No change in GST law for farmers; Support services to agriculture & registration exempt

Ministry of Finance issues clarification to allay the apprehension of changes in GST law relating to farmers w.e.f. June 2018 according to which, they would be required to take registration and pay GST of 18% on leasing of their land; Ministry states that such news is “factually incorrect and misleading”; There is no change in GST law and taxation relating to farmers since the implementation of GST w.e.f July 2017; Clarifies that support services to agriculture, forestry, fishing or animal husbandry are exempt and thus, renting or leasing of land with or without structure incidental to its use by farmers for agriculture, forestry etc. is exempt from GST; Reiterates that agriculturists (i.e. individual or an HUF who undertakes cultivation of land by own labour or of family or by servants or hired labour under personal supervision) are exempt from taking registration under GST : Ministry of Finance Press Release 

ITAT : Rejects 'receipts-basis' taxation for advances received by land-owner under development agreement

Pune ITAT  accepts assessee’s (land owner) plea that advance received from developer towards flat booking shall not be taxable in subject AY 2009-10 on receipt basis, but in subsequent AY when the project was completed and tenements / flats were handed over to the prospective buyers; Notes that the assessee had given the land for development and ​was entitled to receive 18% on gross sales under the terms of development agreement (‘DA’);  With respect to advance booking amount received in subject AY, ITAT remarks that “The said amount received by the assessee is an advance receipt because the right to collect the said amount would crystallize on the day when the tenants or portion of land is sold by the developer to the prospective buyers.”; Moreover, observes that the developer recognized the completion and sale of developed portion in subsequent AY 2011-12, consequently, holds that the business profits arising to assessee were taxable in such year; Lastly, ITAT clarifies that since the amount is not assessable to tax as his business profits in subject AY, the capital gains arising on conversion of capital asset into stock-in-trade is also not to be taxed in the hands of assessee in subject AY but in the year in which the business profits are to be taxed:ITAT 

Kerala Govt. issues guidelines for timebound scrutiny & assessment of Presumptive Tax Dealers

Kerala Govt. issues instructions to streamline the scrutiny and VAT assessment of Presumptive Tax dealers, so that all pending assessments are completed in time bound manner to ensure that legitimate tax is remitted to Govt. exchequer; Directs completion of assessment of various years from 2011 to 2016 in time series after completing each year separately, while laying down an action plan in this regard; States, no undue adjournments shall be given for submission of returns or other relevant records as the dealer has already taken years, whereas “More than two adjournments to be given only with the permission of the Deputy Commissioner based on genuine reasons”; Since assessments are mandatory before applying for amnesty scheme announced by Govt. for Presumptive Tax dealers, the Scrutiny Module may be used efficiently; Along with pre-assessment notice, print of amnesty calculation also may be given to encourage dealers to opt for amnesty immediately in view of June 30, 2018 deadline : Kerala Govt. Circular 

Imp S. 147 Bogus Purchases Verdict

PCIT vs. Manzil Dineshkumar Shah (Gujarat High Court)

S. 147: Even a s. 143(1) assessment cannot be reopened without proper 'reason to believe'. If the reasons state that the information received from the VAT Dept that the assessee entered into bogus purchases "needed deep verification", it means the AO is reopening for doing a 'fishing or roving inquiry' without proper reason to believe, which is not permissible 

It is equally well settled that the notice of reopening can be supported on the basis of reasons recorded by the Assessing Officer. He cannot supplement such reasons. The third principle of law which is equally well settled and which would apply in the present case is that reopening of the assessment would not be permitted for a fishing or a roving inquiry. This can as well be seen as part of the first requirement of the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment. In other words, notice of reopening which is issued barely for making fishing inquiry, would not satisfy this requirement 

Applicability of Integrated Goods and Services Tax on goods supplied while being deposited in a customs bonded warehouse

We invite your attention to Circular No 3/1/2018-IGST dated 25th May, 2018 (‘Circular) issued by Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs with regards to applicability of Integrated Goods and Services Tax (IGST) on goods sold while being deposited in a customs bonded warehouse. Please find attached the circular issued for your ready reference.

AAR : ​Rules on 'loan fee' taxability under French treaty; Debt claims existence crucial

AAR rules that the ‘front-end fee’ payable by a customer in India, for appraisal of loan application carried outside India, under the financing arrangement with the Applicant (a France based Financial Institution), not ‘interest’ under Article 12 of India-France DTAA, follows Bombay HC ruling in Commonwealth Development Corporation; Notes that in order to constitute interest under India-France DTAA, the income must be from debt claims, observes that there was no debt claim in existence when the ‘front-end fee’ for loan application appraisal was payable, further notes that the payment was fixed and mandatory and neither dependent upon nor connected with the loans advanced; Also holds payment ​was not taxable as FTS under Article 13 of DTAA, absent ‘make available’ of technical knowledge, experience, skill, know-how or processes to the borrower, follows Delhi HC ruling in Steria (India) Limited for reading the restricted scope of FTS into the India-France DTAA, however, holds that the fees shall be taxable as business income if PE for applicant exists in India; With respect to front end fees other than appraisal fee, AAR notes that those are charged only in respect of a successful loan approval at a certain percentage of the proposed investment, and thus ​have a direct nexus with the debt claim; Likewise AAR holds that the commitment fee, cancellation fee, amendment fee and monitoring fee are directly related to debt claim as the fees are charged after disbursement of loan, accordingly upholds taxability as ‘interest’ on these payments under DTAA:AAR

HC admits challenge to 'pre-import condition' for availing exemption under Advance Authorization scheme

Delhi HC admits writ petition challenging constitutional validity of amendment to Notification No. 18/2015–Cus vide Notification No. 79/2017-Cus whereby exemption from IGST and Compensation Cess on inputs under Advance Authorization Scheme has been subjected to “pre-import condition”; Petitioner has also challenged amendment to Para 4.14 of FTP vide Notification No. 33/2015-20 in this regard; Matter has been listed for hearing on August 8

DIPP's "narrow" eligibility criteria for Budgetary Support Scheme in J&K, under HC scanner

J&K HC admits challenge to the narrow eligibility criteria stipulated for industrial units to avail DIPP’s Budgetary Support Scheme in the State of J&K; Scheme, which was introduced in October 2017, debars units that did not commence commercial production before July 1, 2017; Petitioner has invoked principle of promissory estoppel while contesting said cut-off date; HC has issued notice to Revenue, while posting the matter for hearing on June 5 

AAR : US-parent Co's income from authorised Indian reseller for content delivery solutions not taxable

AAR holds that payment received by the Applicant (a US based technology company) from its India based group company under the  non-exclusive Reseller Agreement for sale of applicant's content delivery solutions directly to customers in India, not taxable as FTS/FIS or Royalty under the Act or India-US DTAA; Accepts Applicant’s contention that the Solutions provided by it are in the nature of a 'standard facility' and do not cater to individual requirements of the customer, moreover absent human intervention it cannot be termed as FTS under Explanation 2 to Sec. 9(1)(vii) of the Act, also holds that the Solutions provided do not 'make available​' knowledge to the end user so as to fall under definition of FIS under Article 12 of DTAA; Further holds that “when payments under Reseller Agreement are not towards any IPR/Trademarks, it cannot be covered within the definition of royalty”, also observes that Reseller Services Agreement does not contemplate providing any kind of a software “product” to any of its customers or to the Reseller; Distinguishes Revenue’s reliance on ABB FZ ruling which was rendered in the context of use/sharing of specialized knowledge, expertise, etc. by assessee through its employees, observes in present case there is no use/sharing of knowledge, information, etc. by the Applicant with the Reseller or the end user, likewise distinguishes Revenue’s reliance on ​various of rulings including Samsung-Synopsis ruling, Vodafone South and Verizon rulings on facts; With respect to PE, AAR clarifies that “once we have ruled above that income does not accrue or arise in the hands of the Applicant as Royalty or FTS/FIS…the question of existence of a PE under Article 5 becomes irrelevant and academic, as no income can be attributed to it, if at all there was one.”:AAR 

AAR : Transportation services naturally bundled with supply of goods, taxable as 'composite supply'

AAR holds that services of transportation, in-transit insurance and loading / unloading in relation to separate contract for supply of materials at ex-factory price, shall be liable to GST at rate applicable to supply of goods; Notes that supply of goods under First Contract cannot be executed independent of Second Contract providing for transportation for the former does not include the provision and cost of transportation and delivery; Moreover, the two contracts are linked by a cross fall breach clause that specifies that breach of one contract will be deemed to be a breach of other contract, and thereby turn them into a single source responsibility contract; Resultantly, observes that the two promises – supply of goods and their transportation to contractee’s site – are not separately enforceable, the supplies of goods and services are naturally bundled; Accordingly, states, “…supplies as that of applicant’s should be construed as specifically mentioned under the GST Act as Composite Supply with supply of goods as the principal supply and services like transportation, in-transit insurance etc ancillary or incidental to the principal supply...” : West Bengal AAR 

CBIC's interim solution for IGST refunds stuck due to data non-transmission from GSTN

CBIC prescribes an interim solution for pending IGST refunds not being sanctioned owing to non-transmission of data from GSTN to Customs EDI system, due to mismatches in amount mentioned by exporters in GSTR-1 and GSTR-3B; Procedure prescribed is subject to undertakings / submission of CA certificates by exporters and post refund audit scrutiny : CBIC Circular 

ITAT : Daikin's Indian subsidiary constitutes DAPE; Attributes profits, TP-analysis not adequately reflecting FAR

Delhi ITAT rules that the wholly owned Indian subsidiary of Daikin Industries Ltd. (assessee, a Japanese company), constitutes assessee’s dependent agent PE for AY 2006-07; Holds that the entire activities of identifying customers, negotiating and finalizing prices with customers in India etc. were done by DAIPL (Indian subsidiary) not only for the products sold as distributor, but also for which assessee claimed to have made direct sales in India; Acknowledging the tremendous efforts required for effecting sale in highly competitive industry of air-conditioning and refrigeration equipments, ITAT remarks that “We fail to comprehend as to how the assessee came in contact with customers in India and made sales to them directly, when DAIPL, situated in India, had to spend a huge amount of selling and distribution expenses (of Rs. 14.38 cr.) for selling similar products in India.”; Thus, rejects assessee’s stand that DAIPL was acting only as a communication channel for its direct sales, considering assessee's failure to demonstrate its direct involvement from Japan in making sales to Indian customers and e-mails exchanged between assessee and DAIPL demonstrating that DAIPL was negotiating and finalizing deals with Indian customers; ITAT then rejects assessee’s argument that since TPO had considered the international transaction of commission paid by assessee to DAIPL for market support services to be at ALP in case of DAIPL, no further income could have been attributed to assessee's operations in India; Notes that assessee had neither reported any international transaction in Form 3CEB nor conducted any benchmarking exercise, further, the benchmarking of commission for DAIPL was done only with respect to 2 functions [forwarding customers’ request to assessee and forwarding assessee’s quotations to the customers] and thus, other functions performed (negotiating and finalizing contracts on behalf of assessee) remained excluded from the process of ALP-determination; Also lays down that ratio decidendi of Morgan Stanley ruling would not apply and assessee’s case would fall within the exception laid down by SC [i.e. if TP-analysis does not adequately reflect FAR of the enterprise, there would be a need to attribute profits to the PE for those functions/risks not considered]; On attribution of profits to PE, ITAT upholds 10% net profit rate as reasonable and then determine net profit attributable to the marketing activities in India at 30% of the net profit so determined at 10% of sales in India:ITAT

It is not open for AO to make additions while framing assessment u/s 143(3) merely on basis of seized documents beyond period of limitation u/s 153A: ITAT

THE issue is - Whether it is open for the AO to make additions while framing an assessment u/s 143(3) merely on the basis of seized documents beyond the limitation period provided u/s 153A. NO is the answer.   

Taxable event arises as soon as interest income on bank deposits accrues & becomes due; Deferred receipts on instruction of depositor will not make it hypothetical income: HC

 THE ISSUE IS - Whether interest income which has already accrued on the deposits with the bank, should not be constued as "hypothetical income", simply because the receipt was deferred on the dictate of the depositor. YES IS THE VERDICT.   

In absence of any yardstick or guideline to determine an expenditure as excessive payment, AO has no discretion to make disallowance: HC

THE ISSUE IS - Whether, in the absence of any yardstick or guideline to determine an expenditure as excessive payment, AO has no discretion to make disallowance. YES IS THE VERDICT.   

HC : Holds Revenue's appeal 'in-time', accepts Tribunal order 'non-receipt' plea; Explains ITAT's duty

Uttarakhand HC dismisses Hyundai's objections, holds that the appeal filed by Revenue against ITAT ruling is within the time-limit prescribed u/s. 260A ; Hyundai contended based on RTI records that while the Tribunal order had been served on CIT's office in September, 2009, the tax department filed the appeal in HC only in July 2011, thereby resulting in the Revenue appeal being barred by limitation; HC observes contradiction in the stand taken by assessee, where it is stated at one place that the Tribunal order was 'dispatched' on September 9, 2009 while at another place it is contended that the order was 'served' on September 9; Accepting tax department's submission that the order copy was not received on the said date, i.e. September 9, 2009 but only in March, 2011, HC goes on to observe that “the respondent/assessee has not, apparently, made any efforts to ascertain whether the impugned order, which is alleged to have been dispatched on 09.9.2009, has actually been served, which could have been done by way of making queries with the post-office.”;  HC interprets ‘receipt’ u/s. 260A to hold that “receipt is to be understood as meaning that there is a duty also on the Tribunal to communicate the order to the person, who is entitled to lodge the appeal.”;  HC further rejects assessee's arguments that sought to impute knowledge of the ITAT order on the part of Revenue by virtue of it being a party to various writ petitions & Sec. 263 proceedings, remarks that “it would not be an actual accrual of cause of action to file an appeal as provided under law, unless received.”;  Also rejects assessee’s reliance on CBDT circular of August, 2011, clarifies that the CBDT circular only contemplates that there is duty to intimate the Tribunal about the change of jurisdiction if there is one during the pendency of the appeal, which fact per se is not established, moreover observes that it is not clear as to whether Circular obliges the authority to follow it:HC 

CBIC fixes Rs. 2.5 lakh monetary limit for appeals to Commissioner (Appeals) in legacy matters

CBIC fixes monetary limit of Rs. 2.50 lakh for appeals to Commissioner (Appeals) in respect of legacy central excise and service tax matters; Such limit would also apply to cases currently pending at Appellate Commissioner level, and same practice of withdrawal of Dept. appeals from CESTAT and HC shall be followed : CBIC Instruction 

No automatic denial of exemption u/s. 11 for violating Sec. 13(1) conditio

ITAT: No denial of exemption u/s. 11 for Trust advancing loan in violation of sec.13(1)(d)

Delhi ITAT deletes disallowance of loan advanced by assessee-trust to other charitable institution u/s 10(23C) and u/s 11 during AY 2007-08, rules that only the loan amount advanced by assessee-trust in violation of sec.11(5) is liable to be taxed and that violation u/s 13(1)(d) and sec.13(1)(c) does not automatically result in the denial of benefit u/s 10(23C) or Sec.11 ; During relevant AY, Revenue treated the amount of loan advanced out of corpus fund to other charitable trust as ineligible for deduction and subsequently denied exemption u/s 11 and Sec.10(23C) ; States that assessee has not received any securities or interest by advancement of loan to other trust, further notes that the said sum was returned by other trust during FY 2007-08 ; On Revenue’s allegation that there are common trustees involved due to which sec.13(1)(d) comes into play, ITAT remarks that, “ .. nothing has been brought on record to establish that the common trustees have substantial interest in the other trust.”; Relies on plethora of rulings including Karnataka HC ruling in Fr.Mullers Charitable Institutions, Bombay HC ruling in Sheth Mafatlal Gagalbhai Foundation Trust and Allahabad HC ruling in Red Rose School

ITAT Bar Objects To Registrar Acting As 'Court' + Imp Verdicts On Non-Resident Tax And S. 147 Reopening

PCIT vs. Nova Technocast Pvt Ltd (Gujarat High Court)

S. 9/ 40(a)(i)/ 195: Explanation 2 to s. 195(1) inserted by Finance Act 2012 with retrospective effect from 01.04.1962 has bearing while ascertaining payments made to non-residents is taxable under the Act or not. However, it does not change the fundamental principle that there is an obligation to deduct TDS only if the sum is chargeable to tax under the Act. If the conclusion is arrived that such payment does not entail tax liability of the payee under the Act, s. 195(1) does not apply    

IGST on warehoused goods supply leviable during clearance for home consumption, clarifies CBIC

CBIC issues clarification on applicability of IGST on goods supplied while being deposited in a customs bonded warehouse; States that IGST shall be levied and collected at time of final clearance of warehoused goods for home consumption i.e., at the time of filing ex-bond bill of entry; Value addition accruing at each stage of supply shall form part of the value on which IGST would be payable at the time of clearance of warehoused goods for home consumption; In other words, supply of goods before their clearance from warehouse would not be subject to IGST and same would be levied and collected only when warehoused goods are cleared for home consumption from customs bonded warehouse, explains CBIC; Said Circular would be applicable for supply of warehoused goods, while being deposited in a customs bonded warehouse, on or after the April 1, 2018 : CBIC Circular 

Major relief for DPS; Transport facility provided by schools to their students only, are incidental to educational activity, and hence exempted: ITAT

THE ISSUE BEFORE THE TRIBUNAL IS - Whether collection of fees by a school from the students for their transport facility, will not render it a commercial organization, and hence entitled for exemption u/s 11(4A). YES IS THE ANSWER.   

On receipt of information from VAT Department about bogus purchases if AO observes that 'deep verification' is required, still reassessment proceeding cannot be initiated at this stage: HC

THE ISSUE IS - Whether, on receipt of information from the VAT Department about bogus purchases if the AO observes that 'deep verification' is required, reassessment proceeding can still be initiated at this stage. NO IS THE VERDICT.   

Compensation paid to retrenched workers upon closure of one manufacturing unit is an allowable business expenditure u/s 37: ITAT

THE ISSUE BEFORE THE TRIBUNAL IS - Whether compensation paid to retrenched workers upon closure of one manufacturing unit, as a safeguard against future losses of other units, is an allowable business expenditure u/s 37. YES IS THE ANSWER.   

Govt. notifies creation of apex National Authority for administering all trade remedial measures

Govt. notifies creation of ‘Directorate General of Trade Remedies’ (DGTR) as the apex National Authority for administering all trade remedial measures including anti-dumping, countervailing duties and safeguard measures; Accordingly, DGTR will bring Directorate General of Anti-dumping and Allied Duties (DGAD), Directorate General of Safeguards (DGS) and Safeguards (QR) functions of DGFT into its fold by merging them into one single national entity; It will also provide trade defence support to domestic industry and exporters in dealing with increasing instances of trade remedy investigations instituted against them by other countries; DGTR has been approved with a sanctioned strength of 112 posts : Ministry of Commerce Press Release 

Imp Case law

Mangammal @ Thulasi vs. T.B. Raju (Supreme Court)

Hindu Succession Act, 1956 (HUF Law): U/s 29-A of the TN Amendment, only daughters of a coparcener who were not married at the time of commencement of the amendment of 1989 are is entitled to claim partition in the Hindu Joint Family Property. Married daughters are not coparceners are are not entitled to institute suit for partition and separate possession (Danamma @ Suman Surpur Vs. Amar 2018 (1) Scale 657 distinguished)   

CIT(A) Cannot Dismiss Non E-Filed Appeals + Imp SC Verdict On HUF Law

Mangammal @ Thulasi vs. T.B. Raju (Supreme Court)

Hindu Succession Act, 1956 (HUF Law): U/s 29-A of the TN Amendment, only daughters of a coparcener who were not married at the time of commencement of the amendment of 1989 are is entitled to claim partition in the Hindu Joint Family Property. Married daughters are not coparceners are are not entitled to institute suit for partition and separate possession (Danamma @ Suman Surpur Vs. Amar 2018 (1) Scale 657 distinguished)    

Dismisses assessee’s SLP ; FD-interest assessable as business income ineligible for Sec 80IC deduction

SC dismisses assessee’s SLP against Uttarakhand HC decison denying Sec.80-IC deduction on interest earned on fixed deposit with bank for AY 2009-10 as it is not 'dervied from' eligible business; HC had observed that the Legislature has chosen to employ the word ‘derived’ in sec.80-IC as distinguished from ‘attributable to’; HC remarked that “Had the Legislature used the words “attributable to”, then it would have a much wider effect and it may have encompassed within itself, the income, which is the subject matter of controversy before us.” ; HC further affirmed AO’s order holding that interest income qualifies as business income u/s. 28 but no deduction can be allowed u/s 80-IC:SC 

ITAT : Pre-2016, AO can't curtail R&D unit's weighted deduction u/s 35(2AB) citing DSIR-approved expenditure

Pune ITAT rejects Revenue’s plea for AY 2009-10 that deduction with respect to Research & Development (R&D) expenditure u/s 35(2AB) is restricted only to the extent of approval granted by Department of Industrial and Scientific Research (DSIR) in form No.3CL; ITAT​ clarifies that prior to amendment of IT (Tenth Amendment) Rules, 2016, DSIR had no power to quantify expenditure and highlights that issue under consideration relates to pre-amended provisions; ITAT notes that with effect from July 1, 2016 form no 3CL was amended  and certification of expenditure was inserted; ITAT rules that once agreement between the ​R&D facility and the prescribed authority is executed under which recognition is given to the facility, role of AO is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction u/s 35(2AB)​; ITAT thus allows weighted deduction for R&D facility's entire expenditure u/s 35(2AB) ​:ITAT 

HC : No delay condonation where exporter knowingly approached wrong forum over 'rebate' dispute

HC refuses to interfere with order of Revisional Authority who dismissed revision application / petition filed by assessee 8 years after CESTAT rejected appeal relating to rebate of excise duty for lack of jurisdiction; Notes that assessee had preferred an appeal before CESTAT despite knowing well that it should approach Revisional Authority u/s 35EE of Central Excise Act in matter relating to excise duty rebate; Dispute had arisen over entitlement to rebate in view of amendment to Notification No. 43/2001-CE (NT) and clarification issued by CBEC with respect to applicability of Explanation that goods should be effected under Rule 19 of Central Excise Rules; While assessee contended that it was entitled to rebate since goods had been cleared from factory prior to amendment to Notification No. 43/2001-CE (NT), Revisional Authority observed that delay of 8 years was neither a bona fide mistake nor a sufficient cause which prevented the assessee from filing the application / petition in time; Resultantly, HC dismisses writ petition while refraining from issuing any direction to Authority who had considered all facts objectively  : Rajasthan HC

AAR : Liquidated damages from contractor towards delay in deliverables, liable to 18% GST

Maharashtra AAR rules that GST is applicable on ‘liquidated damages’ chargeable upon the contractor once delay in deliverables is established, in relation to operation & maintenance activities and construction of new power plants or renovation of old plants; Rejects applicant’s contention that these damages being towards deficiency in services, amount to reduction in value of supply and same should not be considered as separate service covered by the term “Obligation to tolerate an act or a situation”; Perusing the agreement between the applicant and BHEL for erection & commissioning of main plant package, AAR observes that contract price and liquidated damages are two separate aspects / events, deduction of one from the other is a mere facilitation towards settlement of accounts; Stating that recovery of liquidated damages is an independent activity and consideration for the work done remains unaltered, AAR observes “For the Taxman, what would matter is the value for the work done. And once this valuation is properly done and tax liability thereon discharged, whether this value is paid partially or not paid at all would not be a concern from the taxation perspective but a matter between contracting parties..”; Resultantly, holds that empowerment to levy liquidated damages is for reason that there has been delay and the same would be tolerated but for a price or damages, hence, the income of the applicant would be for a ‘supply of service’ in terms of clause (e) of Para 5 of Schedule II; Such supply i.e. levy of liquidated damages, would be covered under Heading 9997 i.e. “Other services” under Notification No. 11/2017-Central Tax / State Tax (Rate) exigible to GST at 18%; Further clarifies that liability to pay tax on services shall arise at the time of supply, if the contractor fails to achieve trial operation within specified time period which falls under GST regime, then levy of liquidated damages would attract GST : Maharashtra AAR

The order was passed by Shri. B. V. Borhade and Shri. Pankaj Kumar.

Mr. S. S. Gupta, Mr. Karan Awtani, and Mr. Ashutosh Shukla appeared on behalf of the applicant.

UN Model Convention 2017 introduces anti-abuse rules, new FTS article; Incorporates BEPS language

United Nation releases 2017 update of the Model Double Taxation Convention between Developed and Developing Countries;  The UN Model Convention introduces new article 12A on 'fees for technical services' (the article which is absent in OECD's convention); The 2017 update also incorporates some of the language of the BEPS project; The  2017 UN Model Convention  introduces a new general anti-abuse rule in article 29(9); A note released by the UN Committee states that "[the new rule] together with the specific anti-abuse rules included in tax treaties, is intended to prevent transactions and arrangements from being granted treaty benefits in circumstances where granting such benefits would be contrary to the object and purpose of the Model Convention";  Article 4 is modified to include a new tie-breaker rule for determining the treaty residence of dual-resident persons other than individuals and  Article 5 is modified to prevent the avoidance of permanent establishment status; The 2017 Model was released during the 16th session of The Committee of Experts on International Cooperation in Tax Matters of United Nations held this week at New York 

HC : Concessional education facility not perquisite prior to 2001- amendment to Rule 3, TDS inapplicable

Gujarat HC reverses ITAT order, holds that payment to education society for recouping deficit in payment of tuition fees of employees' children does not amount to perquisite for AY 2000-01 and 2001-02; Notes that the children of the employees were studying in that Education Society and were paying fees at a subsidized rate and burden borne by assessee per child per month never exceeded Rs. 1000; Observes that Rule 3 (e) prior to amendment in 2001 referred to 'free' educational facility and the word 'concessional' was inserted by 2001 amendment only for subsequent period; Thus, holds that payment to recoup such deficit does not amount to perquisite in the hands of employees and "Assessee cannot be said to be a defaulter ... and liable under Section 201 [1] of the I.T Act or to make payment of interest leviable under Section 201 [1A] of the Act":HC 

HC : Directs assessee to approach Nodal officer for IT grievance redressal of transitional credit

HC disposes of writ petition seeking direction to Revenue to grant benefit of transitional Input Tax Credit on due verification of manual application and to reopen the portal for submission of Form GST TRAN-1; Finds that Govt. has set up IT grievance redressal mechanism to address the grievances of taxpayers due to technical glitches on GST portal providing for appointment of Nodal Officer on identified issues and solutions have also been suggested; Further notes that complete procedure has been prescribed for redressal of grievance, particularly of non-uploading of Form GST TRAN-1 due to technical glitches vide CBIC Circular dated April 3, 2018, and the State Govt. too has appointed Nodal Officers in this regard; Accordingly, directs assessee, who provides coal mining, logistics and other allied services to Coal India Ltd. and had claimed transitional credit of service tax, to approach the Nodal Officer along with all necessary documents : Chhattisgarh HC

HC : Dismisses writ challenging SFIS denial; Cannot bypass appellate procedure apprehending Authority's incompetency

HC dismisses writ petition challenging order passed by Asst. DGFT denying the benefit of ‘Served from India Scheme’ (SFIS) to assessee rendering hospitality service, on the premise that it was promoting a foreign brand; Rejects assessee’s plea that said order lacks jurisdiction and competency and no fruitful purpose would be served in preferring appeal as Director General himself had earlier taken a decision contrary to assessee’s interest, which has been quashed by Delhi HC and therefore, preferring an appeal would be an empty formality; Perusing Section 15 of FT (D&R) Act, HC elucidates that provision stipulated thereunder is unambiguous that any decision taken or order passed by the Adjudicating Authority is appealable u/s 15(1) either before the Director General or any authorised officer superior to Adjudicating Authority; Remarks, “Law is an evolving procedure and the pragmatic approach by the Courts as well as by the authorities are certainly in growing nature. In a developing nation, the field of law is also being developed by new ideas and thoughts…..apprehension…that the authority will confine himself only in respect of the previous decision, cannot be accepted nor shall form a basis for not exhausting the remedies provided under the Statute”; A decision taken by DGFT at an earlier occasion will not preclude him from reconsidering issues nor assessee can come to a conclusion that DGFT is incompetent to re-adjudicate the issues, observes HC while stating that, “all the intermittent interventions and the writ petitions filed without exhausting the remedies prescribed under the Statutes need not be entertained in all circumstances in a routine manner” : Madras HC

Increased validity applicable to all Chapter 3 scrips irrespective of policy period, clarifies DGFT

DGFT issues clarification on the applicability of Public Notice No. 33 dated October 23, 2017 which increased validity of duty credit scrips issued under Chapter 3 of FTP on or after January 1, 2016; Accordingly, states that such extension of validity applies to all Chapter 3 scrips respective of the Policy period; Also informs that such scrip holders are not required to approach the Regional Authorities for any amendment in the validity period : DGFT Trade Notice 

SC : Takes tough stand on delay in Revenue appeals; Refuses condonation, imposes cost

SC dismisses Revenue’s SLP in multiple cases citing failure of Revenue to satisfactorily explain the inordinate delay in filing of petitions; In one case while dismissing SLP, a bench of Justice A. K. Sikri and Justice Ashok Bhushan remarks that "There is a delay of 159 days in filing the present petition which is not satisfactorily explained. Notwithstanding the same, we have gone into the merits of the case and do not find any substance in the special leave petition"; Dismissing a SLP involving a sales issue, the bench of Justice Ranjan Gogoi, Justice R.Bhanumathi and Justice Navin Sinha quips that “the delay of 448 days in filing the Reference Application(s) was refused to be condoned by the HC on grounds which we consider to be good grounds.”; In yet another matter of Shree Cement Ltd., though SC condones delay, it imposes cost of Rs. 20,000 on Revenue. 

Waiver of Late fee

This is to update you on the recent Not. 22/2018 – CT released today, through which the authorities have notified waiver of late fees payable under section 47, for failure to file GSTR 3B up to the due date for the months of October 2017 – April 2018. The notification is in reference for those registered persons whose declaration in Form GST TRAN 1 was submitted but not filed on the portal on or before 27^th December, 2017.

Provided,  the registered person complies with the following two conditions:

1.       The declaration in Form GST TRAN 1 was filed on or before 10^th May, 2018

2.       The return in Form GSTR 3B for each of the months from October 2017 – April 2018 have been filed on or before 31^st May, 2018

CBIC notifies new Customs Brokers Licensing Regulations; Prescribes different license formats, prohibition period

CBIC notifies Customs Brokers Licensing Regulations 2018, thereby requiring a Customs Broker to hold a license to carry on business relating to entry or departure of conveyance or import or export of goods including audit work at any Customs Station; Bestows the responsibility of inviting applications upon Directorate General of Performance Management (DGPM), in lieu of Directorate General of Inspection of Customs and Central Excise (DGICCE), while prescribing additional conditions of holding Aadhaar number and valid PAN card, along with no penalty for an offence under GST laws; Individual applicant shall be granted Customs Broker License in Form B1 whereas License to a company, firm or association shall be granted in Form B2; Period prohibiting Customs Broker from transacting business in one or more of Customs Station shall not exceed one month from date thereof, provided that where the license is suspended as a consequence to prohibition, the time period for giving hearing opportunity and passing appropriate order, shall be reckoned from date of such suspension; Customs Broker or F-Card holder (person who has passed examination under Regulation 6) can file appeal u/s 129A of Customs Act to CESTAT, while G-Card holder (person who has passed examination under Regulation 13) may prefer appeal u/s 128 to Commissioner (Appeals) : CBIC Notification

HC : Serving notice to taxpayer's CA not service at all, quashes reassessment proceedings

Chhattisgarh HC allows assessee-company’s writ, quashes re-assessment proceedings for AY 2009-10, as “no notice was served to the petitioner-assessee u/s. 148(1) and service of notice to the Chartered Accountant (‘CA’) of the petitioner Company is not service at all..”; Revenue had issued notice in March 2016 on assessee’s incorrect address which was returned back by the post office, subsequently, notice was served to assessee, through its CA, in April 2016 [i.e. after period of limitation u/s. 149(1)]; Rejects Revenue’s stand that since assessee had participated in the assessment proceedings after service of notice through CA, filed its return and also raised objections, the assessee is deemed to have waived service of notice in view of Sec. 292BB; Refers to the proviso to Sec. 292BB, observes that since assessee submitted its objection to AO regarding the failure to effect service of notice upon it prior to completion of assessment proceedings, Sec. 292BB presumption is not applicable; Relies on Delhi HC ruling in Chetan Gupta, Gauhati HC ruling in Mintu Kalita and Allahabad HC ruling in Laxmi Narain Anand Prakash, moreover HC observes that the notice was served beyond the limitation period u/s. 149(1):HC 

Delhi Govt. appoints Appellate Authority under DGST Act

Delhi Govt. authorizes Additional Commissioners to perform functions of Appellate Authority, to hear appeals against the orders of Adjudicating Authority in terms of Section 107 of Delhi GST Act 2017 : Delhi Govt. Notification 

ITAT: Micro-finance to poor at higher interest, not ‘relief of poor’; Denies exemption u/s. 11

Cochin ITAT denies exemption to assessee-trust for AY 2007-08 and AY 2009-10, rules that assessee’s activities of providing micro finance to poor is purely commercial in nature and there is no element of charity involved, states that such activities cannot be classified under any of the specific activities of relief of the poor, education or medical relief; During the relevant AY, Revenue had denied exemption on the ground that assessee was providing micro finance by taking loan from commercial banks at an interest rate below 15% pa and charging interest @ 29% pa from its clients, thereby engaging in a commercial activity; States that assessee’s business is hit by proviso to sec.2(15), remarks that even if assessee’s activities were intended towards relief for poor, business of micro finance cannot be considered as incidental to the main objective of assessee-trust; Notes that if the main object of the assessee was providing finance to poor, assessee would have provided loans at interest rate below bank rates or by taking a nominal margin on the money they borrowed from banks, also observes that rate of interest charged by assessee was far above the rate prescribed by The Kerala Money Lenders Act.

CBDT Directs Dedication Of Fortnight For Appeal Effect And Redressing Public Grievances

The CBDT has issued a directive dated 7th May 2018 stating that the delay in giving appeal effect and passing rectification orders is the biggest source of grievance against the Department. It is pointed out that such delays also adversely affect the performance of the Department as the infructuous demand remains stuck in appeal orders and rectification petitions till these are disposed of by the assessing officer. With a view to expeditiously dispose off the appeal effect and rectification claims of the taxpayers, the CBDT has directed that the first fortnight of June, 2018 should be dedicated for attending to the pending claims in these areas   

ITAT : Adwords program payment nothing but 'royalty', rejects Google's equalisation levy defence

Bengaluru ITAT adjudicates issue of taxability of Google’s Adwords program payment in light of HC direction to dispose of appeals independently without being influenced by earlier ITAT order, reconfirms characterization of payment as royalty under the domestic law as well as India-Ireland DTAA; Notes that assessee had entered into distribution agreement as well as service agreement with GIL and under the former, Google India was appointed as an authorized distributor of Adwords programs to the advertisers in India, whereas under the latter, assessee rendered ITES services and software development services for GIL; Perusing all relevant agreements and relevant documentation, ITAT observes that the obligation cast upon the assessee under the Google Adword distribution / reseller agreement can only be discharged with the help of the ITES division, therefore, the distribution agreement and the service agreement are interconnected; Considering the nature of services performed by the assesse with the aid of ITES division, ITAT rules that since the assessee had an access to patent, technical know-how, IPRs, trade mark, the process, derivative works, brand features, etc., of the GIL, “the payments of advertisement fees ... is not the payment simpliciter towards the purchase of AdWord space which may be treated as business profit.. but it is a payment of royalty to the GIL...”; Relies on jurisdictional HC ruling in Synopsys International Ltd., distinguishes ITAT rulings in Pinstorm Technologies Ltd., Right Florist and Yahoo India Ltd. on facts, observes unlike these cases, assessee in the instant case, is not a simpliciter buyer of Adword Space for putting the advertisement for himself or others; Remarks that introduction of equilisation levy would not convert the nature of payment made by the assessee, also rejects assessee’s bona-fide belief stand for non-deduction of TDS observing that the distribution and service agreements were prepared in such a way to give transaction a different colour; With respect to whether GIL is the beneficial owner of royalty income so as to claim concessional tax rate under DTAA, ITAT restores the matter to the AO to re-adjudicate the issue  in the light of the license agreements executed between the parent holdings of GIL:ITAT 

HC grants interim stay against ‘best judgment’ assessment order passed after 12 years

Bombay HC grants interim stay against ‘best judgment’ assessment order passed by Assessing Authority after lapse of almost 12 years u/s 33(5) of Bombay Sales Tax Act, 1959 r/w Section 9 of Central Sales Tax Act for the F.Y. 2004-05; Notes petitioner’s stand that such an inordinate delay in adjudication is directly in teeth of law in terms of various judicial precedents including Court’s recent judgment in Premier Ltd; HC observes that the only explanation provided for inordinate delay by the Dept. is delay by petitioner in appearing for personal hearing; Accordingly, while admitting the petition, HC holds, “prima facie arguable questions of the inordinate delay in completing the assessment are raised” : Bombay HC 

Communication from CPC for mismatch of Income as per form 26AS.

CPC – Income Tax  is sending  notices to taxpayer towards mismatch of income as disclosed in Income tax return and income as per form 26AS.  The reply of same should be made in next 30 days.  In case you need any assistance to make reply to income tax department, please take assistance of our tax experts.    Contact  them at 79754 87625.

HC : Quashes seizure of consignment for non-filing of e-Way Bill's Part B during intra-state transport

HC quashes seizure order / show cause notice passed / issued u/s 129 of CGST Act for non-filing of Part-B of e-Way Bill during movement of goods within State of U.P up to transporter’s premises; Accepts assessee’s contention that in terms of amendment to Rule 138 of CGST Rules vide Notification No. 12/2018-Central Tax, it was not obliged to fill details of conveyance in Part-B where goods were being transported up to a distance of 50 kms within the State, from the place of consignor’s business to the place of transporter for further transportation; Finds force in assessee’s submission that there was no intention to evade payment of tax for the reason that it had charged IGST @ 18% in respect of such goods consigned to Gujarat; Noting that all the documents accompanied the goods and requisite details were duly mentioned, HC elucidates that mere non-mentioning of vehicle no. in Part-B cannot be a ground for seizure of goods; Moreover, states that it was obligatory on Revenue’s part to pass an appropriate reasoned order on noting that no reasons were assigned nor any discussion mentioned therein, consequently directs release of seized goods & vehicle: Allahabad HC 

Authority for Advance Ruling passes orders on issues raised under GST

This Tax Alert summarizes the orders passed by the Authority for Advance Rulings (AAR) under the GST in different states.   

The outcome of some of the key rulings are summarized below:
•        Supply of UPS and battery for a single price cannot be considered as naturally bundled and hence is treated as mixed supply
•        Supplier having only exempt supplies and also not liable to pay GST under reverse charge, is not required to register under the GST law
•        Promoting the courses of foreign universities in India is not an export of service but to be treated as intermediary services liable to GST
•        Meals provided to employees in a factory canteen is a supply liable to GST
•        Out and out supply without physical imports into India will not attract GST
•        Goods sold in duty free shop at Delhi Airport to international passengers travelling abroad is a supply within India and not exports, hence liable to GST
•        Transfer of undivided share of land under a separate agreement is part of the supply of superstructure, subject however to the abatement under Notification No. 11/2017 – Central Tax (Rate)

 Comments
 •        Rulings of the AAR may have limited applicability as the same would be binding only to the applicant and the jurisdictional tax authorities, basis the facts of the case submitted before the AAR.
 
•        One will need to analyze the complete facts of the case before placing reliance on Advance Ruling as it may have a significant bearing on the tax treatment of the transactions, particularly those which are of recurring nature or involving high stakes.
 
•        The finding of the AAR holding divisibility of contract as a key determinant of the nature of supply i.e. mixed supply or a composite supply, despite the products being interdependent and integral could be debatable. Industry should evaluate supplies of more than one products on case to case basis in light of the said ruling.
 
•        AAR’s observations on taxing the entire consideration notwithstanding the fact that the agreement between the developer and the buyer is entered after part of the construction is already completed, will need to be analyzed in light of the apex court ruling and the tax treatment under the erstwhile indirect tax regime.
 
•        Non-applicability of IGST on imported goods which do not enter territory of India may remain litigious in view of its implications on reversal of input tax credit as such supply is treated as non-taxable supply.

HC: Tribunal must hear taxpayer before allowing Revenue's ‘early hearing’ application

Delhi HC rules in favour of NDTV promoter Prannoy Roy (assessee), holds that order granting early hearing to Department is a ‘judicial order’and not an ‘administrative’ order; Assessee had challenged the Tribunal order granting early hearing to Department on the ground that neither the Department’s application for ‘early hearing’ nor the ITAT's order granting such early hearing were provided to assessee; HC rules that assessee must be granted hearing before allowing Department’s ‘early hearing’ plea, also rejects ITAT's admission of additional evidence without hearing opportunity to assessee 

Chairman CBDT Adjournment - Stay granted matters

INCOME TAX APPELLATE TRIBUNAL BAR ASSOCIATION

10^TH FLOOR, ITAT PREMISES, LOK NAYAK BHAWAN, KHAN MARKET, NEW DELHI-110003

TEL: 24628213 / 24647347 / 43528310

Website: www.itatbardelhi.com

email: info@itatbardelhi.com / itatbar@gmail.com /itatbardelhi@gmail.com

Sec. 80P deduction available on interest from investments with co-op. bank; Tax deduction u/s. 194C cannot make

ITAT: Allows Sec. 80P deduction on co-operative society’s interest income from investments with co-operative bank   

Update on 27th GST Council Meeting at New Delhi on 4th May 2018

GST Council (‘Council’) in its 27^th meeting held on 04^th May 2018 has discussed and made recommendations on various issues. The key highlights of the meeting are as follows:

·         Simplification of GST Returns – The Council has approved principles for filing of new Return design based on the recommendations of the Group of Ministers on IT simplification. The key elements of the new Return design are as follows –   

AAR : Solar Power Plant involves element of 'permanency'; EPC agreement taxable as "works contract"

Maharashtra AAR holds that turnkey Engineering, Procurement and Construction contract for setting up of solar power plant, would constitute a “works contract” in terms of Section 2(119) of CGST / MGST Act; Rejects applicant’s stand that such transaction should be treated as “composite supply” u/s 2(30) of CGST Act, inasmuch as supply of Solar Power Plant does not result into transfer of an “immovable property”; To understand the meaning of the term “immovable property”, AAR refers to SC judgments in T.T.G. Industries Ltd. & Solid and Correct Engineering Works as well as Bombay HC ruling in Bharti Airtel Ltd. and states, “The principles laid down in the judgments…stand good under all statutes unlessany specific definition is available under statute…”; Analyzing the agreement in present case, AAR finds that the owner expects the contractor i.e. the applicant to perform all activities from engineering, design to procurement of materials and also perform the testing and commissioning, and “the liability of the contractor doesn’t end with the procuring of materials but extends till the successful testing and commissioning of the system”; Observes, said contract is to develop a 60 MWAC / 81 MWDC solar power plant for onward sale of power to its customers, therefore such output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals; AAR also refers inter alia to definitions of “Commissioning”, “Government Order”, “Grid” and “Grid Substation” along with ‘Obligations of Contractor’ clause to remark, “After having established and commissioned such a Project which is connected to a Grid Substation, who would be taking the Project to a different location. It would be farfetched an argument that the Project could be shifted to a different location just to prove that the Project is movable”; Resultantly, observes that since “works contracts” u/s 2(119) are deemed to be supply of services, the transaction in instant case would constitute supply of “services” falling in Entry at Sr. No. 3(ii) [Heading 9954 (Construction Services)]; Accordingly, there arises no occasion to visit the entries prescribing tax rates for ‘goods’ and there would be no relevance of “principal supply”, observes AAR; As regards liability of sub-contractors, AAR notes that they either supply goods, viz. renewable energy products and parts thereof to the contractor or engage in providing certain portion of contract, but in the absence of documents to establish that transaction is supply of ‘goods’, refuses to delve into said question : Maharashtra AAR 

Services of software development & customisation taxable at place of 'recipient', clarifies CBIC

CBIC issues clarification on applicability of the Place of Provision of Services Rules (POPS Rules) to development of software and services on software; Explains,“Software being intangible, does not have a unique existence and can exist on different servers at the same point in time…Limited access to the software for a limited period through electronic protocols is given to the service provider by the recipient of service to enable the former to provide the service. Only the recipient of service has control over who accesses the software, when it can be accessed, for how long and for what purpose.”; Applying the definition of “declared services” in Section 66E(d) of the Finance Act and the provisions of POPS Rules, CBIC clarifies – (i) in case of services where data, instructions etc. are provided so as to develop software i.e. development, design and programming of IT software, the place of provision of service is the location of service recipient, while (ii) in case of services on software involving testing, debugging, modification etc. i.e. customisation, adaptation, ugradation, enhancement, implementation of IT software, the place of provision of service is the location of recipient; Therefore, in both cases, place of provision of service is the location of service recipient : CBIC Circular 

Denial of KKC credit to be transitioned into GST

This is to update you on a recent Advance Ruling issued by the Authority for Advance Ruling (Maharashtra) wherein it has been held that the accumulated credit by way of Krishi Kalyan cess (KKC) as appearing in the Service tax return of Input service distributor (ISD) on June 30 2017 cannot be carried forward in the electronic credit ledger maintained under GST.  

SC : Reverses HC, permits block assessment aided by 'simultaneous' survey on connected person

SC allows Revenue's appeal, holds that material found in the course of simultaneous survey in the premises of builder with whom assessee had transaction, can be used in assessee's block assessment u/s 153A; Search was conducted at the premises of assessee between July 17, 2002 and August 21, 2002 and simultaneous survey was carried on at premises of ECIL (builder and decorator who had constructed and decorated assessee's house) wherein it was found that assessee had paid in cash Rs. 95.16 lakhs to ECIL which was not accounted for, accordingly AO assessed this amount as income in block assessment on assessee for period April 1, 1996 to July 17, 2002; SC notes that in order to add any income in the block assessment, evidence of such must be found in the course of search u/s 132  or in any proceedings simultaneously conducted in the premises of the assessee, relatives or persons who are connected with assessee and are having transaction/dealings with such assessee; Takes note of the provision of Sec 158BH under which other provisions of Income-tax Act are made applicable to block assessment, thus holds that any material or evidence found/collected in a survey u/s 133A which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of assessee u/s 158BB r.w.s 158BH; Observes that "The same would fall under the words 'and such other materials or information as are available with the Assessing Officer and relatable to such evidence' occurring in Section158 BB of the Act"; Thus, holds that AO was justified in taking into account the adverse material found during the survey while making the Block Assessment, sets aside HC order and restores AO's order of block assessment:SC

SC : Rescues 'marginal taxpayers', holds amendment relaxing Sec. 40 (a) (ia) disallowance rigours as retrospective

SC upholds HC rulings giving retrospective effect to Finance Act, 2010 amendment that relaxed the rigours of Sec. 40(a)(ia), providing that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income; Rejects Revenue's argument for a 'plain'/literal reading of the amendment, notes carefully both the Finance Act 2008 & 2010 amendments; SC observes that while the Finance Act, 2008 amendment (amended retrospectively w.e.f 1.4.2005 ) gave relief in cases where TDS had been deducted in the month of March but deposited before due date of filing return, the Finance Act, 2010 amendment (applicable from AY 2010-11) extended this relief to TDS deducted in the earlier 11 months as well and deposited before the return filing due date; SC, on perusal of the Memorandum explaining the reasons behind the Sec. 40(a)(ia) amendment, observes that the same came with a purpose of ensuring tax compliance, not to punish the assessee and hence the same should not be allowed to be converted into an 'iron rod' provision which metes out stern punishment and results in malevolent results; SC holds " A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section, is required to be read into the Section to give the Section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the Section as a whole..." ; Court justifies this liberal interpretation citing the adverse consequences on 'marginal' and 'medium' taxpayers if the amendment is not given retrospective operation; Relies on co-ordinate bench ruling in Allied Motors (P) Limited case wherein Sec. 43B proviso was held as retrospective in nature:SC