provisions in the CST Act, particularly section
2(ab) thereof and has held that the term Facts:
‘crossing the customs frontiers of India’in the
said section 2(ab) would mean the clearance In the Act of GST there is no provision to revise
of goods for home consumption on payment GST Trans 2 and therefore if any mistake found
of duty and with this interpretation, a sale made during the assessment proceedings, it may lead
by transfer of documents while the goods are to litigation without the mistake of dealer and
therefore the dealer has made an application for
3 8 Ahmedabad Chartered Accountants Journal April, 2019
the permission of rectification in the department. GST and VAT - Judgements and Updates
But the department has denied because there is
no provision in the Act for the rectification. form. However, neither the Act of 2017 nor the
Under the circumstances, the department has Rules of 2017 can be read to mean that the same
rejected the application and therefore dealer has excludes the right of a person making an
filed a writ petition before the Hon. Kolkata admission, to forfeit the opportunity to explain
High Court. The Hon. High Court has agreed it. Neither the Act of 2017 nor the Rules of 2017
to the writ petition filed by the dealer. forfeits the right of a person making an admission
to substantiate that such admission was made
The gist of the observation is reproduced by mistake or was untrue.
hereunder.
A person filing a Form GST Trans 2 therefore,
Taxing statutes are to be strictly construed. should be afforded an opportunity to explain the
However, such interpretation should not lead Form GST Trans 2, in the event, such person
to a reckless or a mindless mechanical chooses to do so. Moreover, Form GST Trans 2
application of the statute as has been held in will be taken into consideration for the purpose
Alwaye Sugar Agency (supra. G.C. & Infra of assessment. In the assessment proceedings,
Innovations (supra) has allowed a person under the person filing the Form Trans 2 would be at
the Act of 2017 to take credit for the Input Tax liberty to establish by cogent evidence that the
available to them by rectifying a mistake while figures filed therein are incorrect or untrue. The
uploading Form GST Trans 1. The time period Assessing Officer will be obliged to take into
to file GST Trans 2 stands extended till April, consideration such a stand while pronouncing
20, 2019 by virtue of the notification dated upon the assessment. Therefore, when such a
September 10, 2018 issued by the Central person, is seeking to correct Form Trans 2 on its
Board of Indirect Taxes and Customs. own, an opportunity should be afforded to such
person to correct the same. The authorities may
In the present case, the petitioners contend that retain the original GST Trans 2 Form for their
there are mistakes in form GST Trans 2 requiring assessment purpose and can confront the person
revision. The form GST Trans 2, at best, is an seeking to revise the GST Trans 2 with Form
admission of the person filing the same with GST Trans 2 as originally filed and require
regard to the contents of the document. explanation from the person filing a revised Form
Admission is a strong evidence against the GST Trans 2 as to why such revision was
person making it. However, law contemplates required and whether such revisions are justified
that the person making such admission has the or not. Such an enquiry can be held in the
opportunity to explain the same. A person assessment proceedings. There is no ground as
making an admission, is entitled to prove that to why, a person filing Form GST Trans 2 should
the admission was made by mistake or was not be allowed to revise Form GST Trans 2 after
untrue. If a person making the admission, is able the initial filing.
to substantiate with cogent evidence that the
admission was a mistake or was untrue, then, In view of the discussions above, the issue is
such facts have to be taken into consideration answered in the affirmative and in favour of
for the purpose of deciding the evidentiary value the petitioners.
of the admission and the relevancy thereof. In
other words, the law permits a person making In the facts of the present case, the authorities
an admission, the liberty of explaining the same, are directed to allow the first petitioner to file a
if he so chooses. The form GST Trans 2, at best revised Form GST Trans 2, either
can be an admission allowing the authorities to electronically or manually in accordance with
inform the state of affairs of the first petitioner in law, within four weeks from the date of
relation to the subject matter governed by such communication of this order.
hhh
Ahmedabad Chartered Accountants Journal April, 2019 39
Corporate CA. Naveen Mandovara
Law Update [email protected]
MCA Updates: Companies (Registration Offices and Fees)
Rules, 2014, shall be levied after 30 days from
1. Relaxation of additional fees and extension the date of deployment of the DPT- 3 form on
of last date of filing e-form CRA-2 (Form of MCA 21 portal.
intimation of appointment of cost auditor by
the company to Central Government) in [F. No. 01/8/2013-CL V (Vol. VI) dated
certain cases under the CompaniesAct, 2013: 12.04.2019]
The Ministry has extended the last date for filing 3. The Companies (Registration Offices and
of e-form CRA-2 in the cases where the Fees) Second Amendment Rules, 2019:
company has been mandated to get its cost
records audited for the first time under The MCA has made the following amendments
Companies Act, 2013 on account of Companies in the Companies (Registration Offices and
(Cost Records and Audit) Amendment Rules, Fees) Rules, 2014:
2018 as notified vide G.S.R. 1157(E) dated
03.12.2018, without payment of additional 1. In the Companies (Registration Offices and
fees upto 31.05.2019. Fees) Rules, 2014, in the Annexure, in item
VIII. FEE FOR FILING e- Form ACTIVE
[F. No. 52/10/CAB/2019 dated 04.04.2019] under rule 25A of the Companies
(Incorporation) Rules, 2014, the following
2. Filing of one time return in e-Form DPT-3: shall be substituted, namely.-
As per Rule 16A(3) of the Companies (i) Fee payable till -——-
(Acceptance of deposit) Rules, 2014 “every 15.06.2019 on
company other than Government company e -form ACTIVE
shall file a onetime return of outstanding receipt
of money or loan by a company but not (ii) Fee payable Rs. 10,000/-
considered as deposits, in terms of clause (c) (In delayed cases)
of sub-rule 1 of rule 2 from the 01st April, 2014
to the date of publication of the notification in [F. No. 01/16/2013-CL-V (Pt-I) dated
the Official Gazette, as specified in Form DPT- 25.04.2019]
3 within ninety days from the date of said
publication of this notification along with the 4. The Companies (Acceptance of Deposits)
fee as provided in the Companies (Registration Second Amendment Rules, 2019:
Offices and Fees) Rules, 2014”.
The MCA has made the following amendments
Data on deposits should be filed upto 31st in the Companies (Acceptance of Deposits)
March, 2019. Pending the deployment of DPT- Rules, 2014:
3 Form on MCA 21 portal and in order to avoid
inconvenience to stakeholders on account of Rule No. Effect of the amendment
various factors, the Ministry has stated that the
additional fee, as provided under the Sub-rule (3) (a) for the words “the date of
of Rule 16A publication of this
notification in the Official
Gazette”, the figures, letters
4 0 Ahmedabad Chartered Accountants Journal April, 2019
and word “31st March, Corporate Law Update
2019” shall be substituted; within a period of thirty days of
the date of creation of the charge
(b) for the words “ninety days including modification thereto,
allow the registration of the same
from the date of said after thirty days but within the
period as specified in the said
publication of this provisos, on payment of fee,
additional fee or advalorem fee,
notification”, the words, as may be applicable, as
prescribed in the Companies
figures and letters” ninety (Registration Offices and Fees)
days from 31st March, Rules, 2014.
2019" shall be substituted. (2) The application under sub-
rule (1) shall be made in Form
[F. No. 1/8/2013-CL-V. Vol. VI dated No. CHG-l and Form No.CHG-
9 supported by a declaration from
30.04.2019] the company signed by its
company secretary or a director
5. The Companies (Registration of Charges) that such belated filing shall not
adversely affect the rights of any
Amendment Rules, 2019: other intervening creditors of the
company.”.
The MCA has made the following amendments
Substitution “12. Rectification in register of
in the Companies (Registration of Charges) of Rule 12 charges on account of omission
Rules, 2014: or mis-statement of particulars
in charge previously recorded
Rule No. Effect of the amendment and extension of time in filing
of satisfaction of charge- The
Substitution “(2) If the particulars of a charge Central Government may on an
for sub- are not filed in accordance with application filed in Form No.
rules (2) & sub-rule (1), such creation or CHG-8 in accordance with
(3) of Rule 3 modification shall be filed in section 87-
a) direct rectification of the
Form No. CHG-l or Form No.
CHG- 9 within the period as omission or misstatement of
specified in section 77 on any particulars, in any filing,
payment of additional fee or previously recorded with the
advalorem fee as prescribed in Registrar with respect to any
the Companies (Registration charge or modification thereof,
Offices and Fees) Rules, 2014. or with respect to any
memorandum of satisfaction or
(3) Where the company fails to other entry made in pursuance
register the charge in accordance of section 82 or section 83,
with sub-rule (1) and the b) direct extension of time for
registration is effected on the satisfaction of charge, if such
application of the charge-holder, filing is not made within a
such charge-holder shall be period of three hundred days
entitled to recover from the from the date of such payment
company the amount of any fees or satisfaction.”
or additional fees or advalorem
fees paid by him ‘to the Registrar In the said rules, for Form Nos. CHG-l, CHG-
for the purpose of registration of
charge.”. 8 and CHG-9, the forms shall be substituted,
Substitution “4.Application to Registrar.- with effect from 01st August, 2019.
of Rule 4 (1) For the purposes of the first
[F. No. 01/10/2013, Part-I CL-V dated
proviso and clause (b) of the
second proviso to sub-section (1) 30.04.2019]
of section 77, the Registrar may,
on being satisfied that the
company had sufficient cause for
not filing the particulars and
instrument of charge, if any,
Ahmedabad Chartered Accountants Journal April, 2019 41
Corporate Law Update
6. The Companies (Registration Offices and Fees) Third Amendment Rules, 2019:
The MCA has made the following amendments in the Companies (Registration Offices and Fees)
Rules, 2014:
Rule / Effect of the amendment
Item No.
In the i. in sub-item B, in the Table of additional fee, in third column, for the column heading,
Annexure, the column heading “Forms excluding charge documents”, shall be substituted;
in item “I ii. after sub-item ‘D’, the following sub- item shall be inserted, namely:
(Fee for E. Fees for filing charge documents.
filing under (a) charges created or modified before the 2nd November, 2018, and allowed to be filed
section 403 within a period of three hundred days of such creation or six months from the 2nd
of the November, 2018, as the case may be, the following additional fees shall be payable:-
Companies Sr. No. Period of Delay Additional fees applicable
Act, 2013)” 1. Up to 30 days 2 times of normal fees
2. More than 30 days and up to 60 days 4 times of normal fees
3. More than 60 days and up to 90 days 6 times of normal fees
4. More than 90 days and up to 180 days 10 times of normal fees
5. More than 180 days 12 times of normal fees
(b)For the charges created or modified on or after the 2nd November, 2018:-
(A)The following additional fees or advalorem fees, as the case may be, shall be payable
up to 31st July, 2019, by all companies:-
Sr. No. Period of Delay Additional fees applicable
1. Up to 30 days 2 times of normal fees
2. More than 30 days and up to 60 days 4 times of normal fees
3. More than 60 days and up to 90 days 6 times of normal fees
(B) the following additional fees or advalorem fees as the case may be, shall be payable
with effect from 1st August, 2019:-
Sr. No. Period of delay Small Companies and Other than Small
One Person Company Companies and One
Person Company
1. Up to 30 days 3 times of normal fees 6 times of normal fees
2. More than 30 days 3 times of normal fees 6 times of normal fees,
and up to 90 days plus an ad valorem fee plus an ad valorem fee of
of 0.025 percent of the 0.05 per cent of the
amount secured by the amount secured by the
charge, subject to the charge, subject to the
maximum of one lakh maximum of five lakh
rupees. rupees”.
[F. No. 01/16/2013 CL-V (Pt-I) dated 30.04.2019]
4 2 Ahmedabad Chartered Accountants Journal April, 2019
7. The Companies (Appointment and Corporate Law Update
Qualification of Directors) Amendment
Rules, 2019: and Form No. MGT-7 (Annual
Return) before filing Form No.
The MCA has made the following amendments STK-2.
in the Companies (Appointment and
Qualification of Directors) Rules, 2014: Provided also that once notice in Form
No’ STK-7 has been issued by the
Rule No. Effect of the amendment Registrar Pursuant to the action
initiated under sub-section (1) of
12A For the words and figures “on or company shall not be allowed to file
before 30th April of immediate next an application in Form No’ STK-2.
financial year”, the words and
figures “on or before 30th June of clause (ii) after the words, “statement of
immediate next financial year” shall of sub- words, letters and figures “in Form
be substituted. rule (3) No. STK-8” shall be inserted.
of Rule 4
[F. No. 1/22/2013-CL-V dated 30.04.2019]
Annexure after item (vii) of Serial Number 2,
8. The Companies (Removal of Names of to the in the Form No. STK-4, the
Companies from the Register of Companies) Principal following item shall be inserted,
Amendment Rules, 2019: Rules namely:-
The MCA has made the following amendments (viii) The company has fulfilled all
(w. e. f. 10.05.2019) in the Companies pending compliances, if any
(Removal of Names of Companies from the [Applicable in case an
Register of Companies) Rules, 2016: application under sub-section
(2) of section 248 has been
Rule No. Effect of the amendment filed after the initiation of
action under sub-section (1)
sub-rule for the words “five thousand of section 248].
(1) of rupees”, “ten thousand rupees”
Rule 4 shall be substituted. Annexure after Form No. STK -7, the “Form
to the No. STK-8 [Statement of
Provided that no application in Form Principal Account] shall be inserted.
No STK.2 shall be filed by a Rules
company unless it has filed overdue
returns in Form No. AOC4 [F. No.1/28/2013-CL-V (Part) dated
(Financial statement) or AOC4 08.05.2019]
XBRL, as the case may be, and
Form No. MGT-7 (Annual Return), 9. Clarification for form ADT-I filed through
up to the end of the financial year in GNL-2 under the Companies Act, 2013;
which the company ceased to carry
its business operations: The Ministry has clarified that the companies
which had filed Form No. ADT-l through
Provided further that in case a GNL-2 as an attachment (by selecting ‘others’)
company intends to file Form No. during the period from 01.04.20l4 to
STK-2 after the action under sub- 20.10.2014 due to non-availability of e-form
section (1) of section 248 has been ADT-1 during the said period, may file e-form
initiated by the Registrar, it shall file no. ADT-1 for appointment of Auditor for the
all pending overdue returns in Form period up to 31.03.2019 without fee, till
No. AOC-4 (Financial statement) or 15.06.2019 (since fee had been paid for filing
AOC4 XBRL, as the case may be, GNL-2 for the same purpose) and thereafter
fee and additional fee shall be applicable as per
Ahmedabad Chartered Accountants Journal April, 2019 43
Corporate Law Update
Companies (Registration of Office and Fees) allotted to its existing directors,
Rules, 2014. shall be marked as “Director of
[F. No. 01/22/2013-CL-V dated 13.05.2019] ACTIVE non-compliant
company”.
10. The Companies (Appointment and (2) Where the DIN of a director has
Qualification of Directors) Second been marked as “Director of
Amendment Rules, 2019: ACTIVE non-compliant
company”, such director shall
The MCA has made the following amendments take all necessary steps to
in the Companies (Appointment and ensure that all companies
Qualification of Directors) Rules, 2014: governed by rule 25A of the
Companies (Incorporation)
Rule No. Effect of the amendment Rules, 2014, where such
director has been so appointed,
12B after rule 12A, the following rule file e-form ACTIVE.
shall be inserted, namely:- (3) After all the companies referred
to in sub-rule (2) file the e-form
12B. Directors of company ACTIVE, the DIN of such
required to file e-form ACTIVE. director shall be marked as
“Director of ACTIVE
(1) Where a company governed by compliant company”.’.
Rule 25A of the Companies [F. No. 1/22/2013-CL-V dated 16.05.2019]
(Incorporation) Rules, 2014,
fails to file the e-form ACTIVE hhh
within the period specified
therein, the Director Unreported Judgments
Identification Number (DIN)
direction upon him to take into consideration the
contd. from page 26 filled up Form No.10 as submitted by the same
assessee before him and also the additional
to the assessee upon taking into consideration evidences and to pass orders upon affording an
the filled up Form No.10. In that view of the opportunity of hearing to the assessee taking into
matter, the Learned AR prayed for quashing of consideration the order materials which the
the order passed by the authorities below. On assessee may choose to file at the time of hearing
the contrary, Learned DR relied upon the order of the appeal before him. Thus, assessee’s appeal
passed by the Revenue. is allowed for statistical purpose.
4. Heard respective parties, perused the relevant ITA No. 717/Ahd/2017 for A.Y. 2011-12:
materials available on record. It appears that the
said Form No.10 though placed before the 5. Since the quantum, appeal has been allowed
LearnedAO was not duly filled up. Though such by us in ITA No. 903/Ahd/2015 for A.Y. 2011-
defect was curable in nature the same was not 12, the penalty appeals has lost his force as
accepted by the Learned CIT(A) in appeal in spite because the very basis being the quantum order
of having been placed upon rectification before has been quashed by us. In that view of the
him along with the written submission by the matter, the instant penalty appeals has become
assessee. We find that the assessee could have infructuous and hence dismissed as infructuous.
been given an opportunity of being heard on the
additional evidences on the basis of the rectified 6. in the combined result, assessee’s appeal in ITA
filled up Form No. 10 for the ends of justice by No.90/Ahd/2015 is allowed for statistical
the first appellate authority itself. In that view of purpose and appeal in ITA No. 717/Ahd/2017
the matter, we find it fit and proper in order to is dismissed as infructuous.
prevent the miscarriage of justice to set aside the
issue to the file of the Learned CIT(A) with the hhh
4 4 Ahmedabad Chartered Accountants Journal April, 2019
Allied Laws Adv. Ankit Talsania
Corner [email protected]
Insolvency and Bankruptcy Code, 2016 B. Legal Questionarose before the Hon’ble
Supreme Court:
The Trade Union, on behalf of its members, can
file a Corporate Insolvency Resolution Process (i) Whether a trade union could be said to be an
petition in the capacity of Operational Creditor. operational creditor for the purpose of the
Insolvency and Bankruptcy Code, 2016 ?
JK Jute Mill Mazdoor Morcha vs. Juggilal
Kamlapat Jute Mills Company Limited C. Arguments of the Counsels :
reported in 105 taxmann.com 1 (SC).
1. Shri Gopal Jain, learned Senior Advocate
A. Facts of the Case : appearing on behalf of the appellant took us
through various provisions of the Code and the
1. The facts of the present case reveal a long- Trade Unions Act, 1926, [“Trade Unions Act”]
drawn saga of a jute mill being closed and and cited a Division Bench judgment of the
reopened several times until finally, it has been Bombay High Court in Sanjay Sadanand
closed for good on 07.03.2014. Proceedings Varrier v. Power Horse India Pvt. Ltd., [2017]
were pending under the Sick Industrial 5 Mah LJ 876 [“Sanjay Sadanand Varrier”] to
Companies (Special Provisions) Act, 1985. On argue that even literally speaking, the provisions
14.03.2017, the appellant issued a demand of the Code would lead to the result that a trade
notice on behalf of roughly 3000 workers union would be an operational creditor within
under Section 8 of the Code for outstanding the meaning of the Code. Even otherwise, a
dues of workers. This was replied to by purposive interpretation ought to be granted,
respondent No.1 on 31.03.2017. The National as has been done in various recent judgments
Company Law Tribunal [“NCLT”], on to the provisions of the Code, and that
28.04.2017, after describing all the antecedent therefore, such an application by a registered
facts including suits that have been filed by trade union filed as an operational creditor
respondent No.1 and referring to pending writ would be maintainable. Shri Gaurav Kejriwal,
petitions in the High Court of Delhi, ultimately learned Advocate appearing on behalf of
held that a trade union not being covered as an respondent No.2 has supported the arguments
operational creditor, the petition would have to advanced by Shri Gopal Jain.
be dismissed. By the impugned order dated
12.09.2017, the National Company Law 2. On the other hand, Shri Navaniti Prasad Singh,
Appellate Tribunal [“NCLAT”] did likewise Shri Jayant K. Sud, and Shri Anip Sachthey,
and dismissed the appeal filed by the appellant learned Senior Advocates appearing on behalf
before us, stating that each worker may file an of respondent No.1 supported the NCLAT
individual application before the NCLT. judgment to argue that as no services are
rendered by a trade union to the corporate
debtor to claim any dues which can be termed
as debts, trade unions will not come within the
definition of operational creditors. That apart,
Ahmedabad Chartered Accountants Journal April, 2019 45
Allied Laws Corner Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process
each claim of each workman is a separate cause for Corporate Persons) Regulations,
of action in law, and therefore, a separate claim 2016.
for which there are separate dates of default of
each debt. This being so, a collective (2) The applicant under sub-rule (1) shall
application under the rubric of a registered trade dispatch forthwith, a copy of the
union would not be maintainable. application filed with the Adjudicating
Authority, by registered post or speed
D. Findings of the Hon’ble Supreme Court: post to the registered office of the
corporate debtor.”
1. Section 5(20) of the Code defines operational
creditor as follows: 4. Form 5, to which Rule 6 refers, contains Part
V, in which the note states:
“5. Definitions.—In this Part, unless the
context otherwise requires,— “Note: Where workmen/employees are
operational creditors, the application may be
** ** ** made either in an individual capacity or in a
joint capacity by one of them who is duly
(20)“operational creditor” means a person to authorised for the purpose.”
whom an operational debt is owed and
includes any person to whom such debt 5. An operational creditor refers to any “person”.
has been legally assigned or transferred; “Person” is defined under Section 3(23) of the
Code to include the following:
** ** **”
“3. Definitions.—In this Code, unless the
2. Section 5(21) defines operational debt as context otherwise requires,—
follows:
** ****
“5. Definitions.—In this Part, unless the
context otherwise requires,— (23)“person” includes—
** ** ** (a) an individual;
(21)“operational debt” means a claim in respect (b) a Hindu Undivided Family;
of the provision of goods or services
including employment or a debt in respect (c) a company;
of the payment of dues arising under any
law for the time being in force and payable (d) a trust;
to the Central Government, any State
Government or any local authority; (e) a partnership;
** ** **” (f) a limited liability partnership; and
3. Rule 6 of the Insolvency and Bankruptcy (g) any other entity established under a
(Application to Adjudicating Authority) Rules, statute, and includes a person resident
2016 states as follows: outside India;
“6. Application by operational creditor.— ** ****”
(1) An operational creditor, shall make an 6. When we come to the Trade Unions Act,
application for initiating the corporate Section 2(h) defines a trade union as follows:
insolvency resolution process against
a corporate debtor under Section 9 of “2. Definitions.—In this Act, ‘the appropriate
the Code in Form 5, accompanied with Government’ means, in relation to Trade
documents and records required Unions whose objects are not confined to
therein and as specified in the one State, the Central Government, and in
4 6 Ahmedabad Chartered Accountants Journal April, 2019
relation to other Trade Unions, the State Allied Laws Corner
Government, and, unless there is anything
repugnant in the subject or context,— regard to registration, shall register the
Trade Union by entering in a register, to
** ** ** be maintained in such form as may be
prescribed, the particulars relating to the
(h) “Trade Union” means any combination, Trade Union contained in the statement
whether temporary or permanent, formed accompanying the application for
primarily for the purpose of regulating the registration.”
relations between workmen and employers
or between workmen and workmen, or “13.Incorporation of registered Trade
between employers and employers, or for Unions.— Every registered Trade Union
imposing restrictive conditions on the shall be a body corporate by the name
conduct of any trade or business, and under which it is registered, and shall have
includes any federation of two or more perpetual succession and a common seal
Trade Unions; with power to acquire and hold both
movable and immovable property and to
** ** **” contract, and shall by the said name sue
and be sued.”
7. Equally, trade disputes under the said Act are
defined under Section 2(g) as follows: “15.Objects on which general funds may be
spent.— The general funds of a registered
“2. Definitions.—In this Act, ‘the appropriate Trade Union shall not be spent on any other
Government’ means, in relation to Trade objects than the following, namely,—
Unions whose objects are not confined to
one State, the Central Government, and in ** ** **
relation to other Trade Unions, the State
Government, and, unless there is anything (c) the prosecution or defence of any legal
repugnant in the subject or context,— proceeding to which the Trade Union or
any member thereof is a party, when such
** ** ** prosecution of defence is undertaken for
the purpose of securing or protecting any
(g) “trade dispute” means any dispute between rights of the Trade Union as such or any
employers and workmen or between rights arising out of the relations of any
workmen and workmen, or between member with his employer or with a
employers and employers which is person whom the member employs;
connected with the employment or non-
employment, or the terms of employment (d) the conduct of trade disputes on behalf of
or the conditions of labour, of any person, the Trade Union or any member thereof;
and “workmen” means all persons
employed in trade or industry whether or ** ** **”
not in the employment of the employer with
whom the trade dispute arises; and 9. On a reading of the aforesaid statutory
provisions, what becomes clear is that a trade
** ** **” union is certainly an entity established under a
statute – namely, the Trade Unions Act, and
8. Section 8, Section 13, and Section 15(c) and would therefore fall within the definition of
(d) are relevant and state: “person” under Sections 3(23) of the Code.
This being so, it is clear that an “operational
“8. Registration.—The Registrar, on being debt”, meaning a claim in respect of
satisfied that the Trade Union has complied employment, could certainly be made by a
with all the requirements of this Act in person duly authorised to make such claim on
Ahmedabad Chartered Accountants Journal April, 2019 47
Allied Laws Corner no doubt in our mind that a Petition for
winding up would be maintainable at the
behalf of a workman. Rule 6, Form 5 of the instance of the Trade Union. This is for
Insolvency and Bankruptcy (Application to the simple reason that section 15(c) and (d)
Adjudicating Authority) Rules, 2016 also clearly mandates that the prosecution or
recognises the fact that claims may be made defence of any proceeding to which the
not only in an individual capacity, but also Trade Union or any member thereof is a
conjointly. Further, a registered trade union party as well as the conduct of trade
recognised by Section 8 of the Trade Unions disputes on behalf of the Trade Union or
Act, makes it clear that it can sue and be sued any member thereof can be done by the
as a body corporate under Section 13 of that Trade Union. This would clearly go to
Act. Equally, the general fund of the trade show that the Trade Union, for and on
union, which inter alia is from collections from behalf of its members can certainly prefer
workmen who are its members, can certainly a winding up Petition as contemplated
be spent on the conduct of disputes involving a under section 439 of the said Act. This is
member or members thereof or for the for the simple reason that if the workmen
prosecution of a legal proceeding to which the have not been paid their wages and/or
trade union is a party, and which is undertaken salary by the Company, they would
for the purpose of protecting the rights arising certainly be a creditor or creditors as
out of the relation of its members with their contemplated under section 439(1)(b) of
employer, which would include wages and the Companies Act, 1956. Section 15
other sums due from the employer to workmen. clearly mandates that the Trade Union can
take up this cause for and on behalf of its
10. The Bombay High Court in Sanjay Sadanand members. Hence, after complying with the
Varrier (supra), after setting out various provisions of section 434 of the Companies
provisions of the Trade Unions Act, including Act, 1956 the Trade Union would certainly
Section 15, has held: be competent to present a winding up
Petition.”
“13. As can be seen from the said section,
Registered Trade Unions can prosecute or 11. No doubt, this judgment was in the context of
defend any legal proceeding to which the a winding up petition, but the rationale based
Trade Union or member thereof is a party, upon Section 15(c) and (d) equally applies to a
when such prosecution or defence is petition filed under the Code.
undertaken for the purpose of securing or
protecting any right of the Trade Union as 12. However, learned counsel appearing on behalf
such, or any rights arising out of the of respondent No. 1 have cited the judgment
relations of any member with his employer reported as Commissioner of Income Tax
or with a person whom the member (TDS), Kanpur and Anr. v. Canara Bank,
employs. In fact, the Trade Union can even [2018] 9 SCC 322 [“Canara Bank”]. This
spend general funds on the conduct of trade judgment dealt with the expression “established
disputes on behalf of the Trade Union or by or under a Central, State or Provincial Act”
any member thereof. contained in Section 194-A(3)(iii) of the
Income Tax Act, 1961. After exhaustively
14. On a conjoint reading of the provisions of reviewing the case law on the subject, this Court
the Companies Act, 1956 and more came to the conclusion that the NOIDA
particularly sections 434 and 439 as well authority was established as an authority under
as the provisions of the Trade Unions Act, the State Act. While dealing with several
1926, we are clearly of the view that
looking to the mandate of sections 13 and
15 of the Trade Unions Act, 1926, there is
4 8 Ahmedabad Chartered Accountants Journal April, 2019
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