Journal June 2019

Ahmedabad Chartered Accountants Journal

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

Volume : 43 Part : 3 June, 2019

CONTENTS

To Begin with

- Bhaja Govindam............................................................... CA. Ashok Kataria..................... 127
Editorial ............................................................................................CA. Nirav R. Choksi......................128
From the President............................................................................ CA. Anand S. Sharma...................129

Articles

Budget 2019....................................................................................... CA. Yamal Vyas...........................130
SME IPOs - a Key Tool for Fund Raising............................................ CA. Piyush Shah.........................133
Financial Reporting Standards........................................................... CA. Manish Iyer..........................134

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................137
From the Courts.................................................................................. CA. C.R. Sharedalal &

CA. Jayesh C. Sharedalal...........139
Tribunal News.....................................................................................CA. Yogesh G. Shah &

CA. Aparna M. Parelkar............. 143
Unreported Judgements...................................................................... CA. Sanjay R. Shah.................... 147
Controversies.......................................................................................CA. Kaushik D. Shah....................150

Judicial Analysis...................................................................................Adv. Tushar Hemani....................152

FEMA & International Taxation

UAE enacts Economic Substance rules................................................ CA. Dhinal A. Shah &
CA. Sagar V. Shah.........................160

FEMA Updates................................................................................... CA. Savan R. Godiawala..............162

Indirect Taxes

GST & VAT Judgments and Updates................................................... CA. Bihari B. Shah &
CA. Vishrut R. Shah.......................166

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen R. Mandovara............170
Allied Laws Corner..............................................................................Adv. Ankit M. Talsania...................172

From Published Accounts ................................................................. CA. Pamil H. Shah..................... 175

From the Government ......................................................................CA. Ashwin H. Shah &
CA. Kunal A. Shah........................177

New Delhi Times................................................................................CA. Aniket S. Talati.................... 179

Association News.............................................................................. CA. Shivang R. Chokshi &
CA. Ketan G. Mistry....................181

Ahmedabad Chartered Accountants Journal June, 2019 125

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. Shivang R. Chokshi CA. Jayesh Sharedalal

CA. Nitesh J. Jain CA. Rajni M. Shah
CA. Ronak M. Khandwala CA. Shailesh C Shah

CA. Anand S. Sharma CA. Ketan G. Mistry

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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
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Published By

CA. Nirav Choksi, on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers,
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126 Ahmedabad Chartered Accountants Journal June, 2019

Bhaja Govindam

CA. Ashok Kataria

Bhaja Govindam is one of the most beautiful compositions of Adi Shankaracharya comprising of 31
verses. This text is a wakeup call for all us and it is also known as Moha Mudgara, that systematically
removes our delusion (Moha) as if with a sudden fall of a hammer (Mudgara).Through Bhaja Govindam,
Shankaracharya brings before us the basic concepts of life and to our surprise we find it absolute
contrary to what we have been actually living. The first verse is taken as chorus followed by twelve
verses which is wonderful gift by Shakaracharya to mankind. The mood of the master would have been
so contagious that next fourteen stanzas were added immediately by each of his disciples. After listening
to these verses, Shakaracharya blessed all seekers with last four stanzas making it a bouquet of 31
flowers.

It is said that, once in Banarasa, as Shankaracharya was going along with fourteen of his disciples, he
overheard an old pundita repeating to himself Sanskrit grammar rules. Looking at this futile effort put

rules will not save you.

The grammar rule indicated in this verse stands for all secular knowledge and possessions. It represents
our craving for the material world. Knowledge of grammar is necessary but what Shankaracharya is
condemning in this verse that all the grammar rules and such other secular sciences, our belongings and
possessions we have been running to accumulate for all these years will not help us a bit when the
ultimate time of death comes. No one can escape the principle of death be it a scientist, doctor, artist or
any other intellectual. Whatever acquired during the life time will not be of any aid during that moment.
As a warning by terming us fools, Shankaracharya compassionately asks us to rise above these “grammar
rules” and seek beyond.

The word Bhaja in literal sense means worship but it is not a mere ritualistic process. Seeking our true
identity with the Lord is Bhaja - seva, service. The essence of all worship is service. The term Govinda
refers to another name of Lord Krishna but it is not just that. The word Govinda stands for the Supreme
Truth which is the substratum of this entire creation, the highest Reality, the great God. This truth is
nothing but the Atman, my true nature. Therefore Bhaja Govindam means seek your true identity with
Govinda, the Supreme and do not waste your time in grammar or such other worldly knowledge and
possessions which is not going to be of any use when you leave this world. The only thing you will be
able to carry with you will be your spiritual journey forward. Think!

Ahmedabad Chartered Accountants Journal June, 2019 127

Editorial [email protected]

As we set our eyes on the sky and wait patiently for the rains to arrive, we are simultaneously preparing
ourselves for a gruelling compliance season. The next few months, subject to we don’t get any further
extension in due dates, will be the most hectic and busy months for all the professionals. Income tax
compliances, GSTAnnual Returns and GSTAudits, Statutory & Tax Audits and ROC compliances will
take up most of our time in the next months.

The Government is posing one challenge after another to a CA professional. The laws and rules are
changing on a regular basis. In this ever changing environment, we have to be updated with our knowledge.
It’s tough on an individual to have knowledge about all the practice areas. Therefore it is becoming
quintessential for all of us to start developing our knowledge in one particular area. The time of specialisation,
akin to that in the medical fraternity, has arrived. Gone are the days when only Direct taxes knowledge
was enough to have a healthy professional practice. The dynamism in the businesses is leading to more
and more complex questions from our clients. The expectations of our clients are changing along with
their changing business models. Technology is another aspect which is playing an important role in our
practice. The challenges which technology is posing and the corresponding professional opportunity
which it is providing are also noteworthy. We all have equal problems with the technology, especially the
online compliances, and at the same time we also acknowledge the convenience it is imparting to our
professional lives. We should be ready to embrace the change which today’s world is posing.

A professional is known and respected among his peers and among his clients for the knowledge he
possesses. No professional is superior or inferior when compared to another. We all have studied the same
course and cleared the same exam. The only difference between the ones who have doing exceedingly
well in their professional lives is that they are adapting and updating themselves on a regular basis.

The Government of India has so much faith on our profession that any document signed by a Chartered
Accountant is accepted by all stakeholders. It is our absolute responsibility that we stand up to the onus
cast on us and perform to the best of their expectations rather than performing to the best of our abilities.
A stark difference can be seen in the approach of the stake holders in reference to the complacency or
misconduct of a professional. This is posing another challenge to all of us. One must remember that his
signature on a particular document is not only authenticating the details of the document but also is
reassuring the reader of the document about the veracity of the content. Let’s excel in our professions but
not at the cost of our profession ethics and values.

As a Journal Committee Chairman I request that the members keep on sharing their knowledge among
other members of the association. A special request to the senior members of the profession to kindly
encourage and guide the younger members to contribute articles related to our profession.

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.

Regards
CA. Nirav R. Choksi

128 Ahmedabad Chartered Accountants Journal June, 2019

From the CA. Anand S. Sharma
[email protected]
President
the session. CA Association’s Entertainment
Dear Members, committee also organized entertainment program at
PanditDindayal Auditorium – a musical concert by
With the formation of new Government, all eyes singer DebojitSaha.
are now focused on who shall be Finance Minister
and per se,all are eager to know the hidden treasure Interim budget will be announced in July 2019 and
in the unionbudget for Financial Year 2019-20 CA Association is going to publish a booklet for
which will be presented by the Finance Minister so members and society at large. As a precedence
appointed in Modi 2.0 regime. We are standing on Union Budget Booklet is published in 3-4 days of
the cusp of change and the focus of India is to make presentation of Union Budget. The Publication
the economy robust and stand apart clearing the Committee with its efforts will bring up Booklet in
complex waves of domestic as well as the global short span for the members in English and vernacular
scenario. language. Members are requested to book collect
their copies from the CA Association office.
As professionals, we are equipped with all the
resources to tackle these challenges and to convert I would also like to take an opportunity to
them into opportunities. The knowledge imparted acknowledge again the efforts of IT Committee, for
from various forums to the professionals across the they have successfully implemented online
country is indeed formidable and not only it caters enrolment of new members for CA Association last
but it upscale professional and technical insights to month and now Brain Trust Membership is also
with stand against the complexities the profession available online. We have seen unprecedented
is facing these days. responsibility and due advantage of the same by
witnessing 50 new members have enrolled online.
CA Association has always been committed by Also, on behalf of the Membership Development
delivering knowledge through study circle, brain Committee, I would like to request you that kindly
trust lectures, etc. time and again, to ensure that spread the message of online enrolment and payment
members get the advantage of upcoming challenges to the non-members. By digitalizing the process on
in the professional development and work. This enrollment, we have ensured that it becomes easy
month was full of learning for the members. Two for anyone willing to join the association, at any time
series on GST were organized by the Study Circle he wants to. I am hopeful with the help of members
Indirect tax committee where practical aspects of of CA Association we will be able to increase the
GST Audit and intricacies were discussed by the strength of CA Association by enrolling new
speaker at length. There were 4 sessions on the members, and more and more people will be able to
subject and members were benefited with in-depth take the benefits of the same.
analysis of the subject by the experts. Another series
was organized on Basics of GST for the members Acharya Chanakya has rightly said that “One who
and it had 6 sessions in all for three days at a stretch. is able to Control and Conquer his Desires, is Alone
competent to rule the state in a Just, Impartial and
There is a substantial change in reporting on financial Benevolent Manner”. I take privilege on behalf of
statements by the Auditors under Standards of Office Bearers that we are imbibed and have a single
Auditing issued by ICAI. Brain Trust Committee intentionto work towards betterment for Members.
organized 1stBrain Trust Session for the year and as
its essence, members had a group discussion on Jai Hind !!!
Issues on Revision in Company Audit Reporting Anand Sharma,
Requirements - SA 700 to SA 706 and SA 720. The President
posers were later on deliberated by the speakers of

Ahmedabad Chartered Accountants Journal June, 2019 129

Budget 2019

Budget 2019 has belied expectations of a major CA. Yamal Vyas
benefits to industry and trade. But its focus is [email protected]
on long term equitable and sustainable growth
To recap, over the last five years, (FY 15 to FY
The first Budget of the re-elected Narendra Modi 19), PSBs have been recapitalised to the extent of
Government was unique in many ways. It was the Rs 3,19,000 crore. Out of this, 2,53,000 cr. was
first Budget of the second term of a Government given by the Government and Rs. 66,000 cr was
with a clear majority in both the terms. And it was mobilised by the PSBs themselves. After the fresh
the first Budget of a full time female Finance infusion of funds, all PSBs should come out of the
Minister of Independent India. prompt corrective action (PCA) framework. PCA
restricts the banks from making fresh lending.
And that was the reason why expectations were
high from this Budget. Especially from the And this further infusion in the coming few months
corporate sector which has been experiencing a should equip many larger PSBs with the resources
slowdown in recent quarters. The middle class- to speed up fresh lending. Infusion of credit to
always BJP supporters- were expecting major industries is a key to quick revival of India Inc. and
reliefs in personal Income -Tax and businesses were that should hopefully start in a few months. This
expecting encouraging signals for reviving the year, the expected growth of credit is 15 %. In the
‘animal spirits’. last few years it has been 0.17 % in FY17 and 7.51
% in FY18.
We discuss here the macroeconomic and tax
provisions which have an impact on the broader The banks have already recovered Rs. 4,00,000 cr.
economy and Capital Markets. through the Insolvency and Bankruptcy (IBC)
mechanism and other means in the last 4 years.
Control Over Inflation, Fiscal Deficit Moreover, the NPAs have also come down by Rs.
1,00,000 crore. So we can expect that the banking
The most positive aspect of this Budget has been sector would start looking up from Q3 of FY 20.
its commitment to keep fiscal deficit in check. The
FM has budgeted to keep fiscal deficit below 3.3 The second provision of Budget 2019 is the decision
per cent of GDP, lower than 3.4 % last year. As we to pump in more than Rs.100 lakh cr in infrastructure
have observed in the distant past, high fiscal deficit over the next 5 years. Much has been written about
leads to higher inflation and that in turn affects all this so we shall not go into details, but this should
of us. Throughout NDA’s first term, inflation and work as a stimulant to industrial development and
fiscal deficit have been in control and this should the next round of capacity expansion-at a standstill
continue this year too. since 2012- should star. If that happens in the current
year, we should see a sudden surge in employment,
Tackling PSB NPAs liquidity and the ‘feel good’ factor.

Two important provisions should hopefully take care All Encompassing Vision for the Next Decade
of the problem of economic slowdown. One is the
provision of providing Rs. 70,000 crore to Public Several issues mentioned in the Budget Speech
Sector Banks (PSB) for their recapitalisation. This need mention here. Among the 10 points of the
is an important step which the Modi Government NDA vision for the next decade, most deal with
has been consistently repeating to sort out the huge the social sector, with little impact on the business
Non Performing Assets (NPA) problem of PSBs, a community directly. Provisions related to Health,
legacy of the previous UPA Government. Governance, Science and Technology, Agriculture,
Environment and Social infrastructure should have

130 Ahmedabad Chartered Accountants Journal June, 2019

no major impact on businesses in the next one year Budget 2019
so we do not discuss these here.
and support units survive on these automakers. In
Increase in Sectoral FDI limits an EV, only a handful of parts are required, so unless
there is careful planning, we could experience a
The decision to allow increased foreign direct major economic shock. There would be job losses
investment (FDI) in aviation, media and insurance in lakhs. So the Government needs to go carefully
sectors is a huge positive, and was long overdue. on this issue and then take the final decision.
As we all have seen in recent times, the only airline
totally out of any controversy is Vistara- in which The immediate impact of the move has been a sharp
Singapore Airlines is a partner. decline in the prices of all auto and auto ancillary
stocks. As I write this, the stock prices of two market
That apart, the aviation sector in India is on the verge leaders, Maruti Suzuki and Mahindra & Mahindra
of a take off -what else!- and this Budget provision are quoting at their respective 52 week low prices.
should provide a strong impetus to potentially huge And analysts believe this may not be the bottom.
growth in Indian aviation. The first beneficiary
could be the Government itself, now that Air India Of course, the Budget is not the only reason for that.
strategic stake sale is in the final stage. The other Economic slowdown and its impact on auto demand
players should also see more investments coming has also been a major factor. And there seems to be
in. This could mean that the Indian passenger, no solution to the macro issue in the Budget.
currently experiencing high ticket prices in the
domestic market might see better times due to Possible Increase in Public Shareholding to 35%
increased competition.
The other provisions which are related to the capital
Similarly, the media sector is likely to see global market are also discussed here. Companies in which
giants like Netflix and Disney make a beeline for the public holding is less than 35 % may be asked
India if the rules are conducive. Same goes for to bring it down to that level. SEBI will take the
insurance, though the initial reactions in insurance final decision on the issue, but this has rattled the
circles are not too positive. In short, the above will market. If this is made mandatory, the market would
mean many more jobs, better facilities at cheaper be flooded with stake sale offers and the increased
prices for consumers and a faster growth of the supply of floating stock may put pressure on the
country’s economy. prices of respective company stocks.

Auto Sector in Transition This may also lead a number of promoters to delist
their companies. There are many multinationals who
Major changes seem to coming in the automobile run huge operations but do not list their stocks. We
sector. After making all the right noises in the last may see a spate of delistings if this comes through.
few years, the Government seems to have now
decided to act on the Electric Vehicles (EV) front. Higher Disinvestment Target
Previously the concerned minister had been talking
of a 2030 deadline for making all cars electric but The disinvestment target for the current year is put
now it seems two wheelers and commercial vehicles at Rs.1,05,000 crore which is welcome. The
too will have to adopt Electrical transmission. Government has also decided to allow reduction in
its holdings in PSU s below 51% if the effective
The tax benefit given to individuals in borrowing control remains with it. In some PSU, LIC may be
for EVs means that the FM expects many of us to holding 7 % and the Government, say, 60 %. The
start using EVs within this year itself. It should be Government can now sell its 16 % stake making its
good in terms of environment but at the same time holding 44%. The 7 % holding of LIC will thus
there are two major issues which need to be sorted allow the Government to divest more in this and
out. similar cases.

One is the possibility of huge job losses in the This is an excellent decision because the
automobile sector.According to one industry leader, Government will be able to release more funds in
there are thousands of small parts which go into coming years to enable a stronger effort to making
making a car, or a truck, and lakhs of small ancillary India a $ 5 trillion economy. This will also increase
liquidity in the PSU stocks and this may increase
retail participation in stock markets.

Ahmedabad Chartered Accountants Journal June, 2019 131

Budget 2019 The increase in import duty on gold could not only
reduce the margins of jewellers but may also lead
Tax on Buybacks to smuggling. As it is, exports are stagnating and
need a major push. Gems and Jewellery sector has
Buyback of shares was not allowed in our country the potential to raise exports in a big way. But that
till a few years back. Globally, it is an accepted may not happen anytime soon.
practice. In our country too, dozens of companies
have taken advantage of buying back their own Need to Reconsider Issue of Sovereign
shares. This results in reduction of floating stock Guarantee Foreign Currency Bonds
and eventually raises the value of holdings of the
shareholders. One provision of the Budget which can bring about
a significant long term change in the economy is
The Budget has imposed a 20 % tax on share the decision to issue foreign currency bonds with
buyback amount, to be paid by the company. This sovereign guarantee. The argument is that the
has put a question mark against all future buybacks. country has huge foreign exchange reserves and
A South based company has cancelled its our sovereign external debt to GDP is among the
previously declared buyback plan. lowest globally at less than 5 %.

Wipro is going ahead with it but few companies In our view, this is a highly dangerous and
will come up with buyback offers in the near future. economically negative move. If the Government
Actually this tax is just to remove the anomaly raises such debt, the foreign exchange risk will be
between Dividend Distribution tax and no tax on on us. So even if we are able to raise debt at say
buyback of stocks. So the market has also taken it 3%, if the rupee falls, say 7%, the cost would come
in its stride. to 10%, much higher than the cost of raising similar
funds at present.
Surcharge Impact on FPIs
Moreover, the additional inflow of foreign exchange
Then there is this surcharge on the super rich. All will initially raise the value of Indian Rupee in the
Governments do this to send out a socialistic foreign exchange market. This will make our
message to the masses. This time around ,the exports more expensive and there may be a major
Foreign Portfolio Investors (FPI) ,the blue eyed fall in our exports. As imports would become
investors have also been affected. Initially there was cheaper, the imports -which are today mostly gold,
a furore among them, and there was selling pressure gems and jewellery and consumer electronics-
in the market also immediately after the Budget. would go up.

Thankfully the Government did not blink first, and The resultant high Current Account Deficit (CAD)
the FPIs have not been spared. Yes, they can turn will eventually make the Rupee weak in the long
corporate to save the additional burden of run, raising the cost of sovereign borrowings. This
surcharge, and the matter now rests. proposal was discussed by various Governments
in the last three decades and was rejected every time.
Regressive Increase in Import Duties It will be good if the Government reconsiders this
move in long term interest of the economy.
The Budget has increased import duties on a few
products like cashew kernels, PVC, Vinyl flooring, In conclusion, there were huge expectations from
tiles, metal fittings, mountings for furniture, auto this Budget but it has belied expectations of being a
parts, certain kinds of synthetic rubbers, marble pro corporate or a pro rich Budget . The focus of
slabs, optical fibre cable, CCTV camera, IP camera, this Government is equitable growth and bringing
digital and network video recorders etc.The Budget about economic equality along with growth and on
also imposed some duty on capital goods used for that score the Budget scores very high. We can expect
manufacturing of electronic items like cathode ray major direct tax reforms in the next Budget , lower
tubes (CRT), CD, DVD, CRT monitors and TV, tax rates in year 4 or 5 of this Government and no
and plasma display panel. This is not a significant directly market friendly provisions in the future also.
list, and in our view the impact on the economy
and the market may not be significant. But hhh
protectionist measures like these have not worked
effectively in the past and we are only turning the
clock back.

132 Ahmedabad Chartered Accountants Journal June, 2019

SME IPOs - a Key Tool
for Fund Raising

Small and Medium Enterprises (SMEs) have CA. Piyush Shah
become the silent drivers of Economic [email protected]
Development of the Country. They play a crucial
role in growth and transformation of any developing witnessed tremendous growth in terms of
economy. They contribute towards sustainable subscription, investor classes, number of SMEs
growth, employment and social stability to the fast filing offer documents and getting listed, and the
developing economy. Governments all over the like.
world have recognized the role and importance of
the SMEs in their economy. Similarly, SMEs have 145 SMEs raised a record Rs. 2,455 Crores through
been acknowledged as the major driving force for IPOs in 2018. This is in comparison to Rs. 1,785
Indian Economy too. Crores being raised through IPOs in 2017.
Maharashtra has the highest fund raising and
The biggest challenge faced by these enterprises is Gujarat has the highest number of listings. These
access to capital. To overcome this, the need for companies represent diverse industry base such as
separate SME Exchange was felt. Realizing the media and entertainment, manufacturing, textiles,
need and the SMEs contribution to economy, the engineering, finance, chemicals, agriculture, food
Bombay Stock Exchange (BSE) and the National processing and construction.
Stock Exchange (NSE) launched their platform for
SMEs to list on BSE and NSE. Looking at annual performance of the SME Capital
Market, it is safe to say that the SME IPOs are
SME Exchanges i.e. BSE SME and NSE Emerge catching up in record time.
have proved out to be effective capital raising
platforms in India. SME Listing creates market Difference between SME IPOs and Main-Board
valuation for the business and enables the IPOs
opportunity to raise capital for business expansion,
geographical expansion, diversification, acquisition Below mentioned are the key differences:
etc. It provides access to an acquisition currency
and transparency around the value of the business. First, the Offer Document is not under SEBI
It encourages employee’s commitment by rewarding supervision, the approvals are given by the
them with something of clear value. Listing helps Exchanges. Second, the IPOs are 100%
in creating a heightened public profile and underwritten. Third, IPO Subscription and trading
generating an independent valuation of the is done in lot size i.e. minimum Rs. 1 Lakh. Fourth,
Company. Market Making is mandatory. 5% of the IPO has to
be purchased by Market Maker. 25% of the IPO is
Its been 6 to 7 years since the launch of SME the obligation of Market Maker and two-way quotes
Exchanges and initially Indian SME Exchanges has to be given for buying and selling. Fifth,
were among the fastest growing exchanges minimum shareholders must be 50.
globally. Flourishing amidst challenges, there has
been a lot of positive changes throughout the Relaxations to SMEs
journey. In the past few years, SME Exchanges
The Listing Compliances have some relaxations for
the SMEs. E-voting facilities, Reporting of financial
results on quarterly basis, publishing results in
newspapers are some of the relaxations.

contd. on page no. 136

Ahmedabad Chartered Accountants Journal June, 2019 133

Financial CA. Manish Iyer
Reporting [email protected]
Standards

Measurement of Financial Assets at Fair Value the projects being undertaken by IASB and
through Other Comprehensive Income tentative agenda decisions of IFRS Interpretations
Committee.
Introduction and Scope:
Measurement of financial assets at fair value through
The importance of financial reporting standards is other comprehensive income:
increasing daily. Previously, used to discuss on
IFRS requirements highlighting that the same NBFCs having their securities listed on any stock
would be applicable in India too. Today, it has exchange in India or outside Indiaother than those
become a reality. Indian Accounting Standards (Ind listed in SMEITP platform and those NBFCS that
AS) have been notified under Companies (Indian are having net worth of Rupees Two Hundred and
Accounting Standards) Rules, 2015 which is based Fifty Crores or more as on 31 March 2019, are
on IFRS. required to comply with Ind AS from 1 April 2019.
NBFCs that have a practice of selling its loan
As per paragraph 12 of the Standard on Auditing portfolio may be required to classify and measure
(SA) 700 (Revised), Forming an Opinion and loans held at Fair Value through Other
Reporting on Financial Statements, an auditor must Comprehensive Income (FVOCI). Ind AS 109,
evaluate whether the financial statements are Financial Instruments, requires dual measurement
prepared, in all material respects, in accordance with model for such financial assets, that is, for such
the requirements of applicable financial reporting financial assets, the amounts that are recognised in
framework. Thus, the auditor must have knowledge profit or loss are the same as the amounts that would
of the requirements of applicable financial reporting have been recognised in profit or loss if the financial
framework to provide an opinion and report on the asset had been measured at amortised cost whereas
financial statements in accordance with standards the amount recognised in balance sheet is at fair
on auditing. In India, there are two financial value.Thus, the measurement of such financial
reporting frameworks: assets involves measurement of amortised cost and
fair value. On transition date, the difference between
1. Accounting Standards (AS) notified under the fair value and the carrying amount as per previous
Companies (Accounting Standards) Rules, GAAP cannot be parked in FVOCI Reserve. Of
2006 with amendments thereto; and the total difference, some amount will be recognised
in retained earnings and some in FVOCI Reserve.
2. Indian Accounting Standards (Ind AS) notified This is because had the financial asset been
under the Companies (Indian Accounting measured at amortised cost, the difference between
Standards) Rules, 2015 with amendments the amortised cost and carrying amount as per
thereto. previous GAAP would have been recognised in
Retained Earnings. This makes the measurement
The scope of the column will be discussion on complex. We will understand the measurement and
issues, amendments, and new standards under both the amount to be recognised in FVOCI Reserveby
the frameworks identified above. However, as the
changes to Ind AS have been frequent and as the
Ind AS framework is new, we will be discussing
more on Ind AS. It will also include discussion on

134 Ahmedabad Chartered Accountants Journal June, 2019

Financial Reporting Standards

way of an illustration. The illustration is from the Step 1: Calculation of Cash flows till maturity:
issue repository of https://gaapadvisors.com. The
illustration is of Government Security which the Date Cash Flows
entity holds till maturity. However, the entity also 07-01-2016 -5,03,78,055.56
sells government securities for liquidity purposes. 11-06-2016 20,37,500.00
11-12-2016 20,37,500.00
Thus, the business model of the entity is to hold the 11-06-2017 20,37,500.00
11-12-2017 20,37,500.00
government security for collecting the contractual 11-06-2018 20,37,500.00
11-12-2018 20,37,500.00
cash flows and to sell.Accordingly, the Government 11-06-2019 20,37,500.00
11-12-2019 20,37,500.00
security is classified as subsequently measured at 11-06-2020 20,37,500.00
fair value through other comprehensive income in 11-12-2020 20,37,500.00
11-06-2021 20,37,500.00
accordance with paragraph 4.1.2A of Ind AS 109, 11-12-2021 20,37,500.00
Financial Instruments. 11-06-2022 20,37,500.00
11-12-2022 20,37,500.00
Basic Information of G-Sec 8.15% GS 2025 11-06-2023 20,37,500.00
Purchase Date 7-Jan-16 11-12-2023 20,37,500.00
Maturity Date 11-06-2024 20,37,500.00
Face Value 11-Jun-25 11-12-2024 20,37,500.00
Purchase Price 5,00,00,000.00 11-06-2025 20,37,500.00
Cost 11-06-2025 5,00,00,000.00
Interest for the period before 101.39
purchase date 5,06,95,000.00 Step 2: Calculation ofAnnualised Effective Interest
Purchase amount Rate:
Market Price as on 31.03.19 -3,16,944.44
Fair Value as on 31.03.19 Effective Interest Rate (Annualised EIR)
Coupon Rate 5,03,78,055.56 8.29%
Last Coupon Date 102.07
Broken Interest Period
Carrying amount as per 5,10,35,000.00
previous GAAP 8.15%

11-Dec-15
28

5,17,01,876.25

The effective interest rate is derived from applying XIRR formula in MS Excel and restricted to two decimal
points. Therefore, the interest figures in the amortised cost table may not exactly be a multiple of Opening
Balance and Effective Interest Rate for the number of days.

Step 3: Calculation of Amortised Cost:

Date Days Opening Balance Interest Cash Flows Closing Balance
11-Jun-16 155 5,03,78,055.56 17,32,237.51 20,37,500.00 5,00,72,793.07
11-Dec-16 183 5,00,72,793.07 20,39,020.16 20,37,500.00 5,00,74,313.23
11-Jun-17 182 5,00,74,313.23 20,27,716.93 20,37,500.00 5,00,64,530.16
11-Dec-17 183 5,00,64,530.16 20,38,683.69 20,37,500.00 5,00,65,713.85
11-Jun-18 182 5,00,65,713.85 20,27,368.71 20,37,500.00 5,00,55,582.56
11-Dec-18 183 5,00,55,582.56 20,38,319.33 20,37,500.00 5,00,56,401.89
31-Mar-19 111 5,00,56,401.89 12,26,656.49 5,12,83,058.38
11-Jun-19 72 5,12,83,058.38 0 5,00,57,254.59
11-Dec-19 183 5,00,57,254.59 8,11,696.21 20,37,500.00 5,00,58,142.01
11-Jun-20 182 5,00,58,142.01 20,38,387.42 20,37,500.00 5,00,47,704.10
11-Dec-20 183 5,00,47,704.10 20,27,062.09 20,37,500.00 5,00,48,202.61
20,37,998.51 20,37,500.00

Ahmedabad Chartered Accountants Journal June, 2019 135

Financial Reporting Standards

11-Jun-21 182 5,00,48,202.61 20,26,659.60 20,37,500.00 5,00,37,362.22
11-Dec-21
11-Jun-22 183 5,00,37,362.22 20,37,577.38 20,37,500.00 5,00,37,439.60
11-Dec-22
11-Jun-23 182 5,00,37,439.60 20,26,223.76 20,37,500.00 5,00,26,163.36
11-Dec-23
11-Jun-24 183 5,00,26,163.36 20,37,121.35 20,37,500.00 5,00,25,784.71
11-Dec-24
11-Jun-25 183 5,00,25,784.71 20,37,105.93 20,37,500.00 5,00,25,390.64

183 5,00,25,390.64 20,37,089.88 20,37,500.00 5,00,24,980.53

182 5,00,24,980.53 20,25,719.25 20,37,500.00 5,00,13,199.77

183 5,00,13,199.77 20,36,593.46 20,37,500.00 5,00,12,293.23

182 5,00,12,293.23 20,25,205.48 5,20,37,500.00 -1.29

Step 4: Calculation of Amount to be recognised in Retained Earnings and FVOCI Reserve on Transition

date

Fair Value of Security as on 31 March 2019 5,10,35,000.00

Previous GAAP Value of Security as on 31 March 2016 5,17,01,876.25

Total GAAP Adjustments -6,66,876.25

Recognised in Retained Earnings -4,18,817.87

(Amortised Cost less Previous GAAP Carrying Amount)

Recognised in FVOCI Reserve (Fair Value less Amortised Cost) -2,48,058.38

hhh

contd. from page 133 SME IPOs - a Key Tool for Fund Raising

Anchor Investment in SMEs reimburses this amount post successful completion
of IPO and listing of the SME Company on Stock
Recently, SEBI, in its board meeting held on June Exchange Platform. The Government also organizes
21, 2019, decided that the minimum anchor investor entrepreneurial skill development program for
size would be reduced from Rs. 10 Crores to Rs. 2 SMEs. This scheme is operative for the period from
Crores for SME IPOs. This would provide more January 01, 2015 to December 31, 2019.
strength to the SME IPOs as the minimum
requirement of Rs. 10 Crores for anchor investors If we look at the statistics, highest number of SMEs
was one of the major issue for non-participation or is listed from Gujarat and followed by Maharashtra,
less participation of anchor investors in SME IPOs. compared to other states. Even SMEs of Rajasthan
Data says that only nine out of 410 IPOs got anchor and West Bengal are also moving rapidly. Other
investment till date. State government should also unleash encouraging
initiatives to support their SMEs for raising growth
Thus, the change of reduction in minimum anchor capital on SME bourses. With such growth funding
portion will attract more organised investors to becoming easy, SMEs are expected to progress in
SMEs. It is viewed that the Anchor investor backed their businesses faster and in turn contribute to State
IPOs have performed better than IPOs without economies.
Anchor investor over the long term.
Particulars No. of
Role of Government
Companies Listed
Growing SME platforms provide growth platform
for emerging SMEs which in turn contribute to No. of Companies listed
developments of State economies. Various State
Governments are taking several initiatives to on BSE SME 242
support fast flourishing SME platforms.
No. of Companies listed
Gujarat Government has been promoting SME
Capital Markets and encouraging its SME units to on NSE Emerge 178
raise funds thereon. The Government subsidies 20%
of total expenditure incurred on SME IPO, limited Companies Migrated to
maximum upto Rs. 5 Lakhs. The Government
Main Board from BSE SME 65

Companies Migrated to

Main Board from NSE Emerge 14

hhh

136 Ahmedabad Chartered Accountants Journal June, 2019

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

15 Re-admission of appeal dismissed for 16 Interpretation of Statues – External Aids
default – Parliamentary debates and Minister’s
speeches
Our laws of procedure are grounded on a principle
of natural justice which requires that men should Generally, statutes are recognized as Acts of
not be condemned unheard, that decision should Parliament that should be deemed to be ‘always
not be reached behind their backs, that proceedings speaking’. In a modern progressive society it would
that affect their lives and property should not be unreasonable to confine the intention of a
continue in their absence and that they should not Legislature to the meaning attributable to the word
be precluded from participating in them. Of course, used at the time the law was made, for a modern
there must be exceptions and where they are clearly Legislature to the meaning attributable to the word
defined they must be given effect to. But taken by used at the time the law was made, for a modern
and large, and subject to that proviso, our laws of Legislature making laws to govern a society which
procedure should be construed, wherever that is is fast moving must be presumed to be aware of an
reasonably possible, in the light of that principle. enlarged meaning the same concept might attract
with the march of time and with the revolutionary
The courts below should have seen that the first changes brought about in social, economic, political
appeal is a valuable right of the appellant and and scientific and other fields of human activity.
therefore, the appellant authority was entitled for Indeed, unless a contrary intention appears, an
an opportunity to prosecute their appeal on merits. interpretation should be given to the words used to
If the appellant’s advocate did not appear may be take in new facts and situations, if the words are
for myriad reasons, the Court could have imposed capable of comprehending them.
some costs on them for restoration of their appeal
to compensate the respondent (plantiff) instead of When a change in social condition produces a novel
depriving them of their valuable right to prosecute situation, which was not in contemplation at the
the appeal on merits. This is what Vivian Bose, J. time when a statute was first enancted, there can be
has reminded to the Courts while dealing with the no a priori auumption that the enactment does not
cases of this nature in Sangram Singh to do apply to the new circumstances. If the language of
substantial justice to both the parties of the lis. the enactment is wide enough to extend to those
Indeed, dismissal of the appeal in default and circumstances, there is no reason why it should not
dismissal of the appeal on merits makes a difference. apply.
The former dismissal is behind the back of the
litigant and latter dismissal is after hearing the Dharani Sugrars & Chemicals Ltd v UOI
litigant. The latter is always preferred than the (2019) 5 SCC 480
former.
17 Negotiable Instruments Act – Standard
Commissioner, Mysore Urban Development of proof
Authority v S.S. Sarvesh (2019) 5 SCC 144
The meaning of expression ‘may presume’ and
‘shall presume’ have been explained in S.4 of the
Evidence Act, 1872, from a perusal whereof it

Ahmedabad Chartered Accountants Journal June, 2019 137

Glimpses of Supreme Court Rulings 18 Set off of speculative transactions u/s 73
– specific exclusion from definition of
would be evident that whenever it is directed that speculative transaction w.e.f. 1.4.2006
the court shall presume a fact it shall regard such
fact as proved unless disproved. In terms of said It was held dismissing SLP that High Court was
provision, this the expression ‘shall presume’ cannot justified in rejecting assessee’s contention that its
be held synonymous with ‘conclusive proof’. principle business was the granting of loans and
advances. It was stated before AO that share trading
Applying the said definitions of ‘proved’ or was sole business during concerned A.Y. in
‘disproved’ to the principle behind S.118(a) of the question. The assessee furnished loans & advances
Act, the court shall presume a negotiable instrument of Rs.11.32 crores which include interest free
to be for consideration unless and until after lending of Rs.9.58 cr. Also admission by assessee
considering the matter before it, it either believes before AO assumed significance. In this view of
that the consideration does not exist or considers matter, the principal business of assessee was not
the non-existence of the consideration so probable of granting of loans.As a consequence, the deeming
that a prudent man ought, under the circumstances fiction u/s 73 would be attracted. Hence the finding
of the particular case, to act upon the supposition of High Court could not be faulted.
that the consideration does not exist. For rebutting
such presumption, what is needed is to raise a That for AY 2008-09, the loss which occurred to
probable defence. Even for said purpose, the the assessee as a result of its activity of trading in
evidence adduced on behalf of the complainant shares (speculative business) was not capable of
could be relied upon. being set off against the profit which it had warned
in the business of futures and options since the latter
Whereas prosecution must prove the guilt of an did not constitute profits of a speculative business.
accused beyond all reasonable doubt, the standard
of proof so as to prove a defence on the part of an Even though an amendment, including one in the
accused is ‘preponderance of probabilities’. context of the Finance Act is brought into force with
Inference of preponderance of probabilities can be effect from a stipulated date, the court may as an
drawn not only from the material brought on record exercise of statutory interpretation, determine
by the parties but also by reference to the whether the amendment is clarificatory or was
circumstances upon which accused relies. intended to operate with retrospective effect. The
test to be applied is essentially one of the intent of
Applying the definition of the word ‘proved’in S.3 the Legislature.
of the Evidence Act to the provisions of S.118 and
139 of the Act, it becomes evident that in a traial Snowtex Investment Ltd v Pr CIT [414 ITR 227]
u/s 128 of the Act a presumption will have to be
made that every negotaiable instrument was made 19 Power of AO to extend time for
or drawn for consideration and that it was executed submission of Audit report u/s 142(2A)
for discharge of debt or liability once the execution
of the negotiable instrument is either proved or The enactment of proviso was necessary to give a
admitted. As soon as the complainant discharged remedy to an assessee who for genuine reasons,
the burden to prove that the instrument, say a note, was unable to comply with direction issued in the
was executed by the accused, the rules of first instance by AO. Hence for good and sufficient
presumption u/s 118 and 139 of the Act help him reason, the AO may extend time on an application
shift burden on the accused. The presumption will submitted by assessee and while extending time,
live, exist and survive and shall end only when the the AO will be subject to the overall ceiling of time
contrary is proved by the accused, that is, the cheque fixed under the proviso to sub section (2C) for
was not issued for consideration and in discharge genuine reasons or as the statue calls it, “for any
of any debt or liability. A presumption is not in itself good and sufficient reasons”.
evidence, but only makes a prima facie case for a
party for whose benefit it exists. cocnontdtd. o. nonppagaegenno.o.19462

Basalingappa v Mudibasappa (2019) 5 SCC 418

138 Ahmedabad Chartered Accountants Journal June, 2019

From the
Courts

CA. C. R. Sharedalal CA. Jayesh C. Sharedalal

[email protected] [email protected]

Notice u/s 147/148: Change of Opinion : Issue:

21 Giriraj Steel v/s. Deputy CIT (2018) 402 Whether Penalty on concealment of income can be
ITR 204 (Guj) levied when income is taxed under the provisions
of Sec. 115JB?
Issue:
Held:
When notice u/s 147/148 can be considered as valid
and not on change of opinion? Where the income computed in accordance with
the normal provisions is less than the income
Held: determined by legal fiction namely the book profits
under section 115JB and the income of the assessee
A detailed questionnaire had been issued to the is assessed under section 115JB and not under the
assessee along with the notice under section 142(1) normal provision, the tax is paid on the income
of the Income-tax Act, 1961. The submissions of assessed under section 115JB of the Act, and
details and explanation furnished by theassessee concealment of income would have no role to play
clearly showed that it had explained that the firm and would not lead to tax evasion. Therefore,
was converted into a company with all assets and penalty cannot be imposed on the basis of
liabilities and that the profit earned by the firm was disallowance or additions made under the regular
disclosed in the profit and loss account of the provisions.’
company. The Assessing Officer, upon being
convinced by the explanation given by the Re-opening on the basis of Audit
petitioner, had accepted the return of income as filed
by the petitioner during the course of scrutiny 23 Objection
assessment. The Assessing Officer in the assessment CIT v/s. Rajan N Aswani (2018) 403 ITR
order had recorded that after verification and 30 (Bom)
discussion and from the data made available, the
total income of the assessee was computed as nil. Issue:
Evidently therefore, the Assessing Officer has
applied his mind to the fact that the assessee had Whether notice u/s 147/148 is valid if it is issued
filed a nil return of income and had accepted it. on the basis of audit objection?
Under the circumstances, the reasons recorded for
reopening the assessment reflected a mere change Held:
of opinion. The notice was not held as not valid.
That the audit objection would be a part of the
Assessment u/s 115JB: Concealment of assessment record and therefore, there was
income in normal income working: No evidence on record that the audit objection was
considered while issuing the reopening notice.
22 effect. There was nothing on record to suggest that in view
Pr. CIT v/s. International Institute of of the delay in issuing the notice, the Assessing
Neuro Sciences & Oncology Ltd (2018) Officer had applied his mind afresh, without being
402 ITR 188 ( P & H) influenced by the audit objection, to come to the
same view as indicated in the audit objection.
Passage of time would not alone by itself indicate

Ahmedabad Chartered Accountants Journal June, 2019 139

From the Courts Held:

that there had been a fresh application of mind to In respect of the assessment year 2009-10,
the order passed under section 143(3) of the Act disallowance of deduction under section 80-IA was
leading to belief that income chargeable to tax had reversed by the Commissioner (appeals) and the
escaped assessment. Tribunal confirmed this. Thus, there was no
justification to take a different view from that taken
That the order of the Tribunal recorded the fact that by the Tribunal.When the benefit of deduction under
it had examined theAssessing Officer’s letter to the section 80-IA was allowed by the Assessing Officer,
audit objection in respect of grant of deduction under he had examined the relevant material and even on a
section 80-IB(4). The response of the Assessing query made by him, reply was submitted by the
Officer as contained in the letter was before the assessee and after scrutiny, the assessment order was
Tribunal wherein it had been mentioned that on the finalized. Hence, it was not a case of any concealment
basis of case law as existing at the relevant time, in of material or non-disclosure of material on the part
his understanding of law the assessee was entitled of the assessee. No new material had come to light
to the deduction under section 80-IB(4) in respect and only a different view was taken by the Assessing
of duty drawback incentive. Further, the order of Officer in respect of a subsequent assessment year
the Tribunal also reproduced the audit objections which has been taken as a basis for reopening of
as well as the reasons recorded and on comparing assessments already made final after scrutiny by the
the two came to a view that in substance both of Assessing Officer. This could not be said to be a
them were identical and therefore, the order of the valid exercise of powers under section 147 read with
Tribunal was not perverse. section 148 of the Act.

24 Legal heir v/s. Legal representative Inordinate delay in issuing notice u/s
Arvind Kayan v/s. Union of India (2018)
403 ITR 36 (Cal) 26 158BD vitiates the proceedings.
Pr. CIT v/s. Jitendra H. Modi HUF
Issue: (2018) 403 ITR 110 (Guj)

What is the meaning of ‘Legal Heir’ and ‘Legal Issue:
Representative’for the purpose of Income Tax Act? Whether inordinate delay in issuing notice u/s
158BD on the person other than the searched person
Held: would vitiate the notice and proceedings?

The definition of legal representative given in the Held:
Code was not confined to legal heirs. It might be a An assessment order was passed against the person
person who might or might not be the heir, subjected to search on April 30, 2003. Till that date,
competent to inherit the property of the deceased. the Assessing Officer had not recorded any
However, such person would represent the estate satisfaction on the basis of material on record that
of the deceased. It included heirs as well as persons the assessment in the hands of the assessee under
who represented the estate even without title either section 158BD of the Act ought to be carried out.
as executors or administrators in possession of the Such satisfaction was recorded only on January 20,
estate of the deceased. Such persons were covered 2004. The Assessing Officer passed an order of
by the expression legal representative. assessment under section 158BD. The Tribunal
terminated the proceedings of block assessment on
Reopening on the basis of subsequent the ground of undue delay in recording the
satisfaction by the Assessing Officer of the searched
25 year’s decision not valid. person. On appeal:
Pr. CIT v/s. Jai Prakash Associates Ltd.
(2018) 403 ITR 41 (All) Held, dismissing the appeal, that the period close
to nine months after completion of the proceedings
Issue:

Whether reopening on the basis of subsequent
year’s finding is valid?

140 Ahmedabad Chartered Accountants Journal June, 2019

From the Courts

under section 158BC, without there being any Held:
limiting factor on the Assessing Officer to have
recorded satisfaction earlier, could not be stated to The report given by the Departmental valuer was
be an immediate action. It was held that the Tribunal only an estimate and based on such estimation, there
was right in quashing the assessment order. could not be any reopening and if permitted, it
would amount to a case of change of opinion.
How the provisions of Sec. 2(22) (e) are Furthermore, the report of the Department Valuer
was inconclusive and could be treated at best as an
27 to be construed ? opinion. The reasons assigned by the Commissioner
CIT v/s. Prasidh Leasing Ltd. (2018) 403 (Appeals), as confirmed by the Tribunal, were in
ITR 129 (Delhi) order, since there was no allegation that the assessee
had failed to truly and fully disclose all material
Issue: facts. The duty of the assessee was only to furnish
For the purpose of Sec. 2(22)(e) which are the kinds all material facts and it was for the Assessing Officer
of payments and what conditions are to be net with to take a decision based on the facts so disclosed.
for applicability of provision? The assessment was completed under section 143(3)
based upon the valuation report of an approved
Held: valuer. After about seven years, an inspection, had
In Navnit Lal C. Javeri [1965] 56 ITR 198 (SC), been conducted by the Departmental Valuer to state
the Supreme Court noted that there could be three that there was a difference in value and that
kinds of payments, i.e. (a) payments made to the amounted to unexplained investment. It was held
shareholder by a company by way of advance or that the reasoning given by the Assessing Officer
loan, (b) payments made on behalf of the assessee; for reopening the assessment under section 147
and (c) payments made for the benefit of the could not be accepted.
assessee. The court then analysed the pari material
provision and said that five conditions are to be met Applicability of Sec. 179: Direct recovery
for its applicability; firstly that the company should
be one in which the public is not substantially 29 from directors: Conditions to be fulfilled.
interested within the meaning of the expression in Madhavi Kerkar v/s. Asst. CIT (2018)
law, in the year in which loan is advanced; secondly, 403 ITR 157 (Bom)
the buyer should be a shareholder at the date when
the loan was advanced regardless of the extent of Issue
shareholding, thirdly, that the loan to the shareholder
by the company can be deemed to be dividend only What are the conditions to be fulfilled before issuing
to the extent to which it is shown that the company notice u/s 179 to the Directors?
possessed accumulated profit at the date of the loan;
fourthly, that the loan should not be advanced by Held:
the company in its ordinary course of business ;
and lastly, that the loan should remain outstanding Department acquired or got jurisdiction to proceed
at the commencement of the shareholder’s previous against the directors of the private limited company,
year in relation to the concerned assessment year. only after it had failed to recover the dues from the
company. It was a condition precedent for the
Reopening: Dept. valuer v/s. Assessee’s Assessing Officer to exercise jurisdiction under
section 179(1) against the director of the company.
28 valuer: Change of opinion The jurisdictional requirement was not satisfied by
CIT v/s. P. Nithilan (2018) 403 ITR 154 a mere statement in the order that recovery
(Mad) proceedings had been conducted against the
defaulting company, but it had failed to recover its
Issue: dues. Such a statement should be supported by
mentioning briefly the types of efforts made and
How the reports of Departmental Valuer and the results. The notice under section 179(1) did not
Assesee’s Valuer to be construed? Whether change
of opinion?

Ahmedabad Chartered Accountants Journal June, 2019 141

From the Courts to the interests of the Revenue, the Commissioner
is empowered to pass an order as the circumstances
indicate or give any particulars in respect of the steps of the case may warrant. He may pass an order
taken by the Department to recover the tax dues of enhancing the assessment or he may modify the
the defaulting company and failure thereof. assessment. He is also empowered to cancel the
assessment and direct a fresh assessment. The
30 Powers of CIT u/s 263. Commissioner is fully competent to adopt any one
Pr. CIT v/s. Venus Woollen Mills (2019) of the three causes in directed by the provision.
412 ITR 188 (P & H)
The object of the enactment of section 263 is to
Issue: correct an order which is prejudicial to the interests
of the Revenue. The purpose behind incorporating
What are the powers of CIT under section 263 & this provision in the statute is to ensure that interests
how the same are to be invoked? of the Revenue are safeguarded against an
erroneous order passed by the Assessing Officer as
Held: the Department has no right to file an appeal against
the order of the Assessing Officer. There is no
The powers of the Commissioner under section 263 straitjacket formula for categorizing an order to be
of the Income Tax Act, 1961, are very wide. The erroneous and prejudicial to the interests of the
only limitation on his power is that he must have Revenue and this depends upon the facts of each
some material which would enable him to form a case.
prima facie opinion that the order passed by the
officer was erroneous in so far as it was prejudicial hhh
to the interests of the Revenue. Once he concludes
on the basis of the material that the order of the Glimpses of Supreme Court Rulings
Assessing Officer was erroneous and prejudicial
expenditure is with the object of earning income
contd. from page 138 and not dependent upon actual earning of income
in fact. In this case, Tribunal recorded a finding that
The expression ‘and for any good and sufficient amount of Rs.3.25 cr was paid to Mr G R Hada
reason’ in the proviso should be read to mean ‘or only with a view to safeguard its investment in M/
for any good and sufficient reason’. As a matter of s A P Rayons Ltd so as to earn dividend/ interest
statutory interpretation, it is well settled that the income. Thus, no inference with impugned order
expression ‘and’ can in a given context be read as is called for as it merely follows the apex court
‘or’. decision in Rajendra Prasad Moody’s. Moreover,
the question as framed on behalf of the Revenue
CIT v Ram Kishan Das [413 ITR 337] seeks to deny the assessee the benefit of S.57(iii)
of the Act on the ground that it is in the nature of
Sum paid to joint promoter towards capital expenditure as it was expended for enlarging
control and management of M/s A P Rayons Ltd.
20 compromise of suit filed for specific This finding of AO was negatived by CIT(A) who
performance of MOU – Revenue or held it was allowable as deduction u/s 57(iii) only
Capital expenditure? subject to earning of income.

Revenue accepted the finding of CIT(A) to the Pr CIT v Ballarpur Industries Ltd (413 ITR 447)
effect that the expenditure of Rs.3.25 cr paid to Mr
G R Hada would be allowable as a deduction u/s hhh
57(iii). The deduction was disallowed by CIT(A)
for the reason that there was no income by way of
dividend/ interest in the subject asstt year. The nexus
between allowing of deduction u/s 57(iii) only upon
earning of income in the subject asstt year has been
negatived by Apex Court in case of Rajendra
Prasad Moody. The only requirement is that the

142 Ahmedabad Chartered Accountants Journal June, 2019

Tribunal
News

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

The Nielson Company (US) LLC v/s that “managerial service” in Explanation 2 to section
9(1)(vii) of the Act is not found in Article 12(4) of
13 DCIT (Intl. Tax) TS-304-ITAT-2019 the India-USA DTAA. Further as per the MOU
(Mum) executed between India and USA, it is clarified that
Assessment Year: 2010-11 Order dated: consultancy services not of technical nature cannot
22nd May, 2019 fall under “included services”. Accordingly, based
on the factual discussion the ITAT held that the sum
Basic Facts could not be treated as FIS in absence of clause in
the service agreement, that the recipient would be
During the year under consideration, the assessee able to perform these services on its own without
received a sum from Nielson (India) under service any further assistance to the assessee.
agreement for administrative and management
support services which was claimed as not taxable With regard to the sum treated as royalty, the ITAT
in India under Article-12 of the India-US DTAA as held that the receipt cannot be treated as royalty as
the same did not pertain to making available of any there is no transfer of process or formula. They
technical knowledge, skill etc. The AO considered further held that the reimbursement of expenses can
the sum received to be in the nature of Fees for under no circumstances be regarded as revenue
included Services (FIS). The assessee also received receipt. Accordingly the appeal was allowed.
a sum from Nielson (India) towards reimbursement
of actual expenditure in respect of tax handling Aditya Khanna v/s ITO (Intl. Tax) [2019]
expenditure allocated to the group companies on the
basis of the number of expats in the entity on prorate 14 TS-285-ITAT-2019 (Del)
basis which wasn’t allowed by the AO considering Assessment Year: 2011-12 Order dated:
the same to be for use of a process or formula 17th May, 2019
partaking the character of royalty under the DTAA.
On first appeal, the CIT(A) confirmed the additions Basic Facts
made by the AO. Aggrieved, the assessee preferred
a plea before ITAT. Assessee being an individual, not ordinarily
resident in India filed his return of income
Issue declaring his salary for the proportionate period
when he was employed in USA and claiming the
Whether sum received for administrative and proportionate credit for the State and local taxes
management support services which does not besides the federal taxes paid in USA. The
make available any technical knowledge, skill assessee contended that the credit for state and local
etc. is taxable as ‘FIS’? taxes can alternatively be allowed as deduction
from the salary earned abroad. Rejecting the
Whether reimbursement of expenditure could assessee’s contention, the AO noted that the tax
partake the nature of ‘royalty’? credit should be limited to the taxes covered under
article 2 of the Indo US DTAA and further held
Held that the treaty applies only to federal income tax
paid in USA, accordingly the credit for state and
In relation to FIS, the Hon’ble ITAT after examining
the service agreement and the treaty provisions held

Ahmedabad Chartered Accountants Journal June, 2019 143

Tribunal News M/s. Atul Ltd. v. DCIT [TS-274-ITAT-

local taxes cannot be allowed. On first appeal, the 15 2019] (Ahd)
CIT(A) upheld the order of AO considering Assessment Year:2012-13 Order dated :
various aspects. Aggrieved, the assessee preferred 24 April, 2019
an appeal before ITAT.
Basic Facts
Issue
Assessee e-filed the return of income. Subsequently,
Whether the assessee can claim tax relief u/s 91 the case was selected for scrutiny by issuing of
of the Act with respect to federal tax and state notice u/s.143(2) of the Act on 12th August, 2013.
income tax or not? The assessment u/s. 143(3) r.w.s.144(3) of the act
was made on 28th March, 2016. On various addition
Whether the assessee who is not a ‘resident’ made by the AO, the assessee has filed appeal before
but resident and not ordinarily resident’ can the CIT(A) which was dismissed as the same was
also claim relief/deduction u/s 91 of the Act or filed manually, by referring the notification no.11/
not? 2006 (F.No. 149/150/2015-TPL dated 01/03/2016
of the CBDT. Aggrieved, the assessee preferred an
Held appeal before the Hon’ble ITAT.

The Hon’ble ITAT by relying upon Circular 621 Issue
dated 19/12/1991 held that the tax treaties are
intended to grant relief and not put residents of a Whether the CIT(A) was justified in dismissing
Contracting State at a disadvantage in comparison the appeal of the assessee on the ground that
to other tax payers. Section 90 of the Act clarifies assessee did not file appeal in electronic mode ?
that any beneficial provision in the law will not be
denied to a resident of a contracting country merely Held
because corresponding provision in a tax treaty is
less beneficial. The ITAT further noted that Section Vide circular no. 20/2016 dated 26/05/2011 of
91 does not discriminate between state and federal CBDT, the date of filing of appeal by electronic
taxes, and in effect provides for both these types of mode was extended up to 15/06/2016. The Hon’ble
income taxes to be taken into account for the ITAT noted that the issuing of circulars by the
purpose of tax credits provided the same does not CBDT for extending the date of filing the appeal
exceed the Indian income tax liability. Reliance in implicit constraint and elucidate the hiccup in
this regard has been placed upon the decision of uploading the prescribed appeal in the system
the coordinate bench in the case of Dr. Rajiv Modi electronically. The assessee had filed the appeal in
vs. DCIT (OSD) [ITA No. 1285/Ahd/2014]. The the paper form in form no. 35 on 22/04/2016. The
provisions of section 6 of the Act provides for Hon’ble ITAT noted that the delay in filing appeal
qualification of the person resident in India. The was because of the unintended technical lapse in
provisions of section 6(6) craves out another filing appeal through e-mode. It was observed that
category who is said to be ‘ not ordinarily resident’ the online filing of appeal was newly introduced
in India. However, such persons are also resident. during the year under consideration because of
Therefore persons who are resident but not which the assessee had faced difficulty in uploading
ordinarily resident in India form larger group of the appeal electronically in the system. Thus, it was
the persons who are ‘resident’in India. Accordingly held that since there was a bona fide reasonable
the revenues contention that benefit of section 91(1) cause for not filing the appeal electronically by the
of the Act does not apply to a person who is ‘not assessee, therefore, the ld. CIT(A) was not justified
ordinarily resident’in India was rejected. Thus, the in dismissing the appeal. Accordingly, the appeal
assessee’s plea was allowed and the matter was was allowed in favour of the assessee and the appeal
restored to the file ofAO for granting the admissible was restored to the file of the ld. CIT (A) for
relief. adjudication on merit after affording adequate
opportunities to the assessee.

144 Ahmedabad Chartered Accountants Journal June, 2019

Organon (India) Ltd v. ACIT 105 Tribunal News

16 taxmann.com 249 (Kol) not have a permanent establishment in India, the
Assessment Year: 2005-06 Order dated: business profits could not be taxed in India under
15th May, 2019 Article 7 of the Indo Netherland DTAA. It was held
by the Hon’ble ITAT that there was no element of
Basic Facts profit involved in the transactions representing
remittance made towards purchase of license
The assessee is a Company, engaged in the business software for use by the assessee, which was taxable
of manufacturing, trading and sale of in India in the hands of the AE and the assessee,
pharmaceutical products as well as manufacturing therefore, was not required to deduct tax at source
of ready-to-eat foods products on contract basis for from the said payment under section 195. It was
Government. As noted by the AO during the course further held by the Hon’ble ITAT that the assessee
of assessment proceedings, the assessee had made was entitled for relief on this issue even on the basis
payment to its Netherland AE towards of non-discrimination clause contained in Article
reimbursement of expenses. It was claimed by the 24(4) of the Indo-Netherland DTAA. The reliance
assessee in this regard that its AE had purchased of the DR on the decision of the Hon’ble Calcutta
Software on license from Microsoft for use by all High Court in the case of CIT –vs. - Andaman Sea
its Group entities and the license fees paid by its Food Pvt. Limited (ITAT No. 19 of 2013) was
AE for the software was apportioned at actuals to rejected by Hon’ble ITAT as the said case was
all the Group entities on the basis of number of distinguishable on facts, inasmuch as, the
employees. It was submitted that the payment for transactions under consideration in the said case
reimbursement of such apportioned amount and it were not covered by the relevant DTAA, whereas
did not include any income element, hence the the amount paid by the assessee in the present case
assessee was not liable to deduct tax at source. to its Netherland based AE is not taxable in the
However, as per the AO, the amount in question hands of the AE in India as per the relevant clause
was paid by the assessee for the use of software of the DTAA. Accordingly, the appeal was allowed
and since it was taxable as royalty as per the in favour of the assessee.
provisions of the Act as well as the DTAA between
India and USA, the assessee was required to deduct M/s. Bharat Serumsand Vaccines Ltd.
tax at source u/s 195 And hence the AO invoked
section 40(a)(i) and disallowed the said amount. The 16 v. ACIT [TS-298-ITAT-2019] (Mum)
CIT(A) upheld the disallowance made by the AO. Assessment Year: 2006-07 Order dated:
Aggrieved, the assessee preferred an appeal before 24th May, 2019
ITAT.
Basic Facts
Issue
The assessee is engaged in the business of
Whether assessee is required to deduct tax at manufacture of Serums and Vaccines and in the
source on payment made to its AE towards research activities in Bio-medical/Bio-technical
reimbursement of apportioned expenses relating Fields. It is an approved research-facility in the field
to license fees for software? of Biomedical and Biotechnical and is the owner
of several patents. In the year under assessment,
Held the assessee received a sum from BSV Research
and Development Pvt. Ltd. as consideration for
It was held by the Hon’ble ITAT that the amount in assignment of know how relating to scientific,
question paid by the assessee was not in the nature medical and technical documents relating to
of royalty. It was held that since the said amount development and manufacture of non-pegylated
was paid towards purchase of software, it would liposomal doxorubicin an oncology product under
have been assessable as business profits in the hands development. The assessee claimed this amount as
of Netherland based AE and since the said AE did exempt as capital receipt. However, the AO

Ahmedabad Chartered Accountants Journal June, 2019 145

Tribunal News taken as Nil. The Hon’ble ITAT accordingly held
that the cost of acquisition of know-how
concluded that thesaid receipt is chargeable to tax underdevelopment being a self-generated asset is
u/s 41(3) of the Act. Aggrieved, theassessee filed not ascertainable, and hence, no chargeable capital
an appeal before the CIT(A) who held the gains would arise. Hence, the appeal of the revenue
saidamount to be taxable as capital gain as per the was dismissed and the appeal of the assessee was
provisions of Section55(2)(a) instead of u/s 41(3). allowed.
Aggrieved, both the revenue as well as the assessee
filed an appeal before the Hon’ble ITAT. ACIT v. ESPN Star Sports Mauritius

Issue 17 SNC et Companies103 taxmann.com
189 (Del)
Whether sum received on assignment of know- Assessment year: 2010-11 Order Dated:
how (being self generated asset)is taxable as 4th December, 2018
revenue income or as capital gains?
Basic Facts
Held
The assesse is a partnership firm established under
On perusal of the agreement between assessee and the laws of Mauritius. It is engaged in the business
BSV research and development Pvt. Ltd., the of acquiring and allotting advertisement time and
Hon’ble ITAT noted that the asset, which was the program sponsorship of ESPN Channels. It entered
subject matter of transfer, was research that was into an agreement with ESPN India whereby
under development in respect of “Non-Pegylated ESPN India acquires advertisement time from the
Liposomal Doxorubicin”. Hence, the assessee allots it to various India advertisers and
saidtransaction would normally give rise to capital advertising agencies. ESPN India has deducted tax
gains chargeable to taxunder section 45. However, while making payment to the assessee. The
as held by the Hon’bleSupreme Court in CIT Vs. assessee, by assuming that it did not have any PE
B.C. Srinivasa Setty 128 ITR 294, thecomputation in India, claimed the with holding tax. The assessee
machinery for computation of capital gains should has shown interest income under section 244A in
failwhere the cost of acquisition of the asset, which its ROI. Since the assessee had undertaken
is the subject matterof transfer, is not ascertainable. international transactions with its AE the AO made
In the present casethe know-how under a reference under section 92CA(1) to the Transfer
development is a self-generated asset of whichthe Pricing Officer (TPO). The TPO proposed NIL
cost of acquisition cannot be ascertained, and variation in the returned income. However, the AO
therefore, the consideration for the transfer thereof held the income of the assessee taxable under section
cannot be brought to tax under the head ‘capital 9(1) consequent to his finding that the assessee has
gains’ as the computation mechanism fails. The a PE in India. Accordingly, the AO, vide his draft
know-how was under development and therefore, assessment order, proposed to tax the income of
as a consequence of its transfer, the transferee did the assesse On appeal, the DRP held that the
not acquire any right tomanufacture, produce or assessee is not an ‘eligible assessee’ in accordance
process any article or thing at this stage. Further, with section 144C(15)(b) as neither the TPO
the Hon’ble ITAT noted that the simplicitier transfer proposed any variation in the returned income nor
of knowhow cannot be equated to aright to the assessee is a foreign company. Thus, the DRP
manufacture as contemplated by section 55(2)(a). held that it had no jurisdiction over the case and
The knowhow when fully developed would accordingly, declined to issue any direction in this
‘enable’ manufacture or productionor processing of case and dismissed the proceedings. Thereafter, the
an article or thing. However, it would not give any AO passed the final assessment order under section
‘right’ in respect thereof. Thus, the Hon’ble ITAT 143(3) and filed the appeal before Hon’ble ITAT.
held that the CIT(A) was not justified in holding
that the capital gains should be computed withthe cocnontdtd. o. nonppagaegenno.o.19768
cost of acquisition in respect of the said asset being

146 Ahmedabad Chartered Accountants Journal June, 2019

Unreported
Judgements

CA. Sanjay R. Shah
[email protected]

In this issue we are giving full text of the decision Opp Telephone Exchange
rendered by the ‘B’Bench of Ahmedabad Tribunal C G Road, Ahmedabad 380 009
in the matter of Jignesh Virambhai Rabari [PAN:ABMPR1210J]
explaining the principle of consistency. In the facts
of the case, the department had sought to tax the Appearances by
amount received by the assessee under income from N R Soni for the appellant
other sources as against which the CIT(A) following P M Mehta for the respondent
his earlier year’s order directed AO to tax it as long
term capital gain. The department carried the matter Date of concluding the hearing : June 04, 2019
to Tribunal which held that when in the
immediately preceding year on identical facts, the Date of pronouncement : June 04, 2019
order of CIT(A) has been not taken in further appeal
by the department, it has settled the position between ORDER
the parties and therefore in the subsequent year
department cannot take a different stand on the Per Pramod Kumar, VP:
similar set of facts. Department tried to distinguish
the facts of the earlier year on the ground that in the 1. By way of this appeal, the Assessing Officer
earlier year the dispute before CIT(A) was in has challenged correctness of the order dated 8th
relation to whether the income should be taxed as November 2016 passed by the CIT(A) in the
business income or as capital gain whereas in the matter of assessment under section 143(3) of the
current year the controversy is whether it should Income Tax Act, 1961, for the assessment year
be taxed as income from other sources or under 2012-13, on the following ground:
capital gain. This contention of the department was
also rejected by the Tribunal. The Tribunal relied The learned CIT(A) has erred in law and
on several Supreme Court decisions which are on facts by taxing the amount of Rs
mentioned in the order. 9,62,46,603 under the head ‘long term
capital gain’ and not under the head
In the Income Tax Appellate Tribunal, ‘income from other sources’
Ahmedabad Bench, Ahmedabad
2. The issue in appeal lies in a very narrow compass
[Coram: Justice P P Bhatt, President and of material facts. During the course of scrutiny
Pramod Kumar, Vice President] assessment proceedings, the Assessing Officer
noticed that the assessee has shown long term
ITA No.: 363/Ahd/17 capital gains,in respect of sale of three properties
Assessment year: 2012-13 at SurveyNo.55/1,55/2 and 55/3 Anjana for Rs
9,62,46,603. It was explained by the assessee
Assistant Commissioner of Income Tax that under a common memorandum of
Circle 5(2), Ahmedabad……………..Appellant understanding, the assessee had entered into
Vs agreement with respect to 6 pieces of land,
Jignesh Virambhai Rabari..…........Respondent including these pieces of land, i.e. 55/1, 55/2.
B 3, Status Apartments, Near Madhusudan House, 55/3, 56 paiki, 56/3 and 56/2 paiki. The capital
gain was on account of the rights so earned in
respect of a part of these six properties, i.e.
Survey No. 55/1, 55/2 and 55/3. The requisite

Ahmedabad Chartered Accountants Journal June, 2019 147

Unreported Judgments grounds that as the assessee is not the owner of
the land it cannot be treated as income from
details in support of this stand were also capital gain and over a period of time the
furnished. That, however, did not impress the assessee has acquired various lands at different
Assessing Officer. The Assessing Officer was places which shows that the assessee is in the
of the view that the assessee did not have business of sale of land. On the other hand, the
sufficient evidence of ownership of properties appellant’s main contention is that he has made
or of rights in these properties. He was of the advance payment towards the purchase of land
view that since purchase deed is not shown by due to which he acquires right in the said land
the assessee, the assessee cannot be treated as which is enforceable in the law and if the seller
owner of the properties in question. The tries to sale the land to the third party without
evidences given by the assessee, with respect his consent he can challenge the action of the
of his rights in the properties, were discussed in seller. ‘In the sale deed, the appellant is shown
details and rejected as unacceptable. It was also as confirming party and received payments as
noted that the payment under the Memorandum compensation for relinquishing his right to
of Understanding, which is said to reflect and purchase the said land. Advance payment
evidence the rights of the assessee, are in cash towards the purchase of land creates a right in
and that the MoU is unregistered. Thus rejecting the hand of the appellant and it is further
the bonafides of the asset in respect of which confirmed by the sale deed where the appellant
capital gains were shown, the Assessing Officer has become a confirming party. If no right was
proceeded to treat the entire amount as income vested with the appellant then there was no need
from other sources. Aggrieved, assessee carried for the inclusion of the name of the appellant
the matter in appeal before the CIT(A). Learned as confirming party in the sale deed. From the
CIT(A) noted that on common set of facts, in perusal of Section 2(47) of the Act it is clear
the immediately preceding assessment year, he that transfer includes sale, exchange or
has held that the gains on the sale of remaining relinquishment of asset or extinguishment of
three pieces of land are to be treated as capital any right therein. Here in the present case the
gains, and the matter rests there. Respectfully appellant has extinguished his right to purchase
following his own order in assessee’s own case the land and for this, he has received an amount
for the immediately preceding assessment year, of Rs.5.26 crore. Considering this the amount
the CIT(A) rejected the stand of the Assessing received by the appellant is comes under the
Officer for treating the gains in question as head income from capitalgain.
‘income from other sources’, the CIT(A) held
that the amount of Rs 9,62,46,603 is required to 5. The order so followed by the CIT(A) has
be taxed as capital gains. The stand of the reached finality inasmuch as the revenue
assessee was thus upheld. Aggrieved by the authorities have not challenged this order before
relief so granted by the CIT(A), the Assessing the Tribunal, or, for that purpose, before any
Officer is in appeal beforeus. other authority. In view of this position, it is
clear that the gains on sale of properties covered
3. We have heard the rival contentions, perused by the same MoU, and extinguishment of rights
the material on record and duly considered facts coming into existence by the same MoU, have
of the case in the light of the applicable been held to be capital gains by an appellate
legalposition. order passed by the CIT(A), and, the matter
has reached finality at that. Clearly, the issue
4. We have noticed that the CIT(A), in the regarding bonafides of the existence of rights
impugned order, has merely followed his own stands resolved by the CIT(A) last year and
order in assessee’s own case for the immediately the matter has reached finality at that stage.
preceding assessment year wherein it was, inter
alia, observed as follows:

The facts of the case and the submissions are
considered. The AO has treated the said receipt
as income from business mainly on two

148 Ahmedabad Chartered Accountants Journal June, 2019

Unreported Judgments

What is before us is essentially the same issue Assessing Officer was for taxation of gains was
under the same MoU and same transaction. In as business income or as income from other
this factual backdrop, we may refer to the sources is not at all relevant, nor has it met the
following observations made by Hon’ble judicial approval anyway. We reject the plea
Supreme Court in the case of Radhasoami of the learned DepartmentalRepresentative.
Satsang Vs CIT [(1992) 192 ITR 321(SC)]:
8. We may also add that in the case of Union of
We are aware of the fact that strictly speaking India v. Kaumudini Narayan Dalal [2001] 249
res judicata does not apply to income-tax ITR 219, Hon’ble Supreme Court had an
proceedings. Again, each assessment year occasion to consider whether it is open to
being a unit, what is decided in one year may revenue to accept a judgment in the case of
not apply in the following year but where a one assessee, and appeal, against the identical
fundamental aspect permeating through the judgment in the case of another. Their Lordships
different assessment years has been found as a held that such a differential treatment on the
fact one way or the other and parties have same set of facts was not permissible in law,
allowed that position to be sustained by not and observed that, “it is not open to revenue to
challenging the order, it would not be at all accept the judgment in the case of the assessee
appropriate to allow the position to be changed in that case and challenge its correctness in the
in a subsequentyear. case of another assessee, without just cause.”
The same view was reiterated by the Hon’ble
6. In this view of the matter, the grievance of the Supreme Court in the case of Berger Paints
Assessing Officer is devoid of any legally India Ltd. v. CIT [2004] 266 ITR 992, and
sustainable merits. Once a factual aspect of the followed by the Hon’ble Delhi High Court
matter is settled in one way in one particular in the cases of CWT v. R.K.K.R. International
year by way of an appellate order, and the (P.) Ltd. [2005] 198 CTR 567 and CIT v. Neo
parties have sustained that position by not Poly Pack Pvt. Ltd. [2000] 245 ITR 492.
challenging that order, it cannot be open to the
parties to challenge the same in a subsequent 9. When it cannot be open to revenue authorities
year. The rule of consistency holds good in this to challenge the relief granted by the CIT(A)
context, and the same issue cannot bereagitated. in one case, when on identical issue the order
has not been challenged in the other case, it is
7. Learned Departmental Representative has only elementary that when the relief granted
submitted that in the immediately preceding by the CIT(A) is accepted in one case in one
assessment year, the taxation of gains was as year, it cannot be open to the revenue authorities
business income and not as income from other to challenge identical relief in the other year.
sources, and, it is for this reason that the decision Viewed thus, the appeal is not maintainable for
of the immediately preceding year will not hold this reason aswell.
good in the present context. That plea is only
fit to be noted and rejected. What is material is 10. In view of the above discussions, as also
the finding of the CIT(A) which has remained bearing in mind entirety of the case, we
uncontroverted and which has been allowed approve the stand of the CIT(A) and decline to
to be sustained, and that finding is that the gains interfere in the matter. The grievance of the
on sale of properties in question are to be taxed Assessing Officer does not have legally
as capital gains. There is also uncontroverted sustainable merits.
finding about existence of rights extinguishment
of which has resulted in these gains. These are 11. In the result, the appeal is dismissed.
the material aspects of the order which has Pronounced in the open court today on the 4th
attained finality, and which are crucial in the day of June,2019.
present context. Whether the stand of the hhh

Ahmedabad Chartered Accountants Journal June, 2019 149

Controversies

CA. Kaushik D. Shah
[email protected].

Issues company and they have been shown as assets
of the assessee company.
- When Motor car is held in the name of director
but it is owned by the company. Whether - Hence, in our view, the assessee company
depreciation can be allowed to the company. should be considered as owner for all practical
purpose and hence is entitled for depreciation.
- The payment of motor car is made by the
company but it is held in the name of the - Let me refer to decision of Ahmedabad bench
Director. Issue arises whether company can “D” in the case of Swagat infrastructure Ltd.
claim depreciation on such motor car which is Vs JT. Commissioner of income tax, Range-8,
held in the name of Director. Ahmedabad ITA no. 2084/ Ahd/ 2012
Assessment year 2009-10.
Proposition
- The Hon’bleITAT held as under:
- When Motor car is owned by the Company
and payment is also made by the company “AR of the assessee submitted that the
though such motor car is held in the name of disallowance is not justified on the ground that
Director. It is proposed that company is entitled the vehicles were registered in the name of the
to claim depreciation. Director. He submitted that the view taken by
the authorities below is contrary to the ratio laid
View in favour of the proposition by the Hon’bleSupreme Court rendered in the
case of Mysore Minerals Ltd. v. CIT (1999)
- Let me refer to the case of CIT vs Aravali 239 ITR 775 (SC). He submitted that the
Finance ltd.(2012) 341 ITR 0282in which vehicles were purchased in the name of Director
Gujarat high court held that, Depreciation is by the assessee-company and resolution to this
allowable in the hands of the company, even if effect was duly made.”
it is registered in the name of it’s director
provided that vehicle is used for the purpose of “He submitted that the consideration of vehicle
business of company and income derived there were made out of the fund interest on bank loan
from was shown as income of company. In the was also made out of the assessee-company’s
instant case there is no dispute with regard to account. The vehicles are used for the purpose
the fact that the vehicles are used for the purpose of company’s business. He submitted that the
of business of the assessee company. authorities below disallowed the claim on
flimsy ground merely on the basis that assessee-
- Even in the case Basti Sugar Mills Co. Ltd. company was not the owner of the vehicles
(supra)2002 123 ITR 693 Delhi in which Delhi registered in the name of Director.”
high court held that since a vehicle is movable
asset, the registration as required in the case of View against the proposition
transfer of immovable property is not a
condition precedent for vehicle ownership. In - Ld. DR of the Revenue strongly supported the
the instant case, the fund for purchase of orders of authorities below and submitted that
vehicles have been provided by assessee the disallowance was not made merely on the

150 Ahmedabad Chartered Accountants Journal June, 2019

ground that assessee was not the owner but Controversies
disallowance was ITA No.2084/Ahd/2012
A.Y. 2009-10 Swagat Infra. Ltd. v. JCIT, Rng- - It was held by Ahmedabad bench “D” ITA
8, A’bd Page 6 also made on the basis that the No.2084/Ahd/2012 A.Y. 2009-10 Swagat
assessee could not give details in support of its Infra. Ltd. v. JCIT, Rng-8, A’bd Page 6 as
claim that the vehicles were utilized only for under:
the purpose of assessee’s business.
“In the present case, the assessee has made
- It is further submitted that when the motor car submission that the cars were purchased in the
is registered and held in the name of director, name of the Director and such cars are utilized
the depreciation cannot be allowed to the for the purposes of its business. Therefore the
company. assessee is entitled for depreciation and the
interest expenditure. We are of the considered
- It is further submitted that though the company opinion that the assessee would be entitled for
has made payment for motor car. It is the the allowance depreciation as well as interest
payment made for the director and director can expenditure if the assessee is able to prove that
only claim depreciation. Director cannot be held the vehicles were under the dominion control
benami of the company. At the most it can be of the assessee-company and were utilized for
concluded that company has advanced loan to its business purpose. The contention of the
the director for acquiring the motor car and assessee is that the vehicles were utilized for
director is only entitled to depreciation and not business purpose and the assessee-company has
the company. shown it in block of assets.”

Summation - In view of above, law appears to be very clear
and that is if the payment for the car is made by
Let me refer to the decision of the lordship of the company and the car is utilized for the
supreme court in the case of Mysore Minerals Ltd. purpose of business of company though car is
Vs CIT (1999) 239 ITR 775 (SC): registered in the name of director depreciation
will be available to the company.
- As per theSection 32(1) of the Act depreciation
is allowable if the machinery is owned wholly - It is further held in the case of Swagat
and partly by the assessee, however, the infrastructure Ltd. Vs JT. Commissioner of
Hon’ble Supreme Court has further enlarged income tax “We find that this contention of the
this scope of word “own” in its judgment assessee is not considered by the authorities
rendered in the case of Mysore Minerals Ltd. below in the light of the ratio laid by Hon’ble
(supra), wherein the Hon’ble Apex court has Supreme Court rendered in the case of Mysore
held that the provisions should be so interpreted Minerals Ltd. (supra). Respectfully following
and the words used therein should be assigned the ratio laid by the Hon’ble Supreme Court in
such meaning as would enable the assessee to the case of Mysore Minerals Ltd. (supra) we
secure the benefit intended to be given by the allow ITA No.2084/Ahd/2012 A.Y. 2009-10
Legislature to the assessee. It has been held that Swagat Infra. Ltd. v. JCIT, Rng-8, A’bd Page
the terms “owned” “ownership” and “own” are 7 this ground of assessee’s appeal and direct
generic terms. They have wide and also narrow the Assessing Officer to delete the addition.”
connotation. The meaning would depend on
the context in which the term are used. hhh

Ahmedabad Chartered Accountants Journal June, 2019 151

Judicial
Analysis

Advocate Tushar Hemani
[email protected]

Some useful judgments on maintainability of served a notice of his intention of treating
prosecution against Directors u/s 276B of the him as the principal officer thereof.’
Act.
8.3 By the impugned order dated 03-11-2014,
2 Kalanithi Maran v. Union of India, New while naming the petitioner as the Principal
Delhi [2018] 92 taxmann.com 308 officer, the 2nd respondent also held that the
(Madras) petitioner is liable for prosecution under section
276B of the Income Tax Act. Section 278B
xxx… deals with the offence committed by the
companies. Therefore, it would be appropriate
8.1 The next issue that arise for consideration is to extract Sections 276B and 278B, which
whether the petitioner can be construed as the reads as follows:-
Principal Officer as held by the 2nd respondent.
“276B. If a person fails to pay to the credit of
8.2 The petitioner contended that he is a Non- the Central Government,—
Executive Chairman of the Board of Directors
of M/s. Spice Jet Limited. The corporate office (a) the tax deducted at source by him as
of the company is at Delhi and that the entire required by or under the provisions of
Management and Control of the company is Chapter XVII-B; or
operated from Delhi by the Managing Director
and other Managerial Staff. Further, the (b) the tax payable by him, as required by
petitioner contended that he is not involved in or under—
the day-to-day affairs of the company operating
from Delhi and that he is not drawing any salary (i) sub-section (2) of section 115-O;
from the company and that he is not an or
employee of the company. The Principal Officer
has been specified under Section 2(35) of the (ii) the second proviso to section
Income Tax Act, 1961, which reads as follows: 194B,he shall be punishable with
rigorous imprisonment for a term
‘Section 2(35) “principal officer”, used with which shall not be less than three
reference to a local authority or a company or months but which may extend to
any other public body or any association of seven years and with fine.
persons or any body of individuals, means—
278B. (1) Where an offence under thisAct has
(a) the secretary, treasurer, manager or agent been committed by a company 58,
of the authority, company, association or every person who, at the time the
body, or offence was committed, was in charge
of, and was responsible to, the
(b) any person connected with the company for the conduct of the
management or administration of the local business of the company as well as the
authority, company, association or body company shall be deemed to be guilty
upon whom the 59 [Assessing] Officer has of the offence and shall be liable to be
proceeded against and punished
accordingly.”

152 Ahmedabad Chartered Accountants Journal June, 2019

Judicial Analysis

8.4 During the Survey Operations, the Chief Managing Director has stated that the order
Financial Officer of the company, viz., Mr. R. issued against the Chairman holding him to be
Neelakantan gave a statement, which was the Principal Officer within the meanings of
recorded on 04-08-2014. In the said survey section 2(35) of the Income Tax Act may be
operations, the Chief Financial Officer has stated recalled, since he is not connected with the
that one Mr. Manish Jain, Assistant Manager management and not involved in the decision
(Taxation) is responsible for TDS. Thereafter, making day-to-day affairs of the company.
the 2nd respondent had issued a show cause
notice dated 01-09-2014 to the petitioner at the 8.6 The company has sent a detailed reply placing
Chennai residence and to one Mr. Rakesh reliance on the fact that there was reasonable
Kumar, DGM (Finance & Taxation) at IGI cause for the delay and that TDS proceedings
Airport, Delhi as to why the petitioner and the are pending and sought not to treat Mr.Rakesh
said Mr. Rakesh Kumar should not be treated as Kumar, Deputy General Manager (Finance &
Principal officers. The petitioner sent his reply Taxation) as the Principal Officer. The
on 23-09-2014 wherein he has stated that the respondents accepting the said reply of the
Managing Director, Chief Financial Officer and company had not treated the said Mr.Rakesh
Chief Operating Officer are involved in the day- Kumar, Deputy General Manager (Finance &
to-day affairs of the company. On receipt of the Taxation) who was in charge in the helm of
said notice, the 2nd respondent had issued a administration and affairs of the company as
show cause notice to the Managing Director, viz., the Deputy General Manager (Finance &
Mr.K.Natrajhen, as to why he should not be Taxation) as the Principal Officer.
treated as the Principal Officer. In the said show
cause notice, the 2ndrespondent has also 8.7 Under section 2(35)(b) of the Income Tax Act,
mentioned the reply sent by the petitioner on the Assessing Officer can serve notice only to
23-09-2014 stating that the company is persons who are connected with the
professionally run by the Managing Director, management or administration of the company
who is in-charge of the day-to-day affairs of the to treat them as Principal Officer.
company. In the said notice, the 2nd respondent
also informed the Managing Director that 8.8 Section 278B of the Income Tax Act clearly
prosecution under section 276B of the Income states that it shall not render any such person
Tax Act will be taken against him. liable to any punishment, if he proves that
offence was committed without his knowledge.
8.5 For the show cause notice issued to the
Managing Director, he sent a reply dated 26- 8.9 In the case on hand, the petitioner has stated
11-2014 specifically stating that the petitioner that he was not involved in the day-to-day
is only a Non-Executive Director in the affairs of the company and that he is only a
company who is based at Chennai and is not Non-Executive Chairman and not involved in
involved with the day-to-day management of the management and administration of the
the company and has not made any visits to company. Whereas, the Managing Director,
the company till date. The Managing Director viz., Mr. K. Natrajhen himself has specifically
has also stated that the petitioner is not at all stated that he is the person in charge of the day-
responsible for the administration and the to-day affairs of the company.
management of the company and that he does
not draw any salary or remuneration from the 8.10 The 2nd respondent, while passing the
salary and attends the Board Meetings only in impugned order naming the petitioner as the
the Non-Executive capacity, for which he does Principal Officer, has not given any reason for
not even get any sitting fees. Further, the rejecting the contention of the Managing
Director. When the Managing Director himself
has stated that he is the person who is in charge
of the day-to-day affairs of the management

Ahmedabad Chartered Accountants Journal June, 2019 153

Judicial Analysis conduct of the company is not sufficient to hold
that the petitioner is the Principal Officer. There
and administration of the company and that the should be credible material to show his active
petitioner is not so, the 2nd respondent without involvement in the conduct and management
any reason has named the petitioner as the and business of the Company.
Principal Officer. Merely because the petitioner
is the Non-Executive Chairman, it cannot be 9.2 As already stated, the Managing Director, viz.,
stated that he is in charge of the day-to-day Mr.K.Natrajhen, himself has stated that he is
affairs, management and administration of the responsible for the day- to-day affairs of the
company. The 2nd respondent should have company. That apart, a show cause notice was
given the reasons for not accepting the case of also issued to the Managing Director by the 2nd
the Managing Director as well as the petitioner respondent. The Chief Financial Officer of the
in their respective reply. company, viz., Mr.R.Neelakantan has also stated
that one Mr. Manish Jain, Assistant Manager
8.11 The conclusion of the 2nd respondent that the (Taxation) is responsible for the TDS. Further,
petitioner being a Chairman and major to the show cause notice sent to Mr.Rakesh
decisions are taken in the company under his Kumar, Deputy General Manager (Finance &
administration is not supported by any material Taxation), the company has sent a detailed reply
evidence or any legally sustainable reasons. wherein the company has stated that the said
Rakesh Kumar should not be treated as the
9.1 It is pertinent to note that the 2nd respondent Principal Officer, which was accepted by the
has not produced any material to establish that 2nd respondent and the said Rakesh Kumar was
the petitioner was responsible for the day-to- not named as the Principal Officer.
day affairs of the company. In the absence of
any material, the 2nd respondent should not 9.3 On the contrary, even without any materials
have come to the conclusion that the petitioner and also not considering the stand taken by the
is the Principal Officer. The reasoning given Managing Director and also the Chief Financial
by the 2nd respondent are without any materials Officer of the Company, the 2nd respondent
to substantiate the same. Unless the 2nd arrayed the petitioner as the Principal Officer.
respondent make out a prima facie case against The 2nd respondent has not given any reason
the petitioner of his liability and obligation as for rejecting the stand of the Managing Director
Principal Officer in the day- to-day affairs of and the Chief Financial Officer of the company.
the company as Chairman-cum-Director of the
company, under section 278B of the Income 10.1 It is also pertinent to note that there was a
Tax Act, the petitioner could not be prosecuted meeting between the company officials and the
for the offence committed by the company. In respondents in order to facilitate to pay the TDS
the absence of any material, the show cause on a payment plan basis and the company has
notice itself, prima facie disclosing the submitted its plan on 12-08-2014 and the said
responsibility of the petitioner for the running plan was accepted by the 2nd respondent by
of the day- to-day affairs of the company letter dated 02-09-2014. Thereafter, the
process, could not have been issued against him. company has also made payments towards
The petitioner cannot be made to undergo the TDS and it is informed to this court by the
ordeal of a trial unless it could be prima facie learned Senior Counsel appearing for the
disputed that he was legally liable for the failure petitioner that the company had paid the entire
of the company in paying the amount deducted arrears of TDS and as on date, there are no
to the credit of the company. Otherwise, it TDS arrears payable by the company.
would be a travesty of justice to prosecute the
petitioner and ask him to prove that the offence 10.2 The criminal proceedings have been initiated
is committed without his knowledge. A mere against the company in C.C.No.103 of 2014.
allegation that the petitioner is incharge of the

154 Ahmedabad Chartered Accountants Journal June, 2019

The petitioner and the Managing Director are Judicial Analysis
facing the trial and they have not filed any
petition to quash the criminal proceedings. Only 12. The judgment relied upon by the learned Senior
the petitioner has filed a petition to quash the Counsel appearing for the petitioner squarely
criminal proceedings before the Delhi High applies to the facts and circumstances of the
Court and the said quash petition is pending. present case.
Since the criminal complaint was registered in
Delhi High Court and trial is going to be 13. Though there is no dispute with regard to the
conducted only in Delhi, a petition to quash ratio laid down in the judgments relied upon
the criminal proceedings would arise only by the learned Additional Solicitor General
before the Delhi High Court. The petitioner has appearing for the respondents, since the facts
specifically averred even in the quash petition and circumstances of the present case differs,
filed before the Delhi High court that he is not the said judgments are not applicable.
involved in the day-to-day affairs, management
and administration of the company. 14. In these circumstances, the impugned order
dated 03-11-2014 is liable to be set aside.
11.1 Since the impugned order was served on the Accordingly, the same is set aside.
petitioner at Chennai, he has filed the writ
petition before this court to quash the impugned xxx…
order dated 03-11-2014.
3 Income Tax Officer v. Delhi Iron Works
11.2 Though the petitioner and his company were (P.) Ltd. [2010] 195 Taxman 372 (Delhi)
holding more than 50% shares, in the absence
of any material to establish that the petitioner xxx…
was in charge of the day-to-day affairs,
management, and administration of the 3. Briefly stated, facts of the case are that the
company, the 2nd respondent should not have petitioner had filed complaints before the
named him as the Principal Officer. ACMM praying therein that the respondent be
summoned, tried and punished under Section
11.3 The main criteria treating a person as the 276B of the Act. It was alleged that the
Principal Officer is he should have been in respondent No. 1 was a private limited
charge of the management, administration and company; while respondent No. 3 was its
day-to-day affairs of the company. It was also Director and “Principal Officer” and was
stated by the Managing Director that the responsible for managing the day-to-day affairs
petitioner is only a Non-Executive Director in of the company. Respondents had failed to
the company, who is based at Chennai and is deduct the tax at source (TDS) from the interest
not involved with the day-to- day management paid to M/s Bhanamal & Co. (P) Ltd., M/s
of the company and has not made any visits to Banwari Lal & Sons (P) Ltd. and M/s
the company till date as he does not draw any Bhanamal Gulzari Mal (P) Ltd., and deposit
salary or remuneration from the company and the same with the Income Tax Department,
attends the Board Meetings only in the Non- within the prescribed period, thus, had
Executive capacity, for which, he does not even committed offence punishable under Section
get any sitting fees. 276B of the Act. Respondent No. 3 was
impleaded as an accused being “principal
11.4 For the reasons stated above, it is clear that officer” of the company within the meaning of
the petitioner was not involved in the Section 2(35) of the Act.
management, administration and the day-to-
day affairs of the company, therefore, the 4. Charge under Section 276B IPC was framed
petitioner cannot be treated as Principal Officer. against the respondents to which they pleaded
not guilty and claimed trial.

5. After holding trial, while respondent No. 1 was
convicted under Section 276B of the Act,

Ahmedabad Chartered Accountants Journal June, 2019 155

Judicial Analysis securities” other than payments made by
or on behalf of the Central Government or
respondent no. 3 has been acquitted on the the Government of a State, the local
ground that no notice was served on him under authority, corporation or company,
Section 2(35) of theAct treating him as “principal including the principal officer thereof;
officer”, before launching the prosecution under
Section 276B of the Act, in as much as, the (iia) In the case of any sum payable to a non-
notice issued to the company was defective in resident Indian, being any sum representing
the sense it was not mentioned therein, that the consideration for the transfer by him of any
department intended to treat the directors of the foreign exchange asset, which is not a
company as “principal officers”. Respondent short-term capital asset, the authorised
No. 3 has been acquitted for the non-compliance dealer responsible for remitting such sum
of Section 2(35) of the Act. to the non-resident Indian or for crediting
such sum to his Non-resident (External)
6. For the discussions made hereinafter, I do not Account maintained in accordance with
find the view taken by ACMM to be perverse the Foreign Exchange Regulation Act,
or suffering from any manifest error, 1973 (46 of 1973), and any rules made
necessitating the grant of leave to appeal to thereunder;
petitioner.
(iii) In the case of credit, or, as the case may
7. Section 194A of the Act mandates the be, payment of any other sum chargeable
deduction of tax at source on the credit or under the provisions of this Act, the payer
payment of interest other than “interest on himself, or, if the payer is a company, the
securities”. Section 194A(4) uses the company itself including the principal
expression “the person responsible for making officer thereof.’
the payment”. Section 204 of the Act defines
the expression “person responsible for paying”. 8. Perusal of Section 204(iii) clearly shows that
Relevant would it be to refer to Section 204 of in case of a company, the company itself,
the Act, which reads as under :— including the principal officer thereof, would
be responsible to deduct the tax at source and
‘Section 204: Meaning of “Person responsible deposit it with the department.
for paying”—
9. Infringement of Section 194A(4) is an offence
For the purposes of sections 192 to 194, section punishable under Section 276B of the Act. In
194A, section 194B, section 194BB, section case an offence is committed by a company,
194C, section 194D, section 194E, section the prosecution for the offence under Section
194EE, section 194F, section 194G, section 276B has to be launched against the company
194H, section 194-I, section 194J and sections itself and its principal officer.
194K, 194L sections 195 to 203 and section
285, the expression “person responsible for 10. Section 2(35) of the Act defines the expression
paying” means - “principal officer”. Relevant it would be to refer
to Section 2(35) herein which reads as under:-
(i) In the case of payment of income
chargeable under the head “Salaries” other ‘(35) “principal officer”, used with reference
than payments by the Central Government to a local authority or a company or any
or the Government of a State, the employer other public body or any association of
himself or, if the employer is a company, persons or any body of individuals, means-
the company itself, including the principal
officer thereof; (a) the secretary, treasurer, manager or agent
of the authority, company or association,
(ii) In the case of payments of income or body, or
chargeable under the head “Interest on

156 Ahmedabad Chartered Accountants Journal June, 2019

(b) any person connected with the Judicial Analysis
management or administration of the local
authority, company, association or body that before a prosecution under Section 276B
upon whom the Assessing Officer has of the Act can be launched against the director
served a notice of his intention of treating he should have been notified that department/
him as the principal officer thereof;’ AO has intention of treating him as “principal
officer” of the company. In absence of such
11. A perusal of the aforesaid provision clearly notice under Section 2(35)(b) of the Act,
shows that the director is not included within prosecution against the director cannot be
the ambit of Sub-clause (a) of Section 2(35) of continued and is bound to fail.
the Act. In case the Income Tax Officer seeks
to prosecute the director along with the 15. In Madhumilan Syntex Ltd. v. Union of India
company for an offence punishable under [2007] 290 ITR 199 (SC),the Supreme Court
Section 276B of the Act, then he has to issue a has held as under:-
notice under Sub-clause (b) of section 2(35) of
the Act expressing his intention to treat the ‘To treat the directors of a company as “principal
director as “principal officer” of the company. officers” there is no need to issue a separate
notice or communication to them that they are
12. In this case, admittedly, no notice, as was to be treated as “principal officers”, before the
required under Section 2(35) of the Act, had issuance of the show-cause notice under section
been issued to respondent No.3. Only a show- 276B read with section 278B. It is sufficient
cause notice was issued to the company that in the show-cause notice under section
wherein it was not mentioned that Assessing 276B read with Section 278B, it is stated that
Officer intended to treat the director of the the directors are to be considered as principal
company as “principal officer” for the purpose officers of the company under the Act and such
of launching prosecution under Section 276B a complaint is entertainable by the court
of the Act. provided it is otherwise maintainable.’
[Emphasis supplied]
13. In Greatway (P) Ltd. v. Asstt. CIT [1993] 199
ITR 391, Punjab & Haryana High Court has 16. Legal preposition which emerges from the
held that in the absence of appointment of a above is that before launching a prosecution
principal officer by issuing a notice by the AO, under Section 276B of the Act against the
the prosecution, if any, could only be launched directors of a company, Assessing Officer has
against the petitioner-company. Similar is the to issue notice under Section 2(35) of the Act
view expressed in ITO v. Roshini Cold Storage expressing his intention to treat such directors
(P) Ltd. [2000] 245 ITR 322 (Mad). In this of a company as “principal officers”. However,
case Madras High Court held that in case it may not be necessary to issue a separate notice
Income Tax Officer sought to prosecute the or communication to all the directors that they
director along with company for an offence are to be treated as “principal officers”. It would
under Section 276B of the Act then it was be sufficient compliance if in the show-cause
incumbent upon him to issue a notice under notice issued to the company it is mentioned
sub-clause (b) of section 2(35) of the Act that the directors are to be considered as
expressing his intention to treat the director as principal officers of the company under the Act.
“principal officer” of the company and in
absence thereof, director shall be entitled to the 17. In this case neither a notice was issued to
acquittal. respondent No. 3 under Section 2(35) of the
Act the department intended to treat him
14. In Sushil Suri v. State [2008] 303 ITR 86 “principal officer” nor in the show-cause notice
(Delhi), a Single Judge of this Court has held issued to the company it was mentioned that
department is intended to treat the directors of
the company as “principal officers”, for the

Ahmedabad Chartered Accountants Journal June, 2019 157

Judicial Analysis on September 1, 2005.A show-cause notice was
served upon the accused as to why the
purpose of launching prosecution under proceedings under section 276B of the Income-
Section 276B of the Act. tax Act be not initiated. It is alleged that the
company, accused No. 1 and its directors,
xxx… accused Nos. 2, 3 and 4, failed to deposit the
TDS amount in the credit of the Central
4 Om Prakash Katyal v. Union of India Government account and thereby committed an
[2009] 310 ITR 174 (Patna) offence under section 278B of the Income-tax
Act, punishable under section 276B of the said
Anwar Ahmad, J. — This is an application filed Act. So the present complaint petition was filed
under section 482 of the Code of Criminal in the court of the Presiding Officer, Special
Procedure, 1973, for quashing the entire Court, Economic Offences, Patna. The
proceedings of Complaint Case No. 2331C of 2006 Presiding Officer after perusal and consideration
and the order dated December 2, 2006, passed by of the complaint petition took cognizance of the
the Presiding Officer, Special Court, Economic offence under section 276B of the Income-tax
Offences, Patna, taking cognizance of the offence Act against the accused persons and ordered to
under section 276B of the Income-tax Act, 1961. issue notice/summons under the impugned order
dated December 2, 2006.
2. Mr. T.R. Rahman, Income-tax Officer, Ward No.
2(1), Patna, filed a petition of complaint duly 3. Learned lawyer for the petitioners submits that
authorised by the Commissioner of Income-tax- the petitioners are admittedly directors of M/s.
I, Patna, against M/s. Iceberg Industries Limited Iceberg Industries Limited having its registered
and its three partners who are petitioners here. It office at New Delhi. He submits that they are
is alleged that M/s. Iceberg Industries Limited, residents of New Delhi and in support of his
accused No. 1, is a company and Shri Om contention, he has filed copies of passports, vide
Prakash Katyal, Shri Amit Katyal and Shri annexure 2 series. He submits that the factory
Rajesh Katyal, accused Nos. 2, 3 and 4 are its of the company is situated at Bihta in the
directors and are responsible for any act and day- District of Parna and its local office is situated
to-day conduct of the business of the company. at 271, Patliputra Colony, Patna. He submits
It is stated that M/s. Iceberg Industries Limited, that the entire operation and management at
accused No. 1 has its registered office at New Patna is conducted through the officers,
Delhi and its business premises at Patliputra employees and consultants, appointed by the
Colony, Patna. It is alleged that in terms of company at Patna. He submits that the
sections 194C and 194-I of the Income-taxAct, allegation that the petitioners being the directors
accused No. 1 is required to deduct tax at source of the company are responsible for every act
on contract payments and rent payments and to and day-to-day conduct of the business of the
deposit the TDS amount to the Government company at Patna is totally incorrect and
account within the stipulated period. A survey contrary to the admitted records of the cases as
operation under section 133A of the Income- the petitioners are residents of New Delhi and
tax Act was conducted in the business premises are involved only in policy matters of the
of the company, accused No. 1, at Patna on company and day-to-day activities and routine
August 11, 2005, and during that course it was work are conducted through the officers,
detected that the accused persons named in the employees and consultants appointed by the
petition after deducting tax at source amounting company at Patna. He refers to section 278B
to Rs. 69,526 on contract payments made to the of the Income-tax Act which provides :
contractors and Rs. 80,736 on rent payments
made to the landlords for the financial year 2004- xxx…
05, failed to deposit the TDS amount to the credit
of the Central Government account.
Subsequently, the TDS amount was deposited

158 Ahmedabad Chartered Accountants Journal June, 2019

4. Learned lawyer submits that the company had Judicial Analysis
appointed competent officers and consultants to
deal with the company’s account at Patna relating the company’s account at Patna. He, therefore,
to the entire manufacturing operations of the submits that petitioners are not responsible for
company, sale and receipts of sale proceeds every act and day-to-day conduct of the business
received at Patna. They were responsible for of the company. He submits that since the
depositing the tax amount deducted at source at company came to know of the default in
Patna within the due date. He submits that due payment of TDS amount, the company paid the
to some oversight on the part of the consultant said TDS amount with interest within a short
who was appointed to deal with income-tax period of 20 days. He, therefore, submits that
matters, delay occurred in the deposit of the there is no mala fide intention and further there
aforesaid amount of TDS but immediately after has been no consent, connivance or negligence
the aforesaid delay in deposit of the amount came on the part of the petitioners. He, therefore,
to light, it was deposited on September 1, 2005, submits that the petitioners are innocent and,
i.e., within twenty days of the discovery of the hence, the impugned order be quashed.
default. He submits that the interest which had
accrued on the delay in deposit of the amount 6. Learned lawyer appearing on behalf of the
was also paid by a treasury challan. He submits Income-tax Department assailed the
that on receipt of the show-cause notice, the miscellaneous case on one ground that the
consultant of the company, namely, S. Kausik petitioners are responsible for the default in the
andAssociates, chartered accountants, submitted deposit of TDS amount and they being the
its reply that the company had appointed a directors of the company cannot escape from
chartered accountant to look after the financial the liability of default in deposit of the TDS
affairs of the company and the said chartered amount within due date. In support of his
accountant had kept the directors and the contention, he referred to a decision reported in
company in the dark towards the default [1992] 196 ITR 41. He, therefore, contended
committed with respect to the deposit of the TDS that the petitioners are responsible for the default
amount. He submits that as soon as the directors in deposit of the TDS amount within due date
came to know about the default in payment, the and, hence, the miscellaneous case be dismissed.
entire balance amount of TDS along with interest
was immediately deposited. So, he submits that 7. Learned lawyer for the petitioners pointed out
it is evident that there is no consent, connivance that in the aforesaid decision the director was
or any neglect on the part of the petitioners who the managing director and he verified the return
are directors of the company in default of the of income-tax of the company and, hence, he
deposit of the amount of TDS within due date. was made liable for the offence. He submits
He submits that bona fide of the company is quite that in the present case, the petitioners who are
evident from the fact that during the period 2004- directors are not the managing directors and
05 a total amount of Rs. 4,86,554 was deducted they have not participated in the deduction of
at source out of which due to some oversight on the tax at source and in depositing the same in
the part of the consultant some small amount the TDS account of the Government. He,
could not be deposited within the stipulated therefore, submits that aforesaid decision is not
period. applicable in the case of the petitioners.

5. Learned lawyer for the petitioners, therefore, 8. Considering the allegation, submissions
submits that petitioners are, of course, directors advanced on behalf the learned lawyer for the
of the company and the company had appointed petitioners the learned lawyer for the
competent officers and consultant to deal with prosecution, I am of the view that this is a fit
case for invoking the inherent jurisdiction to
prevent the abuse of the process of the court.

hhh

Ahmedabad Chartered Accountants Journal June, 2019 159

UAE enacts Economic
Substance rules

CA. Dhinal A. Shah CA. Sagar Shah
[email protected] [email protected]

Executive summary Union (EU) Code of Conduct Group (COCG) into
certain low or no corporate income tax regimes. In
The United Arab Emirates (UAE) enacted Cabinet recent years the EU has focused more directly on
Decision No.31 concerning setting the economic the tax policies of jurisdictions with zero or nominal
substance requirements on 30 April 2019. tax, and whether those jurisdictions require investors
to have sufficient economic substance before
Companies engaged in benefitting from preferential tax regimes on
geographically mobile resources. One outcome of
- banking, this work has been the publication of the EU list of
non-cooperative tax jurisdictions, which currently
- insurance, includes the UAE.

- fund management, In response to EU COCG initiatives, the
governments of Bahamas, Bermuda, British Virgin
- investment holding, Islands (BVI), Cayman Islands, Guernsey, Isle of
Man, Jersey, Mauritius and Seychelles introduced
- financing and leasing, economic substance rules with effect from 1 January
2019.
- distribution and service center,
The rules are based on the guidance and
- headquarter companies and requirements issued by the EU and the OECD, and
are designed to ensure that companies operating in
- intellectual property (IP) activities a low or no corporate tax jurisdiction have a
substantial purpose other than tax reduction and an
should review the effect of the new rules to ensure economic outcome that is aligned with value
they meet the substance requirements. creation. To align with the international standards,
the UAE has now enacted substance rules.
Failing to do so may result in penalties and fines,
spontaneous exchange of information, and UAE economic substance rules
potentially deregistration. The rules entered into
force on 30 April 2019. The UAE enacted economic substance rules on 30
April based on the EU recommendations outlined
Background in the scoping paper issued by the EU COCG on
22 June 2018 and OECD guidance on harmful tax
The enactment of the new economic substance practices in Action 5 of the BEPS action plan.
requirements is a result of the recent work
conducted by the Organisation for Economic Co-
operation and Development (OECD) under Action
5 of the Base Erosion and Profit Shifting (BEPS)
project, as well as an investigation by the European

160 Ahmedabad Chartered Accountants Journal June, 2019

The rules apply to companies engaged in core UAE enacts Economic Substance rules
income generating activities (CIGA) such as
banking, insurance, fund management, financing report to the competent authority, the UAE Ministry
and leasing, headquarter companies, shipping of Finance.
business, investment holding, IP activities and
distribution and service center. The scope of the It is expected that further executive regulations will
new provisions includes all companies carrying out be issued to provide more clarifications with respect
relevant activities except for any commercial to the provisions of the new economic substance
company owned directly or indirectly by the UAE regulations, including the implementation details.
Government or any subordinate government
authority. Implications

To meet the economic substance requirement, Corporate businesses, wealth management groups
companies will generally need to satisfy the and family offices with any relevant activities should
following three tests: assess whether the economic substance laws impact
their current and envisaged UAE operations.
1. The company should be directed and managed
in the UAE for the specific activity. Non-compliance could result in administrative
penalties for failure to meet the economic substance
2. The company’s CIGA should be performed in test (up to AED50,000 in the first financial period,
the UAE. and up to AED300,000 in subsequent financial
periods), administrative penalties for failure to
3. The company should have an adequate level provide information (up to AED50,000),
of qualified employees, premises and annual spontaneous exchange of information, and
operating expenditures. potentially deregistration.

Entities may outsource CIGA activities (with the From a wider perspective, UAE businesses should
exception of “high risk” IP), provided the review economic substance in relation to such
outsourced activities are carried out inside the UAE considerations as:
and the entity retains full control over those
activities. In line with the EU recommendations, - Access to treaty benefits in view of
pure holding companies shall be subject to less the Multilateral Convention to Implement Tax
stringent substance requirements. Furthermore, Treaty Related Measures to Prevent BEPS,
additional reporting requirements apply to “high- signed by the UAE on 27 June 2018
risk” IP companies.
- International transfer pricing rules and
Entities carrying on relevant activities that fall within documentation requirements
the scope of the regulations would need to prepare
a report to the regulatory authority, demonstrating - Application of foreign anti-avoidance rules,
that they satisfy the economic substance test, no such as controlled foreign company rules
later than 12 months after the end of each financial
year. The regulatory authority will then submit the hhh

Ahmedabad Chartered Accountants Journal June, 2019 161

FEMA CA. Savan Godiawala
Updates [email protected]

9 Report on Management of Foreign market stood at USD 13.77 billion as at the
Exchange Reserves end of March 2019.

The Reserve Bank of India publishedthe half-yearly I.4 External Liabilities vis-à-vis Foreign
report on management of foreign exchange reserves Exchange Reserves
for end-March 2019 as part of its efforts towards
enhanced transparency and levels of disclosure. The net IIP as at end-December 2018 was
negative at USD 431.7 billion as against a
Highlights from the report towards management of negative net IIP of USD 421.4 billion at end-
foreign exchange and the progress made arestated December 2017, implying that the sum of all
below. external liabilities is more than that of the
external assets in both periods.There has been
I.2 Movement of Foreign Exchange Reserves a slight increase in the negative gap on a year-
on-year basis.
I.2.1 Review of Growth of Foreign Exchange
Reserves I.5 Adequacy of Reserves

The foreign exchange reserves stood at USD At the end of December 2018, the foreign
400.53 billion as at end-September 2018. exchange reserves cover of imports stood at
During the half-year period under review, 9.1 months compared to 9.5 months at end-
reserves declined to USD 392.08 billion as September 2018. The ratio of short-term debt
at end-October 2018, and thereafter (original maturity) to reserves, which was
registered an increasing trend reaching USD 26.1 per cent at end-September 2018,
412.87 billion as at end of March 2019. increased to 26.4 per cent at end-December
2018. The ratio of volatile capital flows
I.2.2 Sources of Accretion to Foreign Exchange (include cumulative portfolio inflows and
Reserves outstanding short-term debt) to reserves
increased from 88.4 per cent at end-
On a balance of payments basis (i.e., September 2018 to 88.7 per cent at end-
excluding valuation effects), the foreign December 2018.
exchange reserves decreased by US$ 17.5
billion during April-December 2018 as I.6. Management of Gold Reserves
against an increase of US$ 30.3 billion during
April-December 2017. The foreign exchange As at end-March, 2019, the Reserve Bank
reserves in nominal terms (including the held 612.56 tonnes of gold, with 320.26
valuation effects) decreased by US$ 29.0 tonnes being held overseas in safe custody
billion during April-December 2018 as with the Bank of England and the Bank for
against an increase of US$ 39.1 billion during International Settlements, while the remaining
the same period of the preceding year. gold is held domestically. In value terms
(USD), the share of gold in the total foreign
I.3 Forward Outstanding exchange reserves increased marginally from
about 5.08 per cent as at end-September,
The net forward liability (payable) of the
Reserve Bank in domestic foreign exchange

162 Ahmedabad Chartered Accountants Journal June, 2019

2018 to about 5.59 per cent as at end March, FEMA Updates
2019.
equivalent to USD 10 billion in SDR
I.7 Investment Pattern of the Foreign denominated Notes issued by IMF.
Currency Assets
I.8.3 SAARC Swap Arrangement between
The foreign currency assets comprise multi- India and Bhutan
currency assets that are held in multi-asset
portfolios as per the existing norms, which Bhutan had availed ¹ 7113 million, equivalent
conform to the best international practices to USD 100 million on January 28, 2019 for
followed in this regard. As at end-March three months which was repaid on April 30,
2019, out of the total foreign currency assets 2019.
of USD 385.35 billion, USD 237.07 billion
was invested in securities, USD 117.93 I.8.4 SAARC Swap Arrangement between
billion was deposited with other central banks India and Maldives
and the BIS and the balance USD 30.36
billion comprised deposits with overseas Maldives had availed USD 100 million on
branches of commercial banks. December 19, 2018 for three months. The
same was repaid by Maldives on March 19,
I.8 Other Related Aspects 2019.

I.8.1 Financial Transaction Plan (FTP) of the I.8.5 Investment in bonds issued by IIFC (UK)
IMF
The Reserve Bank has the mandate to invest
During the half year under review, there were up to USD 5 billion, in the bonds issued by
two Purchase Transactions aggregating USD the India Infrastructure Finance Company
532.13 million. Four repurchase transaction (UK) Limited. As at end-March 2019 the
aggregating USD 154.46 million was made amount invested in such bonds stood at USD
under the FTP of the IMF. 1.86 billion.

I.8.2 Investments under New Arrangements to The report also highlights the objectives of
Borrow (NAB) and Note Purchase reserve management, legal framework and
Agreement (NPA) with IMF policies put in place, strategy for managing
risks, and disclosures being made in the public
The IMF’s amended and expanded New domain to ensure transparency.
Arrangements to Borrow (NAB) is effective
from March 11, 2011. India had committed Source:Report on Management of Foreign
to provide resources up to SDR 8,740.82 Exchange Reserves dated May 21, 2019
million to the IMF under this arrangement.
Consequent to the payment of quota increase For full text refer: https://rbi.org.in/Scripts/
to IMF under the Fourteenth General Review PublicationsView.aspx?id=18952
of Quotas in February 2016, India’s
commitment under NAB was reduced to ‘Voluntary Retention Route’ (VRR) for
SDR 4,440.91 million. RBI has subscribed
to Notes equivalent to SDR 336.91 million 10 Foreign Portfolio Investors (FPIs)
under NAB till the end of March 2019, as investment in debt
part of Government of India’s Contribution.
Revised directions for Voluntary Retention Route
In terms of the Note Purchase Agreement (VRR) for Foreign Portfolio Investors (FPIs)
(NPA) 2016, entered into between RBI and investment in debt. The changes include, inter alia,
IMF, RBI has agreed to invest an amount the following:-

a. Introduction of a separate category, viz., VRR-
Combined.

Ahmedabad Chartered Accountants Journal June, 2019 163

FEMA Updates Bank from time to time. The investment limit
shall be released in one or more tranches.
b. The requirement to invest at least 25% of the
Committed Portfolio Size within one month of b. Allocation of investment amount to FPIs under
allotment has been removed. this Route shall be made on tap or through
auctions. Details of the auction mechanism are
c. FPI are provided with an additional option at given in Appendix.
the end of the retention period, viz., continue
to hold their investment until the date of c. The mode of allotment, allocation toVRR-Govt
maturity or the date of sale, whichever is earlier. and VRR-Corp categories and the minimum
retention period shall be announced by the
FPIs that were allotted investment limits under the Reserve Bank ahead of allotment.
‘tap’ open during March 11, 2019 - April 30, 2019
may, at their discretion, convert their full allotment d. No FPI (including its related FPIs) shall be
to VRR-Combined. allotted an investment limit greater than 50%
of the amount offered for each allotment by
Excerpts from the Annexure tap or auction in case there is a demand for
more than 100% of amount offered.
Voluntary Retention Route’ (VRR) for Foreign
Portfolio Investors (FPIs) investment e. The minimum retention period shall be three
years, or as decided by RBI for each allotment
Eligible investors by tap or auction.

Any FPI registered with SEBI is eligible to f. FPIs shall invest the amount allocated, called
participate through this Route. Participation through the Committed Portfolio Size (CPS) in the
this Route shall be voluntary. relevant debt instruments and remain invested
at all times during the voluntary retention
Eligible instruments period, subject to the following relaxations:

a. Under VRR-Govt, FPIs will be eligible to i. The minimum investment of an FPI during
invest in any Government Securities i.e., Central the retention period shall be 75% of the
Government dated Securities (G-Secs), CPS (The flexibility for modulating
Treasury Bills (T-bills) as well as State investments between 75%-100% of CPS
Development Loans (SDLs). Under VRR- is intended to enable FPIs to adjust their
Corp, FPIs may invest in any instrument listed portfolio size as per their investment
under Schedule 5 of Foreign Exchange philosophy).
Management (Transfer or Issue of Security by
a Person Resident outside India) Regulations, ii. The required investment amount shall be
2017 notified vide Notification No. adhered to on an end-of-day basis. For this
FEMA.20(R)/2017-RB dated November 07, purpose, investment shall include cash
2017, other than those specified at 1A(a) and holdings in the Rupee accounts used for
1A(d) of that Schedule. this Route.

b. Repo transactions, and reverse repo g. Amounts of investment shall be reckoned in
transactions. terms of the face value of securities.

Features Management of portfolio

a. Investment through this Route shall be in addition a. Successful allottees shall invest at least 75% of
to the General Investment Limit. Investment their CPS within three months from the date of
under this route shall be capped at ¹ 75,000 allotment. The retention period will commence
crore or higher, which amount shall be allocated from the date of allotment of limit.
among VRR-Govt, VRR-Corp, and VRR-
Combined as may be decided by the Reserve

164 Ahmedabad Chartered Accountants Journal June, 2019

b. Prior to the end of the committed retention FEMA Updates
period, an FPI, if it so desires, may opt to
continue investments under this Route for an Access to other facilities
additional identical retention period. In that
case, it shall convey this decision to its a. FPIs investing through the Route will be
custodian. eligible to participate in repos for their cash
management, provided that the amount
c. In case an FPI decides not to continue under borrowed or lent under repo shall not exceed
VRR at the end of the retention period, it may: 10% of their investment under VRR.
(a) liquidate its portfolio and exit, or (b) shift
its investments to the ‘General Investment b. FPIs investing under this route shall be eligible
Limit’, subject to availability of limit under the to use any currency or interest rate derivative
‘General Investment Limit’, or (c) hold its instrument, OTC or exchange traded, to manage
investments until its date of maturity or until it their interest rate risk or currency risk.
is sold, whichever is earlier.
Other operational aspects
d. FPIs that wish to exit their investments, fully
or partly, under the Route prior to the end of a. Utilisation of limits and adherence to other
the retention period may do so by selling their requirements of this Route shall be the
investments to another FPI or FPIs. However, responsibility of both the FPI and its custodian.
the FPI (or FPIs) buying such investment shall
abide by all the terms and conditions applicable b. Custodians shall not permit any repatriation
to the selling FPI under the Route. from the cash accounts of an FPI, if such
transaction leads to the FPI’s assets falling
e. Any violation by FPIs shall be subjected to below the minimum stipulated level of 75% of
regulatory action as determined by SEBI. FPIs CPS during the retention period.
are permitted, with the approval of the
custodian, to regularize minor violations c. Custodians shall have in place appropriate legal
immediately upon notice, and in any case, documentation with FPIs that enables them
within five working days of the violation. (custodians) to ensure that regulations under
Custodians shall report all non-minor violations VRR are adhered to.
as well as minor violations that have not been
regularised to SEBI. d. FPIs shall open one or more separate Special
Non-Resident Rupee (SNRR) account for
Other relaxations investment through the Route. All fund flows
relating to investment through the Route shall
a. Investments made through the Route shall not reflect in such account(s).
be subject to any minimum residual maturity
requirement, concentration limit or single/group e. FPIs may open a separate security account for
investor-wise limits applicable to corporate holding debt securities under this Route.
bonds as specified in paragraphs 4(b), (e) and
(f) respectively of A.P. (DIR Series) Circular Source: A.P. (DIR Series) Circular No.34 dated
No. 31 dated June 15, 2018. May 24, 2019

b. Income from investments through the Route For full text refer: https://rbi.org.in/scripts/
may be reinvested at the discretion of the FPI. FS_Notification.aspx?Id=11561&fn=5&Mode=0
Such investments will be permitted even in
excess of the CPS. hhh

Ahmedabad Chartered Accountants Journal June, 2019 165

GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
Ministry of Environment and Forest of the
Important Judgments: Government of India, Petitioner No. 1 company
being coal or thermal based power plant, was
[I] One Important Judgment delivered by the required to make fly ash ash available for at
Hon. Gujarat High Court in case of Torrent least 10 years from the date of publication of
Power Ltd. For the Payment of Tax under the notification without any payment of
Protest – Should be refunded. consideration for the purpose of manufacturing
ash based products. Therefore, for that purpose
Facts: a Memorandum of Understanding was entered
into by the Petitioners with cement/brick
The company is registered under GVAT Act manufacturers for granting permission to
and collecting the administrative charges on collect, lift and transport the fly ash. As per
sale of fly ash. The company’s argument is Clause (2) of the Memorandum of
that the administrative charges is not a sale Understanding, the fly ash was to be made
price, however, the company has paid the available free of cost to the customer. However,
tax on protest. The department has not as per clause (8) thereof, the administrative
passed any assessment order and expenses were payable by the customer at the
crystallized the demand and the time limit rate specified therein.
is expired and therefore retention of
payment of tax is violating the Article 265 It is the case of the petitioners that such
of the Constitution of India. The Hon. High administrative charges were not ‘sale price’
Court allowed the refund of the amount for the purpose of the GVAT Act since fly ash
with interest to the company. was supplied free of cost. Therefore, the
petitioners neither collected nor paid tax under
The important paragraphs of the gist of the the GVAT Act on the administrative charges
judgment are reproduced hereunder for the paid to it by the customers as per clause (8) of
benefit of the readers. the Memorandum of Understanding.
Respondent No. 2 – Asst. Commissioner of
The Petitioner No. 1 company is engaged in Commercial Tax conducted audit assessment
the business of generation, transmission and under section 34 of the GVAT Act for the year
distribution of electricity. It is duly registered 2006-2007 and the assessment order dated
under the provisions of Gujarat Value Added 10.02.2011 was passed wherein no tax was
Tax Act, 2004 [“the GVAT Act” for short] and imposed on the administrative charges
under Central Sales Tax Act, 1956 [“the CST collected by Petitioner No. 1 for fly ash made
Act” for short]. Petitioner No. 1 is now duly available by it free of charge to the customers.
registered under the Central Goods and Services In the year 2013, an inquiry was made by the
Tax Act, 2017/Gujarat Goods and Services Tax respondent Vat authorities with the Petitioner
Act, 2017. During the course of generation of No. 1as to why no tax liability was discharged
electricity, Petitioner No. 1 company also
generated fly ash as a by-product. As per
notification dated 14.09.1999 issued by the

166 Ahmedabad Chartered Accountants Journal June, 2019

under the GVAT Act on the administrative GST and VAT - Judgements and Updates
charges collected by it for the supply of fly
ash. The Petitioner submitted to the authorities petitioners to respondent no. 2. The time limit
that administrative charges were not leviable for passing of revision order under section 75
to tax under the GVAT Act as the supply of of the GVAT Act is five years from the date
fly ash was made available free of cost of the order. Such time limit also expired on
pursuant to the aforesaid notification and the 10.02.2016. However, no response was
charges were only in the nature of received from the Vat authorities with regard
administrative charges. Petitioner No. 1 was to the application for refund made by the
however, given to understand by the petitioners. Therefore, the petitioners again
respondent VAT authorities that they had the issued reminder letter dated 21.06.2018 for
liability to pay tax on administrative charges grant of refund amount deposited under protest
collected towards the supply of fly ash made pertaining to the year 2006-2007. Another
available on free of cost to cement and brick reminder was given on 03.08.2018 for grant
manufacturers under the GVAT Act. Therefore of refund.
even though no order was passed against the
Petitioner No. 1, it deposited tax with interest The learned advocate for the petitioners
on administrative charges for the year 2006- submitted that the department has collected a
2007 to 2010-2011 under protest. sum of Rs. 46,43,174/- for the year 2006-2007
without assessing tax demand. The petitioners
It is the case of the Petitioners that Petitioner have deposited such amount under protest on
No. 1 deposited an amount of Rs. 46,43,174/ 25.10.2013 and thereafter, no order has been
- under protest for the year 2006-2007 towards passed against the petitioners authorizing
alleged liability on administrative charges retention of such amount nor any tax was
under the GVAT Act. At the time when such imposed on the administrative charges
deposit was made by the Petitioner No. 1 collected by the petitioners in the assessment
assessment order has already been passed for order passed for the year 2006-2007. It was
the year 2006-2007, wherein no liability was further submitted that time limit for
imposed on administrative charges. However, reassessment under section 35 of the GVAT
the respondent authorities still had time to take Act and revision under section 75 of the
such assessment order in revision under GVAT Act has elapsed long back and the
section 75 of the GVAT Act. The time limit respondents have no authority in law to retain
for calling and examining record of an the amount deposited by the petitioners under
assessment order for the purpose of revision protest without there being any order
under section 75 of the GVAT Act is three supporting such retention. It was, therefore,
years from the date of the order. Therefore, submitted that such retention of the amount
time limit for revision under section 75 of the by the respondent authorities is without
GVAT Act for the year 2006-2007 expired on authority of law inasmuch as, as per section
10.02.2014. The time limit for assessment 36 of the GVAT Act, the authorities are
under section 35 of the GVAT Act had also required to refund any excess amount of tax
elapsed long back. The Petitioners therefore, recovered etgc. paid by a dealer.
addressed a letter dated 11.08.2015 to the
jurisdictional authority and requested to grant In facts of the case, the petitioners have no other
refund of the amount deposited for the year alternative efficacious remedy but to approach
2006-2007 since no proceedings were initiated this court as refund of the amount deposited by
for revision or re-assessment. Reminder letter the petitioners under protest cannot be
dated 31.12.2015 was also given by the adjudicated under any provisions of the GVAT
Act and the respondent authorities have no
jurisdiction to grant such refund and, therefore,

Ahmedabad Chartered Accountants Journal June, 2019 167

GST and VAT - Judgements and Updates [II] Important Case Laws: (AAR)

only remedy available to the petitioners is by [i] Transfer of Business;
way of filing the petition under Article 226 of
the Constitution as the amount paid by way of Transfer of Business as a going concern on
deposit is neither a duty of tax to which the slump sale is exempt from GST – Innovative
provisions of the GVAT Act would be Textiles Ltd. In re (2019) 104 taxamann.com
applicable and as a consequence, the 436 (AAR – Uttarakhand)
machinery provision under the GVAT Act
would not apply to refund of such amount. The applicant is engaged in manufacturing and
selling of textile yarns, fabrics and garments. It
In the light of the above discussion, when the intends to sell its business on slump sale basis
petitioners have deposited the amount of Rs. with all assets and liabilities. It has sought an
46,43,174/- under protest for which no advance ruling to determine whether ‘
adjudication order is passed by the authorities, Business Transfer Agreement ‘ as a going
such claim being outside the purview of concern on slump sale basis is exempt from
enactment can be made either by way of a GST?
suit or by way of writ petition. As the amount
is paid neither by way as self assessment or The Authority for Advance Rulings,
pursuant to any demand, it is always open for Uttarakhand observed that as per GST rate
the petitioners to bring it to the notice of the notification services by way of transfer of a
authorities concerned and claim the refund of going concern, as a whole or an independent
amount of such deposit. The authority is also part, would be treated as supply of service
duty bound to refund such amount as retention which is exempt under GST. Transfer of a
of such amount would be hit by Article 265 business as a going concern is the sale of
of the Constitution which mandates that no business including assets. “Going concern”
tax shall be levied or collected except by means business is live or operating and the
authority of law. Since the amount is purchaser intends to use the assets to carry on
deposited under protest by the petitioners and the same kind of business as a seller. In this
no order of assessment, reassessment or case, the purchaser intends to carry on the same
revision is passed till date, the amount retained kind of business as that of applicant.
by the authority is not backed by any authority
of law in the light of Article 265 of the The Authority for Advance Rulings,
Constitution of India and, therefore, the Uttarakhand held that transfer of applicant’s
respondents have no authority to retain the business on slump sale basis to be treated as a
same. going concern and exempt from GST.

In the result, the petition succeeds and is [ii] Supply of Spare Parts & Maintenance
accordingly allowed by directing the under an Agreement:
respondents to refund the amount of Rs.
46,43,174/- with simple interest at the rate of Spare Parts and Maintenance services
6% per annum from 11.11.2015, that is three supplied under an Agreement, not being a
months from 11.08.2015 viz. the date when natural bundle, shall be a ‘Mixed Supply’ –
the first application for refund was made by Sandvik Asia (P) Ltd. In re (2019) 104
the petitioner. Such exercise shall be completed taxamann.com 424 (AAAR – Rajasthan)
by the respondents latest by 31.07.2019, Rule
is made absolute to aforesaid extent with no The appellant provides maintenance services
order as to costs. for the imported mining equipments through
two separate agreements. Agreement- 1 is

168 Ahmedabad Chartered Accountants Journal June, 2019

‘Comprehensive Maintenance Agreement’and GST and VAT - Judgements and Updates
Agreement- 2 is ‘Equipment Parts Supply and
Services Agreement’. It filed an application for The applicant is society under Marine Products
Advance Ruling to determine the classification Export Development Authority, Ministry of
of services under these two agreements. Commerce & Industry, Government of India.
It was registered under VAT laws. It is engaged
The Authority for Advance Rulings, Rajasthan in various activities which include research and
held that activities performed underAgreement- development, consultancy and testing services;
1 shall be classified as ‘Composite Supply’ training to farmers, entrepreneurs, self-help
whereas under Agreement-2 shall be classified groups; producing and supplying to farmers
as ‘Mixed Supply’. The appellant is not and entrepreneurs the live fish seeds and many
satisfied with ruling given for Agreement-2 and more.
has filed an appeal before Appellate Authority
for Advance Rulings, Rajasthan. The applicant has filed an application for
advance ruling to determine whether it is
The Appellate Authority for Advance Rulings, required to obtain GST registration? The
Rajasthan observed that entering into two applicant has submitted that it is not liable for
separate agreements with their clients indicates registration under GST since the activities
nature and quantum of supply of services or undertaken by it are exempt from tax.
spare parts under these agreements which are
not similar. Further, as per one the clauses of The Authority for Advance Rulings,
Agreement-2 it specifies supply of spare parts Tamilnadu observed that as per the CGST Act,
in one part and provision of maintenance 2017 if the aggregate turnover exceeds Rs.
services in other part. Hence , it is clear from 20 lakhs limit or if a person was registered
second agreement that supply of parts and under an existing law, he is liable to be
supply of service are not integral to each other. registered under this Act. All the supplies of
the applicant are not exempt and some are
TheAppellate Authority fort Advance Rulings, taxable services. Further, its aggregate
Rajasthan held that spare parts and maintenance turnover also exceeds Rs. 20 lakhs.
services supplied under an agreement which is
not naturally bundled shall constitute ‘Mixed Since the applicant is also making taxable
Supply’. supplies apart from exempt supplies, hence, it
is not exempt from GST registration. Therefore,
[iii] Supplier of Taxable & Exempt Supplies the applicant is liable to obtain registration under
Requires GST Registration: GST.

Supplier of Taxable & Exempt Supplies hhh
requires GST Registration if his total
turnover exceeds threshold limit – Rajiv
Gandhi Centre for Aquaculture. In re
(2019) 104 taxmann.com 381 (AAR –
Tamilnadu).

Ahmedabad Chartered Accountants Journal June, 2019 169

Corporate
Law Update

MCA Updates: Rule 19 CA. Naveen Mandovara
(3)(b) [email protected]
1. Amendment in Schedule VII of the
Companies Act, 2013: Annexure for the words “the draft
to the said memorandum”, the words “the
The MCA has amended the Schedule VII of Rules memorandum” shall be
the CompaniesAct, 2013 to include the activities substituted.
relating to the disaster management in Corporate
Social Responsibility (CSR) Activities under 1. in Form no. INC-11, in the
Section 135 of the Companies Act, 2013. heading, after the words and
figures “sub-section (2) of
Item No. of Effect of amendment section 7”, the words and
Schedule figures “and sub-section (1)
VII of section 8” shall be
inserted.
(xii)Inserted In the said Schedule VII, after
item (xi) and the entries relating 2. Form No. INC-12 shall be
thereto, the following item and substituted with the new
entries shall be inserted, namely:- Form No. INC-12.
”(xii) disaster management,
including relief, rehabilitation 3. in Form No.INC-32
and reconstruction activities.” (SPICe form),—

[F. No. 05/01/2019-CSR dated 30.05.2019] a. in the heading , for the
words and figures
2. The Companies (Incorporation) Sixth “Pursuant to sections 4,
Amendment Rules, 2019: 7, 12, 152 and 153”, the
words, figures and
Following amendments have been made w. e. brackets “pursuant to
f. 15.08.2019 in the Companies (Incorporation) sections 4, 8(1), 7, 12,
Rules, 2014: 152 and 153” shall be
substituted;
Rule No. Effect of amendment
b. in serial number 1, item
Rule 19(1) for the words, letters and figures “(g) Section 8 license
“Form No.INC.12”, the words, number” shall be
letters and figures “Form INC- omitted.
32 (SPICe)’shall be substituted.
c. in attachments, after
Rule 19 for the words “the draft item no.19, the
(3)(a) memorandum”, the words “the following item shall be
memorandum” shall be inserted.
substituted.

170 Ahmedabad Chartered Accountants Journal June, 2019

“20. Declaration in Corporate Law Update
Form No.INC-
14; 3. Filing of e-form DIR-3 KYC in accordance
with Rule 12A of the Companies
21. Declaration in (Appointment and Qualification of
Form No.INC- Directors) Rules, 2014 under the
15; Companies Act. 2013:

22. O p t i o n a l In the matter of e-form DIR-3 KYC, the MCA
attachment(s), (if has informed that the amendment related to
any).” extension of time (allowing for adequate time)
for completion of KYC through e-form DIR-3
[F. No. 1/13/2013 CL-V, part-I, Vol.III dated KYC or the web-based service, as the case may
07.06.2019] be, is being notified shortly. It has also informed
that it is being proposed that if:

A person who has already filed DIR-3 KYC Such person will be required to complete his/her
KYC through a simple web-based verification
service, with pre-filled data based on the records
in the registry.

A person wishes to update his mobile no. or Such person would be required to file e-form
e-mail address DIR-3 KYC.

A person wishes to update any other personal Such person would be required to file e-form
detail other than his mobile no. or e-mail address DIR-6 for such updation and then file the e-form

DIR-3 KYC through the web-based service.

[F.No.01/22/2013-CL-V dated 27.06.2019]

hhh

Ahmedabad Chartered Accountants Journal June, 2019 171

Allied Laws Adv. Ankit Talsania
Corner [email protected]

Insolvency and Bankruptcy Code B. Arguments of both Counsels:

Recently the National Company Law Tribunal, 1. The Corporate Debtor was served with the
Kolkata bench in the case of Anjani Gases vs. B.P. notice of this application. One Mr. Sandip
Projects (P.) Ltd. reported in 106 taxmann.com Ghosh appeared on behalf of the Corporate
78 held that where the FIR filed by the Operational Debtor. He filed affidavit-in-reply. He
Creditor against the Corporate Debtor much prior contended that there is a serious dispute pending
to the issue of notice u/s 8 of the Insolvency and between the Corporate Debtor and the
Bankruptcy Code, 2016 shows that dispute was Operational Creditor relating to the amount
existing and therefore application for CIRP deserves claimed herein. In fact, Corporate Debtor paid
to be rejected. the Operational Creditor excess amount of Rs.
5,56,889/- (Rupee Five Lakh Fifty Six
A. Facts of Case : Thousand Eight Hundred and Eighty Nine
Only). There is nothing due and payable from
1. M/s Anjani Gases- the Operational Creditor the Corporate Debtor’s side to the Operational
filed this application under Section 9 of Creditor. The Operational Creditor raised
Insolvency and Bankruptcy Code, 2016 against several bogus invoices. The Operational
M/s B.P. Projects Pvt. Ltd.- the Corporate Creditor claimed the amount towards holding
Debtor to start Corporate Insolvency charges which was not agreed upon to be
Resolution Process (in short “CIRP”) of the payable by them. Moreover the Operational
Corporate Debtor as the Corporate Debtor Creditor did not send tax invoices so as to
allegedly committed default in paying enable the Corporate Debtor to claim the
operational debt of Rs. 1,45,74,133/- (Rupees refund. The Operational Creditor also wrongly
One Crore Forty Five Lakh Seventy Four claimed delivery charges though they
Thousand One Hundred and Thirty Three admittedly paid at the time of delivery itself.
Only).
2. The Corporate Debtor further contended that
2. In spite of repeated demand, the Corporate the Operational Creditor filed false FIRs against
Debtor failed and neglected to pay the debt. the Corporate Debtor. That FIR is challenged
Hence, on 31.03.2018, the Operational by them by the Writ Petition bearing No.
Creditor sent demand notice to the Corporate C.R.R. No. 130 of 2017. The FIR is outcome
Debtor under Section 8 of Insolvency and of disputes pending in between them about
Bankruptcy Code, 2016. Notice was received amount claimed. It is his say that complicated
by the Corporate Debtor. It is the say of the questions of facts and law are involved which
Operational Creditor that on 13.04.2018, the require adjudication by way of Civil Suit. This
Corporate Debtor replied the notice raising false cannot be resolved in this proceeding which is
and concocted dispute about the amount of summary nature. Since there is dispute about
claimed. Since the Corporate Debtor did not the amount claimed, this application is not
pay the amount, this proceeding is filed to start maintainable. It may be rejected.
CIRP of the Corporate Debtor.

172 Ahmedabad Chartered Accountants Journal June, 2019