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