· Tribunal in the case of M.N. Dastur & Company Pvt. Ltd. v. CST, (ST Appeal 75128 of 2017), held that compensation received for termination of an agreement is not a consideration and hence, not exigible to Service Tax (‘ST’)
Saturday, 29 July 2023
Direct Tax Update - July 23
§
CBDT vide Notification [Notification No. 46/2023/F. No.
500/1/2014-APA-II] dated 26.06.2023 provides for tolerance range of one percent
for wholesale trading and three percent in all other cases for assessment year
2023-2024
Do You Know?
§
Sale of shares in Indian
company by Non-Resident to another Non-Resident. Any FEMA implications?
- Since the transaction is between non-residents,
FEMA will not be triggered here and also it's a private transfer of shares with
a shareholder who has no direct connection with an Indian company.
Saturday, 22 July 2023
RECENT INCOME TAX JUDGEMENTS
§ The Delhi Bench of the
Income Tax Appellate Tribunal (Hon’ble ITAT) has ruled in the case of BLP Vayu
(Project-1) Private Limited that the provisions of section 56(2)(viib) of the
Income Tax Act, 1961 do not apply to the allotment of shares at a premium to a
wholly-owned holding company. The
Hon’ble ITAT held that the transaction of allotment of shares at a premium between
a holding company and its subsidiary company when seen holistically, there is
no benefit derived by the taxpayer by issue of shares at certain premium
notwithstanding that the share premium exceeds the FMV. The objective of the provisions of section 56(2)(viib)
is to prevent unlawful gains by the issuing company in the guise of capital
receipts. The purpose of treating an unjustified premium charged on the issue
of shares as taxable income under section 56(2)(viib) is entirely inapplicable
to transactions between a holding company and its subsidiary company, where no
income can be said to accrue to the ultimate beneficiary, i.e., the holding
company. Accordingly, the chargeability
of deemed income arising from transactions between holding and subsidiary or
vice versa, militates against the solemn object of section 56(2)(viib).
E-journal Subscription Amount Not Taxable as Royalty: Delhi High Court
The Delhi High Court declared that the subscription amount earned by a non-resident taxpayer from Indian entities is not taxable as royalty or fee for technical services. Let's dive into the details! 🕵️♂️🔍
The Case: A Germany-based taxpayer engaged in publishing books and academic e-journals received subscription fees from Indian entities. The taxpayer contested the taxability of this income, while the tax officer classified it as royalty.
The High Court's Verdict: The Delhi High Court closely examined the nature of the transaction and found that the taxpayer merely sold copyrighted material to the entities without granting any right to copy the material. Consequently, the subscription amount could not be treated as royalty or fee for technical services.
Key Takeaways: The Court's ruling aligned with the Supreme Court's decision in the Engineering Analysis case, reinforcing the distinction between selling copyrighted material and granting copyright ownership.
Food for Thought: With this verdict in place, one might question whether the 2% equalization levy is applicable to subscription fees in the current scenario. 🤔💡
TAX SPARING
In an interesting judgment the the Hon’ble HC of Delhi has upheld the ITAT decision in case of Polyplex Corporation Ltd, in relation to matter related to deemed tax credit arising from a Thailand subsidiary. The HC held that the deemed tax of 10%, that was otherwise spared by Thailand tax authority, shall be allowed as credit to the Indian company on the dividend income earned by the parent from its Thai subsidiary, considering the concept of ‘tax sparing’.
SUMMARY OF 50TH GST COUNCIL MEETING.
Yet another milestone has been achieved in the GST era, when the GST Council held its 50th meeting in New Delhi under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman last week (11 July 2023).
Friday, 21 July 2023
INTERNATIONAL TAX UPDATE - JULY 23.
§ The Australian Taxation Office (ATO) publishes the updated guide to taxation of financial arrangements (TOFA). TOFA aims to reduce the influence of tax considerations on how financial arrangements are structured. TOFA also aims to closer align the taxation recognition of gains and losses on financial arrangements with commercial recognition of gains and losses.Although Tob FA provides a comprehensive and overarching framework to address the economic substance of arrangements, it is not an exclusive code for the taxation of gains and losses from financial arrangements. Unless otherwise specified, other provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997 still deal with gains or losses from financial arrangements where TOFA does not.
Thursday, 20 July 2023
Gift City Gyan
Big boost coming in the way of those intending to
deal in ODI, NDF and OTC from our home ground Gift City.
Income generated by Non residents’ through the
following instruments by way of transfer or distribution on ODI shall be exempt
from double Taxation
Tuesday, 18 July 2023
GST Circulars | Recommendations of 50th GST council meeting
Ministry of Finance has recently issued various circulars pursuant to the recommendations/ proposals made in the 50th GST council meeting.
We have
summarized hereinbelow the clarifications issued vide these circulars for your
quick reference.
|
Circulars |
Clarifications Provided |
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|
Circular
No 192/04/2023-GST dated 17 July 2023 |
Clarifications
on interest payable in case of wrong availment of IGST credits
The
clarification is being sought as to whether the wrongly availed IGST credit
would be considered as utilized for the purpose of charging of interest under
section 50(3) of the CGST Act, 2017 along with rule 88B of the CGST Rules,
2017, in case where the Input Tax Credit (ITC) in IGST ledger is less than
the amount wrongly availed, however the total ITC under the heads CGST, SGST &
IGST together remains more than such wrongly availed IGST credit.
The
CBIC has clarified the issues as under:
►
In case where IGST credit has been wrongly availed, no
interest liability under section 50(3) of CGST Act, 2017 would be levied, if
the balance of ITC in the electronic credit ledger, under the heads IGST,
CGST and SGST taken together, has not fallen below the amount of such wrongly
availed ITC.
►
However, when the balance of ITC taken together under
all the three heads falls below such wrongly availed ITC, the interest as per
section 50(3) of CGST Act will be applicable.
►
Further, the credit of compensation cess available in
electronic credit ledger cannot be taken into consideration for the purpose
of calculation of interest under sub- rule (3) of rule 88B of CGST Rules in
respect of wrongly availed and utilized IGST, CGST or SGST credit.
|
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|
Circular No 193/05/2023-GST dated 17 July 2023 |
Clarification in cases of difference between ITC
availed in FORM GSTR-3Bs and FORM GSTR-2As for the period April 2019 to
December 2021
► It is clarified that for the period 1 April 2019 to 8 October 2019,
the process and guidelines provided by Circular No. 183/15/2022-GST dated 27th
December 2022 shall be applicable
► Further, for the period 9 October 2019 to 31 December 2021 where rule
36(4) of the CGST Rules, 2017 allowed additional credit availment to the tune
of:
► The guidelines and procedures for verification of ITC, as provided by
Circular No. 183/15/2022-GST (supra) shall be applicable for the
aforementioned period(s) as well.
► The above verification/ procedures shall be applicable only to the
extent of amount covered under the permitted percentage (20%/10%/5%), as was
allowed under Rule 36(4) of the CGST Rules. For reference, below
illustration has been provided:
* - Percentage
only for illustration purpose. The same shall change basis the period
mentioned hereinabove
► It is further clarified that consequent to amendment of rule 36(4) of
CGST Rules w.e.f. 1 January 2022, no excess ITC shall be allowed on or
after the said period in respect of a supply which does not appear in
recipient’s FORM GSTR-2B.
The said procedure for verification can be
applied only to the ongoing scrutiny/ audit/ investigation (in respect of the
said period) or cases where adjudication or appeal is pending. It cannot be
applied for the completed proceedings. |
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|
Circular
No 194/06/2023-GST dated 17 July 2023 |
Clarifications
on TCS liability under section 52 of the CGST Act, 2017 in case of multiple
E-commerce Operators (ECOs) in one transaction
► Where the supplier
side ECO is not the actual supplier in the said supply (Buyer à Buyer-side ECO à Seller-side ECO
à Seller) The compliance is to be done by the
supplier-side ECO who finally releases the payment to the supplier for a
particular supply made by the said supplier through it
► Where the
supplier-side ECO is the supplier of the said supply (Buyer à Buyer-side ECO
à Seller) The compliance is to be done by the
Buyer-side ECO while making payment to the supplier for the particular supply
made through it
|
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|
Circular
No 195/07/2023-GST dated 17 July 2023 |
Clarification
on availability of ITC in respect of warranty replacement of parts and repair
services during warranty period
Clarification
on following issues/ transactions have been issued
► Whether GST would
be payable on replacement of parts or supply of repair services, without any
consideration being charged from the customer, as part of warranty?
► Whether
manufacturer (in above case) is required to reverse ITC in respect of such
replacement of parts or repair services for which no additional consideration
is charged?
► Whether GST would
be payable on replacement of parts and/ or repair services provided by a
distributor without any consideration from the customer, as part of warranty
on behalf of the manufacturer?
► In the above case,
whether any supply is involved between the distributor and the manufacturer,
and whether distributor would be required to reverse ITC in respect of such
replacement of parts?
► Where distributor
provides repair services in addition to replacement of part(s), on behalf of
manufacturer, and charges manufacturer for such repair, either by way of
issuing a tax invoice or debit note
► Implications on
cases where Extended Warranty is offered by Manufacturer
|
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|
Circular
No 196/08/2023-GST dated 17 July 2023 |
Clarifications
regarding taxability of share capital held in subsidiary Company by the
parent Company ►
Securities are neither considered as goods nor services
in terms of definition of goods and services under CGST Act.
►
Further, securities include ‘shares’ as per definition
of securities under Securities Contracts (Regulation) Act, 1956. ►
For a transaction/activity to be treated as supply of
services, there must be a supply as defined under section 7 under CGST Act.
►
Solely on the basis that there is exists an entry in
SAC schedule, it cannot be said that a service is being provided unless there
is a supply of services by the holding company to the subsidiary company. Accordingly,
it has been clarified that the activity of holding of shares of subsidiary
company by the holding company per se cannot be treated as a supply of
services by a holding company to the said subsidiary company, and cannot be
taxed under GST. |
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|
Circular
No 197/09/2023-GST dated 17 July 2023 |
► Refund of
accumulated ITC to be allowed basis details available in Form GSTR 2B
|
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|
► Modification in the
undertaking required at the time of refund application and submission of
other documents
|
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|
► Clarification in
respect of calculation of ‘Adjusted Total Turnover’
|
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|
► Refund of tax and
interest (on subsequent export) voluntarily paid due to failure to export
goods or realise proceeds within the prescribed time limits
o
Goods have not been exported out of India within three
months from the date of invoice (or such time as may be extended by
Commissioner); o
Payment in foreign currency has not been realised
within one year (or such time as may be extended by Commissioner) from the
date of invoice, in case of export of services.
|
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|
Circular
No 198/10/2023-GST dated
17 July 2023 |
Applicability
of E- Invoice for supplies made by registered person to Government
Departments or establishments/ Government agencies/ local authorities/ PSUs
registered solely for deduction of tax at source as per section 51 of the
CGST Act, 2017
►
Government Departments or establishments/ Government
agencies/ local authorities/ PSUs, which are required to deduct tax at source
as per section 51 of the CGST/SGST Acts, are liable for compulsory
registration as per section 24(vi) of the CGST Act, 2017
►
It has been clarified that the registered person, whose
turnover exceeds the prescribed threshold for generation of e-invoicing, is
required to generate IRN and comply with e-invoices rules, for supplies made
to such Government Departments or establishments/ Government agencies/ local
authorities/ PSUs, etc under rule 48(4) of the CGST Rules 2017 |
||||||||||||
|
Circular
No 199/11/2023-GST dated 17 July 2023 |
Clarification
regarding taxability of services between distinct persons (offices of the
same entity)
1. In respect of
common input services procured by Head Office (HO) but attributable to HO
and/ or Branch Office(s) (BOs), following are the clarifications provided
►
Whether HO can avail ITC in respect of such common
services? –
Yes. HOs can avail the full ITC with an option to distribute the ITC by
following Input Service Distribution (ISD) mechanism.
►
Whether is it mandatory for HO to follow ISD mechanism
for distribution of ITC? – No. As per the present provisions of the
GST law, the ISD is not mandatory. However, if opted, HO is mandatorily
required to get an ISD registration.
►
Whether HO can issue tax invoice to BOs? – Yes. HO can also
issue tax invoices to BOs in respect of such common input services
►
Whether BOs can then avail ITC? – Yes. BOs can
avail ITC on the said invoices issued by HO subject to the relevant
conditions/ restrictions for availing the ITC
The
distribution of ITC through ISD/ the issuance of tax invoice from HO to BOs
can only be made if the said input services are attributable to the
said BO(s) or have actually been provided to the said BO(s).
2. In respect of other
services provided by HO on their own to branch offices, following are the
clarifications provided
The
value of supplies between distinct persons shall be the Open Market Value
(OMV). However, the value declared in the invoice shall be deemed
to be the OMV if recipient is eligible for full ITC.
► Whether HO is
mandatorily required to issue invoice to BOs? – No. It is not
mandatory to issue the invoice
►
Treatment in case the HO is not issuing tax invoices
where full ITC is available to BOs - The value may be deemed to be
declared as Nil by HO and the same shall be deemed as OMV
► If HO issues tax
invoice to BOs, whether the cost of all components including salary cost of
HO employees involved in providing the said services has to be included in
the computation of value of services – The value declared in the invoice shall
be deemed to be the OMV irrespective of the fact of inclusion/ non-inclusion
of certain costs
►
Where full ITC is not available to BOs, whether the
cost of salary of employees of the HO involved in providing said services to
the BOs is mandatorily required to be included while computing the taxable
value of the said supply? – No. It is not mandatory to include the
salary costs of HO employees while computing the taxable value even in
these cases
|
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