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BETI BACHAOBETI PADHAO

Volume : 41 | Part 7 | October, 2017

AHMEDABADCHARTERED

ACCOUNTANTS

Ahmedabad Chartered Accountants Journal October, 2017 341

Volume : 41 Part : 7 October, 2017

Ahmedabad Chartered Accountants JournalE-mail : [email protected] Website : www.caa-ahm.org

C O N T E N T S To Begin with

- The Higher Purpose........................................................ Adv. Nakul Sharedala............l .........343

Editorial - GST - Constant Changes is the name of the Game.............CA. Ashok Kataria........................345

From the President.............................................................................CA. Kunal A. Shah.......................346

Articles

IP in New India....................................................................................Adv. Nakul Sharedalal .........347

GST Impact on Textile Industry.............................................................Dr. CA. Anjali Choksi...................349

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................352

From the Courts.................................................................................. CA. C.R. Sharedalal &CA. Jayesh Sharedalal............... 353

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................. 357

Controversies.......................................................................................CA. Kaushik D. Shah....................361

Judicial Analysis..................................................................................Adv. Tushar P. Hemani................364

FEMA & International Taxation

Indian Tax Administration releases Final rules on Country by CA. Dhinal A. Shah &Country reporting and Master File implementation............................ CA. Sagar Shah.............................369

FEMA Updates.................................................................................. CA. Savan Godiawala..................372

Indirect Taxes

GST Updates.......................................................................................CA. Ashwin H. Shah.....................373

GST & VAT Judgments / Updates ....................................................... CA. Bihari B. Shah.......................375

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara...............378

Allied Laws Corner..............................................................................Adv. Ankit Talsania.......................383

From Published Accounts .................................................................CA. Pamil H. Shah..................... 387

From the Government ......................................................................CA. Kunal A. Shah........................389

Association News................................................................................CA. Riken J. Patel &CA. Maulik S. Desai .................. 391

ACAJ Crossword Contest......................................................................................................................392

- caaahmedabad

........

Ahmedabad Chartered Accountants Journal October, 2017342

AttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one

month. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Subscription for the financial year 2017-18 is ` 1500/-, single copy ` 150/- (if available).4. Please mention your membership number in all your correspondence.5. While sending Articles for this Journal, please confirm that the same are not published / not even meant for

publishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication, norwill they be sent back.

6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarilyconcur with the authors / contributors.

7. Membership Fees :

Amount in `

Basic GST TotalLife Membership 7500/- 1350/- 8850/-Entrance Fees 500/- 90/- 590/-Ordinary Membership Fees for the year 2016-17In case of Membership (of ICAI) for a period of less than 600/- 108/- 708/-or equal to five years,In case of Membership of (ICAI) for a period of more than five years, 750/- 135/- 885/-Brain Trust Membership Fees 1000/- 180/- 1180/-

Published ByCA. Ashok Kataria,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, NearGujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232No part of this Publication shall be reproduced or transmitted in any form or by any meanswithout the permission in writing from the Chartered Accountants Association, Ahmedabad.While every effort has been made to ensure accuracy of information contained in this Journal,

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and

the Publisher is not responsible for any error that may have arisen.

Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciationafter being vetted by experts in the profession.Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]

Journal CommitteeCA. Ashok Kataria CA. Nirav Choksi

Chairman ConvenorMembers

CA. Darshan Shah CA. Gaurang ChoksiCA. Jayesh Sharedalal CA. Rajni Shah CA. Shailesh Shah

Ex-officioCA. Kunal Shah CA. Riken Patel


Finite thoughts, infinite possibilities;

the soul is dyed in colours of ‘diversity’.

Mere guards of ideas we are,

sunk in the hoarding, over the time, we ‘mar’.

Intent might be legitimate,

albeit, who is to question or validate?

In sharing, do we fulfil a higher purpose,

Of educating and enlightening towards the path we propose.

Whether it be knowledge or gesture,

Nothing goes unnoticed in the books of the master.

To serve others with what we have is the supreme goal,

Otherwise, we would have been mere puppets in the world so cold.

Imbibe what is right, and break the shackles of the wrongs;

persevere like a duck, refrain from hitting the ‘gong’.

Practice your faith, for it gives you energy,

Resonate in the mantras, let your mind-body work in synergy.

Work on yourself, till your work introduces you,

Be a better version of yourself, continuously beating the blues.

For there will come a time when you will rise like a phoenix,

The Higher Purpose

Not from the ashes, nor from the dirt, but self-created mirage of toxic.

Adv. Nakul [email protected]


We evolve every day. Every single minute, even while we are asleep. The cloud of thoughts, ideas, andemotions built up inside us gives us a new definition of ‘ourselves’ every single morning. We wake upbrand new, seeing the world in a different shade of light. We see, we absorb, we churn, we analyse, andthen, we apply. We take birth every day, and that is a rare gift! This gift gives us the power to rise up, andbe a better version of ourselves. It gives us the opportunity to revamp our mundane yesterday, andglorify the today. Most importantly, it gives us ‘time’. Time to succeed, to fail, to succeed again, andultimately achieve the desired.

We must ask ourselves, why are we running, half panting-half smiling in this cycle, or a race, if youmay…?

As vague as it may sound, we all are consciously or unconsciously a part of this war, where we want toprove to others how superior we are from them. God knows when this happened, but some time inchildhood, a chip was inserted to our innocent system in the name of ‘healthy competition’ that we areborn to outdo others, and prove our worth in whichever field possible, and that, we should striveconsistently to maintain that status. Only in relative comparison, can we find peace, and the satisfactionthat we have done something better than our fellows. What we do fail to realise, even after some 20-30odd years of existence is – why do we exist…?

Do we exist to eat, work, sleep, and repeat? Or do we have higher purpose to fulfil? A purpose that isunique to us, and that, no other living being can perform, a purpose that gives meaning to our life, andwhich ignites in us a fire so intense that we never run out of passion. From the first ray of the sun in themorning to the dim light of the moon in the night, everything around us, visible and invisible to the nakedeye, has a definite purpose. With humans, it can never be definite. No one can know what purpose he/she has to serve while crawling on the knees!! It can (it does!) change from time to time, and with theknowledge of rational and irrational, it gives itself a shape.

Nothing is permanent, and realising that the state of nothingness exists, is the only truth. The burden youhave tightly clasped to your chest is not yours to claim, human! Remember how you used to lovinglygive away half your toffee to your younger sibling, just because he/she made a puppy face and you lovehim/her? Remember how you used to share your valuable knowledge a night before exams to help yourfriends not flunk the other day? Remember all those times you just selflessly helped a stranger, becausewhy not, it gives you immense happiness?

Just like that, we cannot just have everything to ourselves without giving it back to those who havehelped us, and those who deserve a return from us. We are a beautiful amalgamation of words, flesh,thoughts, blood, and energy, but it does not entirely belong to us. We have got flesh and blood from ourparents, who are the reason we exist in the first place. We get words and thoughts from all the people,and matter that exists around us, and with whom we have interacted in our life. We derive energy fromdifferent sources – food, work, meeting like-minded people, or just from a cup of coffee! If we are madefrom so many sources, how can we not give them back what they have contributed in making us the bestversion of ourselves?


It has been around five months now into the GST regime and still there are numerous changes beingrecommended and introduced time and again by the GST council. These frequent changes may be lookedinto with two perspectives: 1) It is an admission by the government that there have been some omissionsand lapses which could have been addressed at the time of introducing the law and thus being correctedand 2) It also signifies that government is concerned with the grievances from the trade and industry andis receptive to the suggestions to make the GST law a “good and simple tax”. The positive aspect in theentire exercise is that the most of the changes being introduced are procedural in nature to make thingseasier and without much change in the legal framework.

Out of the many changes that are being constantly introduced, change in rates of various items is frequentand prominent. The draft model law was initially put for public consultation followed by the revised law.

stFinally, the CGST Act was notified w.e.f. 1 July 2017 which further improved from the revised draft law.In contrast, the rate schedules for goods and services was first released only in May – 2017, about 50 daysbefore the launch of GST. As a result the government could not receive much feedback from the trade andindustry with regard to rates and this is one of the reasons that change in the rate structures has been morefrequent than other changes.

The major hurdle in implementation of the GST law has been the procedural aspect. The GST portal wasmade effective about 24 days after the launch of the GST and this was without many important functionalitiesbeing operational. Surprisingly, five months down the line, many features including refunds, advanceruling and various return forms have not yet been embedded in the system. This has been one of the majorreasons of frequent changes. Every delay in introducing a required feature for compliance forced theextension of corresponding due date. A foolproof IT system should have ideally been put into publicdomain prior to the launch of GST for proper testing but unfortunately it seems that GST portal startedfunctioning on trial and error basis with the live data of the tax payers.

One of the important aspects of every change, legal or procedural, it has to come by way of recommendationfrom the GST council. It is an accepted principle that whatever is recommended by the GST council, thegovernment will follow it with appropriate notification. Of late, one decision of the council has not yetbeen accepted by the central and other state governments. The GST council in one of recent meetingsdecided that the tax will be payable quarterly in case of small dealers having turnover of less than 1.5crores. However, no appropriate notification is issued till date and on the contrary the government hascome with advertisement that every assessee needs to file monthly form 3B with payment of tax till the

thmonth of March – 2018 by the 20 of the subsequent month. Whether this contrary view taken by thegovernment against the decision of the GST council is just a beginning of many new controversies waitingto emerge? Time will tell!

By the time things get settled, it would be better to accept all changes cheerfully and move on.

CA. Ashok Kataria

[email protected] - Constant Changes is the name of the Game


From the President

Dear Members,

Firstly, I wish you and your family a very happynew year. The Diwali get-together function wassuccessfully organized wherein members gatheredin large number to exchange Diwali Greeting amidstsumptuous food and the live music. I thank all themembers for gracing the Diwali get-togetherfunction with their family members.

Finally, the heavy load of work relating to tax auditand pressure of GST filings and other compliancesin October came to an end and now we will be busywith completing the assessment proceedings on or

stbefore 31 December, 2017. No matter how muchyou plan through the year and extensions you get,one still ends up racing towards meeting the due date.

With the revised GST rates coming into force, FMCGmajors such as Hindustan Unilever (HUL) and ITCsaid they are in the process of reducing prices ofcommonly used items to pass on the benefits toconsumers.

The Narendra Modi-led National DemocraticAlliance (NDA) government is all set to revamp its‘Make in India’ initiative and will come up withcertain policy changes in important sectors to helpfasten the process of creating jobs.

The Government of India launched an ambitiouscampaign ‘Make in India’ in September 2014 withan objective of reviving the growth of manufacturingsector in India. Make in India initiative has imprinteda positive image of the Indian economy on the globalplatform. It has helped to increase the flow of foreignfunds in India. The Government of India hasintroduced a number of sector specific measures forattracting foreign and domestic investors and makingthe campaign successful.

While the Government of India is continuing itsefforts in the necessary direction, the home grownshock of demonetization cannot be ignored.Demonetization has hurt the demand in recentmonths affecting consumer goods industry.

With the introduction of various new reforms andpolicies along with a tax and regulatory friendly

CA. Kunal A. [email protected]

environment, the Make in India initiative can be

expected to create the necessary fertile ground tofoster the growth of manufacturing sector anduplifting the Indian economy.

World Cup failure plunges Italy into a nationalexistential crisis - Many tragedies have befallenItaly in the past 60 years. Dozens of governmentshave collapsed. Earthquakes and terrorism haveshaken cities. But the failure of the national soccerteam to qualify for the World Cup for the first timesince 1958 seems to be taking a place in thepantheon of Italian disasters.Activities at the Association:Proper Filing of information in the returns is amandatory process for smooth flow of credit to thelast recipient. Also documentation for RCMpurchases and expenses will be important to claimtheir credits. Another important thing in this monthis filing of Trans 1 to carry forward the credits ofExcise, VAT and Service Tax. Keeping this in mind,CAA organized a seminar on Trans 1 and how touse Tally for GST especially for Lady CharteredAccountant members, lady Articles and their ladystaff members. Despite the busy month of October,Ladies Wing Programme by young lady speakerswas well attended by the lady participants.Before I conclude this message, I would like tomake this earnest request to all of you to join me inthe CAA membership drive. The association needsto increase its membership, specially the youth.After all, numbers do matter. If every member canadd one member, we can target to double ourmembership, which will be a big step forward.I would like to conclude with the thought, “We livein a wonderful world that is full of beauty, charmand adventure. There is no end to the adventuresthat we can have if only we seek them with oureyes open.” – Jawaharlal Nehru“Failure comes only when we forget our ideals andobjectives and principles.” – Jawaharlal NehruLooking forward to your support and participationin future activities of the Association.

With best regards,

CA. Kunal A. ShahPresident


IP in New India

Even before the inception of the very concept ofsociety, the inventions have been taking place inone way or the other. But at that time the term“invention” had not been coined and so theseinnovative inventions were nothing but a way toease the lifestyle. The ability of the human brain tocome up with techniques to make living easier is ofsuch superior level that from sending birds to delivermessages which took days, now we all possess asmart phone to do that in seconds.

Lets for a moment travel back in time (FYI theinvention is yet to be done so hurry up!) where therewas no law, no society only the species of earthliving together in harmony. Since that time theinventions have been taking place, (Hard to believe?Make your time machine and go experience it.Don’t forget to get it patented!), like invention offire, wheel, tools, weapons and other things. Fromthe very start of the human race the creativity andinventions have gone hand in hand and due to thislevel of creativity, invention and most importantlyneed (as it is the mother of invention) it was possibleto stand at a place where it is now.

What is New India? Is it a new version of Indiathat the government will launch like India 2.0 orIndia 2S? Well, the answer to this question issubjective. New India can be can be defined in 125crore ways. But the definition I am taking is, theIndia which for the first time is taking initiatives toput the rights of the people first, to spread awarenessof these rights and to have a simple and user friendlyprocedure to secure these rights. The New Indiacan indeed be defined as India 2.0 where theimportance is being given to the digitization ofeverything.

Before any law came into force all the innovationsused to go unnoticed and unrecognized and even ifthey were recognized the actual mental laborerbehind such innovation would get no credit. The

term Intellectual property was initially termed asIndustrial Property under the Paris Convention as“the protection of industrial property has as itsobject patents, utility models, industrial designs,trademarks, service marks, trade names,indications of source or appellations of origin, and

1the repression of unfair competition” . Intellectualproperty is the mental labor of a person and is thusintangible in nature. In 1967 a specialized agencyof United Nations was formed known as WIPO(World Intellectual Property Organization), with aview “to encourage creative activity, to promotethe protection of intellectual property throughoutthe world.”According to WIPO IntellectualProperty is “the creations of mind, inventions,literary and artistic works, and symbols, names,

2images and designs used in commerce”. Later inthe year 1986 during the Uruguay Round of GATTwas the turning point in the field of IP, in this roundWTO was created and extension of intellectualproperty rights was achieved. With this in 1995WTO came into existence subsequent to which allthe members of WTO entered into TRIPSAGREEMENT which led to the official start ofIntellectual Property Rights.

There is a huge onus on the shoulders of the courts.On one hand they have laws and on the other they

3have public policy. The Novartis case the courtgave a distinguished judgment. Even though thiswas criticized by the world but it proved to be aturning point and milestone where the publicwelfare and the statute were harmonized. The courtgave importance to the public interest hence creatinghistory in the field of IP.

Adv. Nakul [email protected]

1 Article 1(2) of the Paris Convention.2 What is Intellectual Property, WIPO3 Novartis A.G vs Union Of India


With the incorporation of the new government in2014, steps have been taken to develop the IPregime in India. The significant changes that took

4place were :

1) Constitution of the joint India-US workinggroup on IPR

2) A National IPR Think Tank group set-up todraft a National IPR Policy.

The need for such change was felt because of theever increasing level in the piracy. With the worldbecoming analog and user friendly, the piracy is atan all time high. Piracy is the intellectual labor ofthe people whose rights are violated as theircreations are being copied and put up in publicforum without their permission. Torrent is one suchexample of such piracy, but you already knew that!The software piracy, film piracy, uploading e-bookswithout the permission of the author, uploadinggames, songs and the list is never ending.

But with the changing times the people are gainingawareness of the existence of such rights. Thegovernment is taking steps to create awarenessabout Intellectual property. With this step ofgovernment, I can only think what NathanielBrandon said “the first step toward change isawareness. The second step is acceptance”, maybe the new government is trying to do the same.

The positive part of such change is that not onlythe people are gaining awareness but the courts arealso helping by quick and proficient examinationof the disputes and subsequently grant interim orpermanent relief in order to protect the IP

5rights .Since that time many changes has been donein the IP Law, many statues have been made andmany judgments have been given. With the passageof time the term Intellectual Property has finallyfound its place in India. Now taking a leap andcoming back to the present day and let’s try andsee what IP in new India can possibly mean.

6In the recent DU Photocopy Case , again a pointof criticism for the world, but again the court keptstudents’ interest in mind and again harmonized thelaw and the public interest. The problem ariseswhen the cases relate to such aspects which have

not been touched upon and/or which do not haveany specific legislation to get protection under like:trade secrets, personality rights, image rights,celebrity rights, cyber squatting.

The acknowledging part is that, not only thejudiciary but the legislature is working towardsdeveloping a strong and people friendly IP system.

7With the new amended rules for patents hasreduced the time, from 12 months to 6 months, forfiling a response to the FER, expedited patentexamination on request has been introduced, refundof 90% fees on withdrawal of application are few

8among others. Not only in Patents but new ruleshave been introduced for patents also, The TradeMark Rules, 2017, where the number of forms havebeen reduced, “start-ups” and “small enterprises”have been introduced, provision of e-filing, thereis now a whole process to determine “well known

9mark”, are few new features among the others .

As Georg C. Lichtenberg stated that, “I cannot saywhether things will get better if we change; what Ican say is they must change if they are to get better.”

10Therefore, even if the recent GIPC score of Indiais 8.75/35 and India ranks 43 out of the 45

11economies , that doesn’t mean that this will prevail.

IP in New India

4 Diljeet Titus and Rai S. Mittal, Recentdevelopments in intellectual property laws inIndia- Part 1, Economic Times, June 23, 2015,available at <http://economictimes.indiatimes.com/small-biz/legal/recent-developments-in-intellectual-property-l a w s - i n - i n d i a - p a r t - 1 / a r t i c l e s h o w /47780038.cms>

5 Supra Note 46 The Chancellor, Masters & Scholars of the

University of Oxford & Ors. v. RameshwariPhotocopy Services & Ors

7 Patent (Amendment) Rules, 20168 Pankhuri Agarwal, A Look Back at India’s Top

IP Developments of 2016, Spicy IP, December31, 2016

9 Prateek Surisetti, Trade Mark Rules, 2017(Salient Features), Spicy IP, March 9, 2017

1 0 GIPC is an institution of United States Chamberof Commerce handling all issues relating to theIntellectual Property.

contd. on page no. 351


GST Impact onTextile Industry

INTRODUCTION TO GST

After Initial hiccups, India warms up to the newtax regime -GST. It is a business reform rather thana tax reform. The Real business will take place andonly organized players will stay in the market. Indiahas presence of significant unorganized segmentin various sectors. Textile sector is one of the highestwith more than 90% unorganized segment as perthe report below:-

Sector Unorganized Key companies inSegment Organized(in %) Segment

Apparel 70 Aditya Birla FashionIndustry & Retail, Page

industries

Textiles >90 Welspun India,

( Ex-Apparel) Raymond, BombayDyeing

Retail >90 Shoppers Stop,Future Retail, Trent

Batteries 40 Exide Industries,After Amarja RajaMarket Batteries

Dairy 78 Parag Milk Foods,Industry Prabhat Dairy,

Heritage Foods

Jewellery 75 Titam, kalian,Tribhovandas BhimjiZaveri

Diagnostic 85 Dr Lal Pathlabs,Industry Thyrocare,

Metropolis, SuperReligare laboratories

Air Coolers 75-80 Symphony, Bajaj &Voltas

Pumps 30 Shakti Pumps, CRIPumps, Kirloskar

Footwear 50-55 Bata India, RelaxoFootwear, Liberty,Mirza International

Source:-Edelweiss Research

Those in the organized sector will gain the marketshare since in the GST era it will be difficult to dobusiness with unregistered persons. The switch toGST will increase the size of the formal part of theeconomy and increase productivity but it will alsoextract a cost from the most vulnerable firms andworkers.

This article studies the impact of GST on Textilesector according to the notifications and circularsissued till 15.11.2017.

PAST STRUCTURE

In the previous regime, the levy and collection wasas under:-

Category Past Regime Past(Central RegimeExcise) (VAT)

Manufacture/Trading of Yarn Excise Duty VAT

Manufacture/Tradingof Fabric No Excise Duty VAT

Manufacture/Trading ofReady Made Garments Excise Duty/Service TaxVAT

INTRODUCTION TO TEXTILE SECTOR

A. Classification in Textile Sector under GST

Dr. CA. Anjali [email protected]

GO

OD

S

SE

RV

ICE

SCotton & otherNatural FibresJute, SilkManmade orArtifical FibresYarnFabricGarment

Textiles & FabricsJobwork

Tailoring


B. Working in Textile Sector

Impact of GST IS divided into two parts:-

A. General Impact

1. Effect on Small Industries

• A big company who does all 3 stagesof manufacturing – There will be noimpact of accumulated credit as therestriction of refund applies only incase when output GST is paid onfabrics.

• The impact of the same would be thatthe goods that are manufactured bysmall industries performingmanufacturing process of single stageshall be costlier as compared to goodsmanufactured by the big industries.

2. Imports

• Imports will be cheaper as comparedto past regime as credit of IGST willbe entirely available now which willlead to Increased competition.

3. Working Capital & Compliances

· Requirement of working capital willincrease impacting specifically to smallindustries along with the increasingcompliances in from of various returnsand forms.

4. Creation of National Organised Market

· The organized sector will survive, as

5. Cost to the Consumer

·

GST boosts economies of scale

The cost to consumer is expected todecline as entire credit will be passedon throughout the textile chainresulting into aversion of doubletaxation.

B. Specific Impact

1. Impact on Manufacturer of Yarn

In case of any accumulated credit due tohigher tax on inputs or job work shall beeligible to be claimed as refund.

2. Impact on Manufacturer of Fabric

In case of any accumulated credit due tohigher tax on inputs – no refund will beallowed.

The accumulated credit shall form part ofcost of the manufacture.

NOTE : As per Circular No. 13/13/2017,a clarification has been issued regardingunstitched salwar suits. It has beenrepresented that a fabric is cut frombundles or thans & are sold inunstitched state. The consumers buythese sets or pieces and get it stitched totheir shape and size.

It was clarified that, “Mere cutting &packing of fabrics into pieces of differentlengths will not change the nature ofthese goods and such pieces of fabricswould continue to be classifiable underthe respective heading as the fabric andattract 5% GST rate.”

GST Impact on Textile Industry

Garments - 5%/

18%

Yarn -5% / 18%

R/m filaments & Fibres - 5% / 18%

Fabric-5%

Textilesector

INPUTSCotton-5%Other-18%

JOB WORK - 5%OUTPUTSCotton-5%Other-18%+ =

INPUTSCotton-5%Other-18%

JOB WORK - 5%

OUTPUTS 5%+ =


3. Impact on Manufacturer of Garments

In case of any accumulated credit due tohigher tax on inputs or job work shall beeligible to be claimed as refund.

NOTE:

According to Notification No. 20/2017-Central Tax (Rate)the rate of GST for“Services by way of job work in relationto - Textiles and textile products fallingunder Chapter 50 to 63 in the FirstSchedule to the Customs Tariff Act, 1975(51of 1975)” shall be 5%.” Here, the word‘job work’ has been specifically usedwhich has been defined u/s 2(68), “jobwork means any treatment or processundertaken by a person on goodsbelonging to another registered person andthe expression ‘job worker’ shall be

Tailoring services are generally provided

construed accordingly.”

to end customers who are not registeredunder GST and hence they do not fallunder the term ‘another registered person.’

Hence in our opinion, tailoring servicesprovided to consumers on B2C basis donot fall under job work and hence the GSTrate on same shall be 18%. In case oftailoring services provided on B2B basiswhere the recipient of services is registered,it can be construed as job work and henceGST rate shall be 5%

4. Impact on Traders

In case of trading business, the GST paidon purchase will be entirely available ascredit against the GST payable on sales.

RCM & Expenses

The normal provisions of RCM and creditof expenses shall apply to textile industryas well.

thHowever, as per notification issued on 13October, 2017 the provisions of reversecharge mechanism u/s 9(4) in relation topurchases made from unregistered persons

sthas been suspended till 31 March, 2017.❉ ❉ ❉

contd. from page 348 Article : IP in New India

May be The National IPR policy is the change thatwill get things better. It has now been passed whichhas been taken up as a good initial step,has filledup several gaps in the IP framework like the needfor stronger administrative capacities at India’s IPoffices, the need for stronger enforcement ofexisting IP rights and the need for a trade secretslaw but there are still some aspects not touched

12upon.

Better late than never, so even if it’s after a decadeof the TRIPS agreement, it can be seen that thepresent government is finally taking steps to grantthe rights the people deserve for their intellectuallabor. There has been introduction of new rules,policy, awareness programs with motive to ease theprocedure so can people can avail these rights easily.

Such developments are also important to increasethe business climate in India and one of the waysto do that is to build upon IPR Regime. In the endI would only like to quote Pauline R. Kezer,“Continuity gives us roots; change gives usbranches, letting us stretch and grow and reachnew heights”, may be our branches are finallygrowing.

1 1 THE ROOTS OF INNOVATION U.S. ChamberInternational IP Index, GIPC, Fifth Edition,available at <http://www.theglobalipcenter.com/wp-content /uploads/2017/02/India.pdf>

1 2 Ibid

❉ ❉ ❉

GST Impact on Textile Industry

INPUTSFabrics-5%Thread-18%Buttons-18%Colors-18%

JOB WORK5% /

TAILORING18%+ =

OUTPUTSUp to Rs. 1,000/-

@ 5%Above Rs. 1,000/-

@ 12%


Mandatory seeding of AadhaarNumbers in PAN database:

Obligation of all assessee to provide Aadhaarnumber or enrolment ID of Aadhaar applicationform while applying for PAN or while filing incometax return.

Held, does not violate arts. 14 or 19(1)(g) of theconstitution. However, validity of Sec. 139-AA r/w Aadhaar Act vis-à-vis various aspects of right toprivacy/Art.21 of the constitution would still haveto be tested before constitution bench before whomrelated issues are already pending-Moreover, penalconsequences u/s. 139-AA(2) proviso i.e. deletionof PAN in case of non-linking of Aadhaar, heldcannot be applied retrospectively to existing PANcard holders. Sec.139AA(2) proviso read down tomean that it would operate prospectively. PAN cardof assessees who are not Aadhaar Card holder notto be treated as invalid for time being – this is toenable them to facilitate transactions which fallwithin ambit of R. 114-B, Income Tax Rules, 1962– Requirements of Sec. 139-AA would beapplicable to new applications for PAN card andthose who had already enrolled in Aadhaar –Furthermore, pending adjudication of privacy/Art.21 of the constitution issues by the constitutionbench, penal provisions u/s. 139 AA(2) provisopartially stayed- in the interregnum, parliamentgiven liberty to consider whether there is a need totone down S. 139-AA(2)

Binoy Viswam Vs. UOI and others (2017) 7SCC 59

Judicial Review/Judicial Activism/Judicial Legislation:

If a public authority has a duty to do an act andfails to discharge that function, mandamus can beissued to the said authority to perform its duty: beinga judicial review of an administrative action.

Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

16 Where the statute vests a discretionary power in anadministrative authority, the court would not interferewith the exercise of such discretion unless it is madewith oblique end or extraneous purposes or uponextraneous considerations, or arbitrarily, withoutapplying its mind to the relevant considerations, orwhere it is not guided by any norms which arerelevant to the object to be achieved.

A clear distinction is to be made between the dutyto act in an administrative capacity and the powerto exercise statutory function. If public authority isfoisted with any duty to do an act and fails todischarge that function, mandamus can be issuedto the said authority to perform its duty. However,that is done while exercising the power of judicialreview of an administrative action. It is entirelydifferent from judicial review of a legislative action.

No court can direct a legislature to enact a particularlaw. Similarly when an executive authorityexercises a legislative power by way of subordinatelegislation pursuant to the delegated authority of alegislature, such executive authority cannot beasked to enact the law which it has been empoweredto do under the delegated legislative authority.

Mangalam Organics Ltd. Vs. UOI (2017) 7SCC 221

Capital Gains-Exemption u/s. 10(37)

Even if the amount of compensation is paid onagreed terms it would not change the character ofthe acquisition from that of compulsory acquisitionto the voluntary sale and the exemption providedunder the IT Act would be available and suchnegotiations would be confined to the quantum ofcompensation only.

UOI & Ors. Vs. Infopark Kerala (2017) 297CTR SC 219

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Purchase and Sale of ComputerSoftware v/s. Royalty : Interpretation ofTDS provisions : Sec. 40(a)(ia) : CIT v/s. Vinzas Solutions (India) Pvt. Ltd.(2017) 392 ITR 155 (Mad)

Issue :

Whether supply of Software attracts provision ofTax Deduction and consequently provisions of Sec.40(a) (ia) are applicable?

Held :

The assessee was a dealer in computer softwarepurchased from various companies. The AssessingOfficer disallowed the deduction under section40(a)(ia) of the Income Tax Act, 1961 on the groundthat the consideration for the purchase by theassessee was in the nature of royalty and tax oughtto have been deducted at source in accordance withthe provisions of section 194J. The Commissioner(Appeals) confirmed the order of the AssessingOfficer and held that the consideration paid by theassessee fell within the ambit of the definition ofroyalty under Explanations 4 and 5 of section9(1)(vi). The Appellate Tribunal reversed the ordersof the lower authorities.

High Court held that the provisions of section9(1)(vi) of the Act, dealing with and defining ““royalty” could not be made applicable to a situationof outright purchase and sale of a product. It wasan admitted fact that the assessee was engaged inbuying and selling software in the open market. Thetransaction in question was thus one of purchaseand sale of a product and nothing more. Courts hadconsistently noted the difference between atransaction of sale of a “copyrighted article” andone of “copyright” itself. The provisions of section9(1)(vi) would stand attracted in the case of thelatter and not the former. Explanations 4 and 7 to

CA. C. R. [email protected]

section 9(1)(vi) relied on by the authorities had to

be read and understood only in that context andcould not be expanded to bring within their fold,transaction beyond the realm of the provision. TheAppellate Tribunal was justified in deleting thedisallowance.

Appeal before High Court : Meaning ofPerversity of order of Tribunal : CIT v/s. India Advantage Fund –VII (2017) 392ITR 209 (Karn)

Issue :

When can an order passed by Tribunal can be saidto be perverse so as an appeal can be filed beforeHigh Court?

Held :

In an appeal to the High Court the finding of factby the Tribunal is final unless perverse. Perversitycan be tested in two ways: (a) if any finding offact is not supported by record and is on somehypothesis or surmises, (b) that the finding arrivedat which any person with reasonable prudencemay not record. Then it can be said that such findingis perverse.

Conditions for application u/s 12A/12AAof the Income Tax Act.CIT v/s. Gopi Ram Goyal CharitableTrust (2017) 392 ITR 285 (Raj)

Issue :

Which materials are to be examined for grant ofRegistration u/s 12A of the Act for a CharitableTrust?

Held :

In accordance with section 12AA (1)(b) of theIncome Tax Act, 1961, registration shall be grantedby the Commissioner on being satisfied about theobjects of the Trust or institution and genuinenessof its activities. The scope of the enquiry under

From the Courts

CA. Jayesh C. [email protected]

section 12A for the purpose of grant of registration

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as envisaged under section 12AA by theCommissioner shall be confined with regard to theobjects of the trust or institution and genuinenessof its activities and therefore, it cannot travel to theextent of finding out whether the income of the trustfrom the property is wholly applied for the charitablepurposes or not so as to make them entitle to claimexemption under section 11 and 12 of the Act.

Validity of Reopening at the instance ofAudit PartyReckit Benckiser Healthcare India P.Ltd. v/s CIT (2017) 392 ITR 336 (Guj)

Issue:

Whether notice issued u/s 147/148 for reopeningat the instance of Audit party is valid?

Held:

“We have therefore no hesitation in coming to theconclusion that neither the reasons recorded by theAssessing Officer, nor the decision to issue noticefor reopening were those of the Assessing Officerhimself. He had acted under the compulsion of theaudit party which held a belief that on account ofdiscrepancy in the turnover figures, incomechargeable to tax had escaped assessment. TheAssessing Officer was inclined to believe thepetitioner’s explanation that such discrepancy couldbe reconciled. If the Department was not convincedabout the opinion of the Assessing Officer, it wasalways open for the Commissioner of take the orderof assessment in revision. The action of reopeningof assessment however, stands on entirely differentfooting and as per settled law, can be resorted to bythe Assessing Officer only if he has tangible materialat his command to form a reasonable belief thatincome chargeable to tax had escaped assessment.Such belief of the Assessing Officer cannot besubstituted by that of the opinion of the Auditparty”.

Interpretation of Statutes : Sec. 158 B-C : Difference between (1) not less thanfifteen days and (2) within 15 days.Surya Dev Kumawat v/s. CIT (2017) 392ITR 369 (Raj)

From the Courts

Issue :

How the provisions of Income Tax Act are to beconstrued for legality of action?

Held :

Section 158BC (a)(ii) provides as under:

In respect of search initiated or books of account orother documents or any assets requisitioned on

stor after 1 day of January 1997, serve a notice tosuch person requiring him to furnish within suchtime not bearing less than fifteen days but not morethan forty five days, as may be specified in the noticea return in the prescribed form and verified in thesame manner as a return under clause (i) of sub-section (1) of section 142 setting forth his totalincome including the undisclosed income for theblock period.

On interpretation of above section when the noticewas issued to file return “within fifteen days”, it isheld that:-

On the questions whether the notices issued to theassessee under section 158BC of the Income TaxAct, 1961 by the Assessing Officer to file returns“within 15days” violated the provisions of thesection which required to issue a notice providingtime of “not being less than 15 days” and hencewhether the assessments made on the basis of suchnotices were bad in law.

Held, allowing the appeals, that the assessmentsmade on the basis of illegal and invalid notice werebad in law.

Any Order and Section 264 :InterpretationDy. Jyoti Vijpayee v/s. CIT (2017) 392ITR 518(All)

Issue :

Expression “any order” as per the power of revisionu/s 264 empowers which order?

Held :

The use of the expression “any order” under section264 of the Act, would imply that the section doesnot limit the power to correct the errors committedby the subordinate authorities, but could even be

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exercised where the errors are committed by theassessee. It would even cover situations where theassessee, because of an error, has not put forth alegitimate claim at the time of filing the return.

Sec. 14A and power to applyPrincipal Commissioner of Income Taxv/s. U.K. Paints (I) Pvt. Ltd. (2017) 392ITR 552 (Delhi)

Issue :

When does Assessing Officer derive power toinvoke power u/s 14A of the Act?

Held :

The principle of disallowance is stated in section14A(1) of the Income Tax Act, 1961. Section14A(2) prescribes the mode or methodology for thedisallowance and the steps for its calculation.Unlike the other part of the statute which decree orenjoin the actual methodology and are substantive,Parliament deemed it appropriate to leave it to therule making authority to prescribe the methodology,that is, computation. For instance, what are taxableand in what proportion and the principles applicableare embedded in the statute in certain provisions,such as sections 28 and 43 and sections 80A to80HHC when it comes to deductions. The rulesare not merely procedural but are substantive andcan be said to be engrafted in the statute, as isevident from the mandate of the first part of section14A(2). That apart, significantly, the question ofapplying the statutorily prescribed method wouldarise only and only if the Assessing Officerexpresses an opinion rejecting the assessee’smethodology and the figure offered at the time ofassessment. This is material because the jurisdictionto go into the method prescribed in the Rules arisesonly if the amounts the assessee offers does not haveany realistic correlation with the tax exempt income.

Date of Issue of notice how determinedRajesh Sunderdas Vaswani v/s. C.P.Meena Dy. CIT (2017) 392 ITR 571(Guj)

Held :

The date of issue of notice under section 149 of the

Issue :

How is date of issue of notice to be ascertained?

Income Tax Act, 1961 would be the date on whichit was handed over for service to the proper officer,i.e. the Postal Department.

In a writ petition the assessee sought quashing ofthe notice of reassessment on the grounds that thenotice issued under section 148 of the Act wasissued beyond six years from the end of the relevantassessment year and therefore, barred by limitationas provided in section 149 of the Act, that thoughthe notice was dated March 30, 2015, it was notbooked for delivery with the Postal Departmentbefore April 1, 2015 and that the Assessing Officehad not recorded his reasons before issuance of thenotice, clearly demonstrating a legal error. Thepostal endorsement showed that the notice wasbooked for delivery only on April 1, 2015.

There were prima facie material produced by theDepartment to demonstrate that the envelope in factwas handed over to the postal authorities on March31, 2015 itself for delivery. Therefore, it would besufficient compliance with the requirement ofissuance of notice.

Refundable security deposit by a club isa capital receiptPr. CIT v/s. Gulmohar Green Golf andCountry Club Ltd. (2017) 392 ITR 601(Guj)

Issue :

Whether refundable security deposit received by aclub is a capital or revenue receipt?

Held :

The assessee company carried on the activities of aclub. It filed its returns. On a scrutiny of its accountsit was noticed by the Assessing Officer that theassessee had enrolled members on payment ofsecurity deposit as entrance fee. The security depositwas refundable to the members after 25 yearswithout interest. The company had only a mereshare capital of Rs. 5,10,000/- and the amountcollected as security deposits from the members asentrance fee was utilized for construction and

From the Courts

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providing other facilities at the club. The assesseehad not kept apart the security deposit obtained fromthe members but appropriated it for constructionand other amenities provided in the club. Thedeposits collected from the members had not beenshown under the head “liabilities” in the accountsof the assessee. The Assessing Officer held that 60percent of the security deposit received by theassessee during the year under assessment was tobe considered as income for the year underassessment. The Tribunal deleted the addition. Onappeal to High Court.

Held, dismissing the appeals, that considering thefact that the security deposit was refundable after aperiod of 25 years or on occurrence of thecontingencies mentioned in the bye laws it couldnot be said that the assessee club had absolutedominion over the deposits. The case on behalf ofthe Department that deposits should be treated asrevenue income could not be accepted merelybecause the security deposit was not kept apart orsubsequently the amount of security deposit wasutilized by the club for other purposes such asconstruction and providing other amenities at theclub, it would not lose the character of “deposit”.The amount was not assessable as a revenue receipt.

From the Courts

Sec. 14A/Rule 8D cannot be appliedwhen there is no exempt income :Redington (India) Ltd. v/s. Addl. CIT(2017) 392 ITR 633 (Mad)

Issue :Whether provisions of Sec. 14A read with rule 8Dcan be invoked when there is no exempt income?Held :The provisions of section 14A of the Income taxAct, 1961 read with rule 8D of the Income TaxRules, 1962 could not be made applicable in theabsence of exempt income. Section 14A wasrelatable to the earning of actual income and notnotional or anticipated income. The submission ofthe Department to the effect that section 14A entailedthe assessment of notional income, assumed to beexempted in the future, in the present assessment year.The computation of total income under section 5 wason real income and there was no sanction in law forthe assessment of notional income, particularly in thecontext of effecting a disallowance in connectiontherewith. The computation of disallowance underrule 8D was by way of a determination invokingdirect as well as indirect attribution. Accepting thesubmission of the Department would have resultedin the imposition of an artificial method ofcomputation on notional and assumed income. Thelanguage of section 14A (1) had to be read in thecontext that it would advance the scheme of the Actrather than distort it.

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contd. from page 352 Glimpses of Supreme Court Rulings

Civil Suit – Jurisdiction/JurisdictionalError:

The issue of jurisdiction which goes to the root ofthe case, if found involved has to be tried at anystage of the proceedings once brought to the noticeof the court.

SNDP Sakhayogam Vs. Kerala AtmavidyaSangham & ors. (2017) 8 SCC 830

Deduction u/s.80HH, 80I and 80IA –Manufacture or production

LPG obtained from the refinery undergoes acomplex technical process in the assessee’s plant andclearly distinguishable from the LPG bottled incylinders and activity of bottling LPG into cylinderswhich a complex technical process amountsproduction and therefore claimed admissible.

(CIT vs. Hindustan Petroleum CorporationLtd.) (297 CTR 3)

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20

21 Income from House property vs.Business income

The assessee was undisputedly a deemed owner ofproperties u/s.27(iiib) and had not established thathe was engaged in any systematic or organizedactivity of providing services to occupiers of shops/stalls, amounts received by the assessee from sub-lessee of shops/stalls towards rent and servicecharges constituted income from house property.Merely because there is an entry in the object clauseof the business showing a particular object, wouldnot be determinative factor to arrive the conclusionthat the income is to be treated as income frombusiness. Such question would depend upon thecircumstances of each case.Raj Dadarkar & Associates vs. ACIT (298 CTR

117)❉ ❉ ❉


Claris Life Science Vs. DCIT86Taxmann.com 56 (Ahd- SPL Bench)Assessment Year: 2008-09,Order Dated: September 26, 2017

Basic Facts

Assessee, being a public company, at the time offiling original return of income declared that theself assessment tax has been paid. This claim was,however, found to be incorrect which was alsosubsequently accepted by the assessee and theassessee subsequently filed revised return of Incomeand paid the self assessment tax due on revisedincome. The revised income had substantialrevisions on account of change is sales. The AObased on the above facts imposed penalty of Rs.50,00,000 on account of non-payment of self-assessment tax liability under section 140A. Theassessee, aggrieved contended that since the originalreturn was revised duly u/s 139(5) and tax liabilitywas paid on that return, the revised return substitutesoriginal return and the provisions of sub-section(3) of section 140A of the Act cannot be invokedfor imposing penalty under section 140A of theAct for non-payment of tax or interest on theincome declared in the return by relying onACIT v. Shri Shakti Credits Limited [(2014) 66 SOT0175 (Lucknow)]. The assessee also argued thatwhether or not the assessee had a reasonable causefor non-payment of self-assessment tax undersection 140A should also be considered. On theother hand the revenue argued that the penalty isfor this lapse by the assessee in not making thepayment of admitted tax liability and filing ofrevised income tax return is a subsequent eventwhich happened much later and that cannot takeaway the penal consequences.

Issue

Whether Penalty under section 221(1) r.w.s.140A(1) is actually leviable when assessee at the

time of filling original return of income did notpay self-assessment tax u/s 140A and had paidtax only while revising the return of Income?

Held

The substitution of original income tax return byrevised return of income is only for the purposes ofassessment of income. The claims made in anincome tax return is one thing and all the actionsconnected with the original income tax returnbecoming a legal nullity quite another thing. Thusby paying the admitted liability while filing therevised return of income does not wipe out the lapseof not paying the tax liability at the time of originalreturn of income and hence penalty invoked merelyon this ground cannot be deleted.

The Special Bench however acknowledged theargument of the assessee that levying of penaltyu/s 221(1) r.w.s. 140A(1) also depends on whetheror not the default of the assessee was for good andsufficient reasons.

Solarfield Energy Two Pvt. Ltd. vs. ITOTS-409-ITAT-2017(Mum)Assessment Year: 2012-13 Order Dated:

th11 September, 2017

Basic Facts

The assessee is a domestic company which is awholly owned subsidiary of an Indian Company.The assessee was incorporated to set–up a powerplant. During the course of assessment proceedings,the AO observed that the assessee has reducedinterest on fixed deposit with Bank from theexpenditure shown under capital work–in–progress.The AO called upon the assessee to justify its claim.The assessee submitted that the interest receivedon fixed deposit being inextricably linked with theprocess of setting–up of power plant will go toreduce the cost of the asset. Therefore the receipt

Tribunal News

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

being capital in nature cannot be taxed as income

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but has to be reduced from the capital work-in-progress. The AO did not agree with the assesseeand relying on the decision of Hon’ble SupremeCourt in Tuticorin Alkali Chemicals and FertilisersLtd. v/s CIT, 227 ITR 172, taxed the interest incomeas income from other sources. Being aggrieved bythe addition made by the AO, the assessee preferredan appeal before the CIT(A). The CIT(A) held thatthe earning of interest on fixed deposit is not abusiness activity of the assessee and thus upheldthe addition made by the AO. Aggrieved by theorder of CIT(A), assessee preferred an appeal beforethe ITAT.

Issue

Whether the interest earned on fixed deposit isto be treated as capital receipt?

Held

The Hon’ble ITAT noted the assessee as aprecondition was required to have net worth ofRs. 60 crore, to bid for set–up of the power plant.Since, the assessee was not having the required networth, the parent company infused funds byinvesting in equity shares and compulsorilyconvertible preference shares of the assesseecompany which resulted in enhancing the net worthof the company. Thus, on the basis of such networth, the assessee could participate in bid andbeing successful was awarded the contract to set–up the power plant .Thus, the infusion of fund wasintegrally and inextricably connected with thesetting–up of the power project. Also the fundsrequired for setting up of power project weretemporarily parked in fixed deposit, thereby,indicating that the interest earned on such fixeddeposit has an immediate and proximate nexus withthe setting–up of power project. The ITAT alsorelied on the decision of Hon’ble Supreme Courtin the case of Bokaro Steels Ltd. and Hon’ble DelhiHigh Court in Indian Oil Panipat Power ConsortiumLtd. and held that the decisions are squarelyapplicable to the facts of the assessee. Thus, the

ACIT vs. National Dairy Development

ITAT allowed the appeal of the assessee.

Board TS-439-ITAT-2017(Ahd)Assessment Year: 2007-08 Order Dated:

st21 September, 2017

Basic Facts

The assessee came into existence by an Act ofParliament called National Dairy DevelopmentBoard Act, 1987. The assessment of the assesseefor AY 2007-08 under consideration was completedu/s. 143(3) of the Act after making certain additions.The assessee preferred appeal before the CIT(A)against the assessment order. The CIT(A)confirmed certain additions made by the AO andgranted relief in respect of some other additions.The AO while giving the appeal effect,misinterpreted the directions of the CIT(A) inrespect of issue of Write back of provisions anddenied relief claimed by Assessee. The assesseewent in appeal before the CIT(A) once again whodecided the matter in the favour of assessee. TheAO while giving effect to order of CIT(A) in secondround of proceedings, omitted to calculate interestunder section 244A of the Act on the aforesaidexcess interest charged earlier under section 234Band which led to reduction of the principal amountof tax refund to the extent of excess interest.Accordingly, the assessee carried the matter beforethe CIT(A) assailing wrong calculation of interestby the AO under section 244A owing to whichinterest has been short granted. The CIT(A) allowedthe appeal of the assessee. Aggrieved by the orderof CIT(A), revenue filed an appeal before the ITAT.

Issue

Whether the expression ‘in any other case’occurring in section 244A(1)(b) of the Act wouldinclude interest on an amount of refund resultedfrom reversal of excess interest charged u/s.234B of the Act.?

Held

The Hon’ble ITAT held that the tax liabilityincluding interest is required to be determined onthe correct assessed income. The assessee, inconsequence, is entitled to interest on excess taxpaid beginning from date of payment of tax to the

Tribunal News

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date on which refund is granted as contemplatedunder section 244A of the Act. Thus, the assesseewould be entitled for the claim under section 244Afrom the original date. Resultantly, following theorder of CIT(A), the ITAT held the matter in favourof the assessee and dismissed the appeal of therevenue.

Sun Pharmaceuticals Ltd. Vs. ACIT[2017] 84 taxmann.com (Ahmedabad)Assessment Year: 2008-09 Order Dated:

th16 June, 2017

Basic Facts I

The assessee has given share application moneytowards subscription of shares in its 100%subsidiary Sun Pharma Global Inc (SPG BVI). TheTPO was of the opinion that the assessee shouldhave charged interest at LIBOR plus basis and thatarm’s length price would be the LIBOR chargedby the assessee + 200 basis points. The assesseestrongly objected to this proposition for TPadjustment stating that till the amount advanced forshares is actually adjusted towards allotment ofequity share, the amount is to be treated as “advancetowards share application money”. It was contendedthat the amount was paid towards equity infusionand the assessee is not a financing company tocharge margin to cover short-term basis as one bybanks.

Issue I

Whether share application money given byassessee company to its wholly owned subsidiarycompany could be regarded as loan or advancetill allotment of shares notional interest needs tobe charged on the same.

Held I

Share application money is not liable to be re-characterised as loans only because there was adelay in allotment of shares, more so when assesseehas given plausible reason for such delay to avoidrepetitive documentation and other regulatoryexigencies and thus Merely because allotment ofshares was delayed and in books share applicationmoney was reflected as advance till the allotment

would not alter characterization to the prejudice ofassessee’s position anyway. The percentage ofownership is the only material factor which remainsat 100 per cent prior to allotment and also postallotment. As the assessee was the only shareholderin its 100 per cent owned subsidiary company SPGBVI, it would not make any difference merelybecause part of the share application money wasconverted into equity shares and the balance wereallotted in subsequent assessment years. Thus theissue was decided in favour of the assessee.

Basic Facts II

The assessee sold medicines called PantoprazoleTablets, manufactured at its US FDA on ContractResearch & Manufacturing Services basis to itsAE(SPG- BVI) and earned a margin of 21.57%.The same products were sold by its AE withoutany value addition in the US market at 95% margin.The assessee had applied TNMM method, howeverthe AO was of the opinion that PSM would be themost appropriate method as the assessee hadperformed substantial functions and the risk sharedby the assesssee and SPG were almost equal andso the assessee cannot be termed as mere contractmanufacturer. It was also noted that the AE wasthe owner of the drug as well as technology tomanufacture the drug and that assessee did notundertake any other functions namely marketing,distribution, credit risk, product litigation liabilitiesetc.,. The AO decided the addition as per PSMmethod which was shared between the assessee andits AE equally. However the CIT(A) to enhancethe profit share from 50 per cent each to 80 percent attributable to assessee and 20 per cent to AE.

Issue II

Whether assessee manufactured apharmaceutical product for its AE on contractbasis, in view of fact that assessee did notundertake any other functions namelymarketing, distribution, credit risk, productlitigation liabilities etc., ALP of transaction inquestion was to be determined on basis ofTNMM?

Tribunal News

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Tribunal News

Held II

PSM may also be found as the most appropriatemethod in cases where both parties to a transactionmake unique and valuable contributions to thetransaction. Considering the functions performedby the appellant company to SPG BVI, it is clearthat the assessee has performed only one simplefunction and that is manufacturing of PantoprazoleTablets. Except for this, there is no significantunique contribution by the assessee. For suchsimple functions as per OECD guidelines, profitsplit method typically would not be appropriate.Moreover, The assessee has performed only onefunction and that is manufacturing of PantoprazoleSodium and for this, the demonstrative evidence isexhibited which clearly establishes the ownershipof the product with SPG-BVI. Therefore TNMMas most appropriate method is upheld by thetribunal.

ITO Vs. Ambika Sadhts -408-ITAT-2017(Del)Assessment Year: 2010-11 & 2011-12Order dated: August 28, 2017

Basic Facts

The assessee was engaged in the business ofmanufacturing and export of garments, make-upsand accessories from its export oriented unit (EOU)located in Noida.For AY 2010-11 and AY 2011-12, assessee claimed deduction u/s. 10B for the dutydrawback received which was included in theprofits of the company. AO disallowed thededuction relying on SC ruling in the case of LibertyIndia Ltd. However, the Ld. CIT(A) allowed thesame on appeal anddeleted the addition followingthe judgment of Delhi High Court in the case ofCIT vs. XLNC Fashions &Hon’ble Karnataka HighCourt in case of CIT vs. Motorola India ElectronicsPvt. Ltd. The Revenue being aggrieved filed anappeal before the ITAT and there was no authorizedrepresentative presented on behalf of the assessee.

Issue

Whether the amount received as duty drawback in the formof DEPB benefits is eligible fordeduction u/s.10B?

Held

The Tribunal held that conjoint reading of subsection (4) and sub section (1) of the section 10Bclearly indicates that, firstly, deduction of suchprofits and gains as are derived by 100% EOU fromthe export of articles or things are to be allowed;and secondly, subsection (4) is the formula forcomputing what is eligible for deduction under subsection (1). In other words, the manner to computeprofits derived from the export is stipulated in subsection (4) and the provision laid down therein doesnot require that assessee should establish any directnexus with the business of the undertaking unlikein section 80IB, albeit once an income forms partof the business of eligible undertaking there is nofurther mandate to exclude deductions u/s 10B. Ifthe said formula is applied then it is not necessarythat the entire receipt by way of duty drawbackwould become eligible for deduction because theamount quantified as per the formula would onlybe eligible and qualified for deduction.Therefore,Hon’ble ITAT rejected the Revenue’s reliance onthe SC ruling in the case of Opera Clothings TheITAT thus held that the formula laid down u/s.10B(4) is apt and the principles given by the SCin the context of Sec.80IB would not be applicableon deductions u/s. 10B. Ruling in favour of theassessee, ITAT upheld CIT(A)’s order allowingdeduction u/s 10B in respect of duty draw-backreceipts and dismissed the appeal of the Revenue.

Google India Pvt Ltd Vs ACIT 86taxmann.com 237(Bangalore)Assessment Year: 2007-08 to 2012-13Order Dated: October 23, 2017.

Basic Facts

Assessee is awholly owned subsidiary of GoogleInternational LLC, US (“GIL”) who was appointedas a non-exclusive authorized distributor of Adwordprograms to the advertisers in India by GoogleIreland.During AY 2008-09, assessee paiddistribution fees to GIL towards distribution rightsgranted without deducting tax at source u/s. 195 ofthe Income Tax Act 1961. Assessee contended thatit does not have any right of any use or exploitation

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(d) any sum payable by the assessee as interest onany loan or borrowing from any public financialinstitution [or a State financial corporation or aState industrial investment corporation], inaccordance with the terms and conditions ofthe agreement governing such loan orborrowing, or

(e) any sum payable by the assessee as interest onany [loan or advances] from a scheduled bank[or a co-operative bank other than a primaryagricultural credit society or a primary co-operative agricultural and rural developmentbank] in accordance with the terms andconditions of the agreement governing suchloan [or advances], or

(f) any sum payable by the assessee as anemployer in lieu of any leave at the credit ofhis employee or

(g) any sum payable by the assessee to the IndianRailways for the use of railway assets.

shall be allowed (irrespective of the previous yearin which the liability to pay such sum was incurredby the assessee according to the method ofaccounting regularly employed by him) only incomputing the income referred to in section 28 ofthat previous year in which such sum is actuallypaid by him :

[Provided that nothing contained in this section shallapply in relation to any sum which is actually paidby the assessee on or before the due date applicablein his case for furnishing the return of income undersub-section (1) of section 139 in respect of theprevious year in which the liability to pay such sumwas incurred as aforesaid and the evidence of suchpayment is furnished by the assessee along withsuch return.

A fee is a payment levied by an authority in respect

ControversiesCA. Kaushik D. Shah

[email protected].

of services performed by it for the benefit of the

Whether unpaid disputed electricity chargescan be disallowed by invoking provisions ofSection 43B Income Tax Act 1961.

Issue:

X Ltd. is an assessee company engaged in thebusiness of manufacture of HT Powers. The stateelectricity board of the relevant state raised demandof Rs. 10 Lacs for the FY 2010-11 which wasdisputed by the company on various grounds andpaid only Rs. 8 Lacs and carried over Rs. 2 Lacs asliability in the Books and debited the entire amountof Rs. 10 Lacs to Profit & Loss Account. The AOproposed to disallow the unpaid amount of Rs. 2Lacs u/s. 43B of the Income Tax Act 1961.

Proposition:

The unpaid electricity charges payable to the stateelectricity board is not a tax duty, cess or fee andhence the provisions of section 43B of the IncomeTax Act 1961 cannot be disallowed and hence notdisallowable.

View against the Proposition:

Section 43B of the Income Tax Act states:

Notwithstanding anything contained in any otherprovisions of this Act, a deduction otherwiseallowable under this Act in respect of

(a) any sum payable by the assessee by way oftax, duty, cess or fee, by whatever name called,under any law for the time being in force, or

(b) any sum payable by the assessee as anemployer by way of contribution to anyprovident fund or superannuation fund orgratuity fund or any other fund for the welfareof employees or

(c) any sum referred to in clause (ii) of sub-section(1) of section 36, or


Controversies

payer, while a tax is payable for the commonbenefits conferred by the authority on all taxpayers.A fee is a payment made for some special benefitenjoyed by the payer and the payment isproportional to such benefit. Money raised by feeis appropriated for the performance of the serviceand does not merge in the general revenue.

Hence the amount of electricity charges payable tothe state electricity board is a fee and would besquarely covered by the provisions of section 43Bof the Income Tax Act and the same has to bedisallowed.

View in favour of the Proposition:

The ITAT Mumbai in the case of Dighi Port Ltd.Mumbai Vs. Department of Income Tax in ITA No.609/Mum/2010 has decided as under:

“The disallowance in question in this case isrelating to wharfage/port dues which were in theshape of consideration payable by the assessee tothe MMB as royalty for cargo handling at DighiPort as per the contract between the parties. Thesaid dues were not payable by way of tax, duty,cess or fee and hence as per the law laid down bythe Hon’ble Supreme Court in the case of “CIT vs.McDowell & Co. Ltd.” (supra) as well as by theHon’ble Andhra Pradesh High Court in the case of“CIT vs. Andhra Ferro Alloys (P.) Ltd.” (supra),the section 43B of the Act is not attracted in thiscase. Hence, the disallowance made/confirmed inthis case by the lower authorities under section 43Bof the Act was not called for and thus the finding ofthe ld. CIT(A) in this respect is set aside andtherefore ground No.1 of the assessee’s appeal isallowed.”

The ITAT Hydrabad Bench “B” in the case ofSarvaraya Textiles Ltd Vs. DCIT (ITA No. 1716(HYD) of 1993 & 90 HYD of 1994 reported in 54ITD 612 has observed as under:

“As to the department’s argument that the HT powertariff itself is a “fee” within the meaning of section43B(a). Broadly stated, a tax is an imposition madefor public purposes without reference to any servicerendered by the State or any specific benefit to beconferred upon the taxpayers. The object of the

Revenue is to raise “general revenue”. A fee, onthe contrary, is a payment levied by the State inrespect of services performed by it for the benefitof the payers of the fee. Conceptually speaking, afee is levied on a principle opposed to that of a tax.While a tax is levied for the common benefitsconferred by the Government on the public, a feeis a payment made for some special benefit enjoyedby the payer, the payment being usuallycommensurate with the benefit enjoyed. For thepurpose of Entries 96, 66 and 47 respectively ofthe Union List, the State List and the ConcurrentList of the Seventh Schedule to the Constitution ofIndia, term “fee” has a special signification and thatis that it connote a levy which is the price orconsideration for the services rendered by the Stateto the payers of the fees taken as a class, the sumlevied being commensurate with the nature andextent of services rendered. For the purposes ofsection 43B the term “fee” must be given the specialsignification referred to (supra). That specialsignification cannot be imputed to the price whichthe assessee herein has paid to the APSEB for theHT Powers requirements drawn by it from the saidBoard. True, the fixation of the price is status-basedand statutorily regulated. True again there is totalquid pro quo. Even so, the HT Powers charges paidby the assessee cannot be treated as a fee havingthe aforesaid special signification. Therefore, thecontention of the department on this point had tobe rejected.

Summation:

The Andhra Pradesh High Court in the case of CITVs. Andhra Ferro Alloys (Pvt.) Ltd reported in 349ITR 255 has held as under:

Section 43B of the Act does not specificallymention about the electricity charges. The provisoto the section says that an assessee has to pay theactual liability on or before the due date applicablein his case for furnishing the return of income. Inthe instant case, the assessee challenging the balanceelectricity charges of Rs. 52,23,790/- filed a writpetition before this court against the APSEB andthis court granted interim stay and the writ petitionis pending. As such, the assessee has shown the


said amount as liability. In this view of the matter,we are of the considered opinion that the assesseehas not paid the disputed electricity charges of Rs.52,23,790/- to the APSEB as it obtained stay fromthis court, and as such, the provisions of section43B of the Act would not be attract to such unpaidelectricity charges. Further, non-payment of suchdisputed electricity charges to the APSEB cannotbe termed as “fees” and that the Revenue has togive deduction to the said amount.

The Tribunal while allowing the appeal held thatthe electricity charges does not partake the natureof statutory liability and accordingly will have tobe allowed as deduction irrespective of whether ornot the same has been paid and notwithstandingthat the assessee has disputed any liability to payany part of such charges. Section 43B of the Actdoes not speak about the electricity charges.

Nowhere it is mentioned in the section or provisoto it that unpaid electricity charges are notdeductible. The Revenue cannot interpret theprovisions of section 43B of the Act in its favour,since the provisions of section 43B do notincorporate the electricity charges. Therefore, weare of the considered opinion that such electricitycharges are in the nature of statutory liability andthe Revenue has to allow them as deductionirrespective of whether or not the same has beenpaid and notwithstanding that the assessee hasdisputed any liability to pay any part of suchcharges.

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of the underlying intellectual property and softwareand it was merely in the form of advertisement feeand thus it cannot be termed as royalty. However,the A.O. treated distribution fee in the nature ofroyalty under the India-Ireland DTAA and thus heldthat it was subject to withholding tax in India undersection 195 of the Act. Aggrieved by the order ofA.O, the assessee filed an appeal before the CIT(A)who upheld the order of A.O. the assessee thenpreferred an appeal before the ITAT.

Issue

Whether payment made by Assessee would betermed as royalty chargeable to tax in India.

Held

ITAT held that the Adwords Program DistributionAgreement allows the assessee to access all theintellectual property and confidential information,which is used for activities related to DistributionAgreement. ITAT noted that as per the Distribution

contd. from page 360 Tribunal News

agreement the assessee was permitted to usetradename, trademarks, service marks, domains orother distinctive brand features of GIL on a non-exclusive, non sub-licensable basis for the purposeof marketing and distribution of the AdwordsProgram. Hence, the Tribunal concluded that thesaid Google brand features were used by the assesseas marketing tool for promoting and advertisingthe advertisement space, which is the main activityof assesse and is not an incidental activity. Henceeven on this count the payment falls under thedefinition of royalty under the Act as well as DTAA.Thus, assessee was therefore duty bound to deducttax. Accordingly, the ITAT held the matter in thefavour of the revenue and dismissed the appeal ofthe assessee.

.

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Controversies


Decisions of Gujarat High Court in favour ofthe assessee on amended definition of“charitable purpose” u/s 2(15) of the IncomeTax Act, 1961 – Part I

Director of Income-tax (Exemption) v.Sabarmati Ashram Gaushala Trust [2014] 44taxmann.com 141 (Gujarat)

xxx…

5. Term “Charitable Trust” is defined in Section 2(15) of the Act which includes the relief to thepoor, education, medical relief, preservation ofenvironment; including watersheds, forests andwildlife and preservation of monuments or placesor objections of artistic or historic interest andadvancement of any other object of generalpublic utility. Proviso to Section 2 (15) andfurther proviso whereof inserted by Finance Act2010 w.e.f 1st April 2009 read, thus —

“Provided that the advancement of any otherobject of general public utility shall not be acharitable purpose, if it involves the carryingon of any activity in the nature of trade,commerce or business, or any activity ofrendering any service in relation to any trade,commerce or business, for a cess or fee or anyother consideration, irrespective of the natureof use or application, or retention of the incomefrom such activity.

Provided further that the first proviso shall notapply if the aggregate value of the receipts fromthe activities referred to therein is twenty fivelakh rupees or less in the previous year.”

6. The legal controversy in the present Tax Appealcenters around the first proviso. In the plain terms,the proviso provides for exclusion from the mainobject of the definition of the term “Charitablepurposes” and applies only to cases ofadvancement of any other object of general

Advocate Tushar [email protected]

Judicial Analysis

public utility. If the conditions provided underthe proviso are satisfied, any entity, even ifinvolved in advancement of any other object ofgeneral public utility by virtue to proviso, wouldbe excluded from the definition of “charitabletrust”. However, for the application of theproviso, what is necessary is that the entity shouldbe involved in carrying on activities in the natureof trade, commerce or business, or any activityof rendering services in relation to any trade,commerce or business, for a cess or fee or anyother consideration. In such a situation, thenature, use or application, or retention of incomefrom such activities would not be relevant. Underthe circumstances, the important elements ofapplication of proviso are that the entity shouldbe involved in carrying on the activities of anytrade, commerce or business or any activities ofrendering service in relation to any trade,commerce or business, for a cess or fee or anyother consideration. Such statutory amendmentwas explained by the Finance Minister’s speechin the Parliament. Relevant portion of whichreads as under:—

‘I once again assure the House that genuinecharitable organizations will not in any way beaffected. The CBDT will, following the usualpractice, issue explanatory circular containingguidelines for determining whether any entity iscarrying on any activity in the nature of trade,commerce or business or any activity ofrendering any service in relation to any trade,commerce or business. Whether the purpose isa charitable purpose will depend on the totalityof the facts of the case. Ordinarily, Chambers ofCommerce and similar organizations renderingservices to their members would not be affectedby the amendment and their activities wouldcontinue to be regarded as “advancement of anyother object of general public utility”.’


7. In consonance with such assurance given bythe Finance Minister on the floor of the House,CBDT issued a Circular No. 11 of 2008 dated19th December 2008 explaining theamendment as under :—

“3. The newly inserted proviso to section 2(15) will apply only to entities whosepurpose is ‘ advancement of any otherobject of general public utility’ i.e., thefourth limb of the definition of ‘ charitablepurpose’ contained in section 2 (15).Hence, such entities will not be eligiblefor exemption under section 11 or undersection 10 (23C) of the Act if they carryon commercial activities. Whether such anentity is carrying on any activity in thenature of trade, commerce or business is aquestion of fact which will be decidedbased on the nature, scope, extent andfrequency of the activity.

3.1 There are industry and trade associationswho claim exemption from tax undersection 11 on the ground that their objectsare for charitable purpose as these arecovered under ‘ any other object of generalpublic utility’. Under the principle ofmutuality, if trading takes place betweenpersons who are associated together andcontribute to a common fund for thefinancing of some venture or object andin this respect have no dealings or relationswith any outside body, then any surplusreturned to the persons forming suchassociation is not chargeable to tax. Insuch cases, there must be completeidentity between the contributors and theparticipants. Therefore, where industry ortrade associations claim both to becharitable institutions as well as mutualorganizations and their activities arerestricted to contributions from andparticipation of only their members, thesewould not fall under the purview of theproviso to section 2 (15) owing to theprinciple of mutuality. However, if suchorganizations have dealings with non-

members, their claim to be chargeableorganizations would now be governed bythe additional conditions stipulated in theproviso to section 2 (15).

3.2 In the final analysis, however, whether theassessee has for its object ‘ the advancementof any other object of general public utility’is a question of fact. If such assessee isengaged in any activity in the nature oftrade, commerce or business or renders anyservice in relation to trade, commerce orbusiness, it would not be entitled to claimthat its object is charitable purpose. In sucha case, the object of ‘ general public utility’will be only a mask or a device to hide thetrue purpose which is trade, commerce orbusiness or the rendering of any service inrelation to trade, commerce or business.Each case would, therefore, be decided onits own facts and no generalization ispossible. Assessees, who claim that theirobject is ‘ charitable purpose’ within themeaning of section 2(15), would be welladvised to eschew any activity which is inthe nature of trade, commerce or businessor the rendering of any service in relationto any trade, commerce or business.”

8. What thus emerges from the statutory provisions,as explained in the speech of Finance Ministerand the CBDT Circular, is that the activity of atrust would be excluded from the term ‘charitable purpose’ if it is engaged in any activityin the nature of trade, commerce or business orrenders any service in relation to trade,commerce or business for a cess, fee and/or anyother consideration. It is not aimed at excludingthe genuine charitable trusts of general publicutility but is aimed at excluding activities in thenature of trade, commerce or business which aremasked as ‘ charitable purpose’.

9. Many activities of genuine charitable purposeswhich are not in the nature of trade, commerceor business may still generate marketableproducts. After setting off of the cost, forproduction of such marketable products fromthe sale consideration, the activity may leave a

Judicial Analysis


surplus. The law does not expect the Trust todispose of its produce at any consideration lessthan the market value. If there is any surplusgenerated at the end of the year, that by itselfwould not be the sole consideration for judgingwhether any activity is trade, commerce orbusiness - particularly if generating ‘ surplus’is wholly incidental to the principal activitiesof the trust; which is otherwise for generalpublic utility, and therefore, of charitable nature.The Tribunal took into account the objects ofthe Trust, which are as under:—

xxx…

10. The Tribunal also noted that the objects wereadmittedly charitable in nature. The surplusgenerated was wholly secondary. It was,therefore, that the Tribunal held that the provisoto section 2 (15) of the Act would not apply.

11. We are wholly in agreement with the view ofthe Tribunal. The objects of the Trust clearlyestablish that the same was for general publicutility and where for charitable purposes. Themain objectives of the trust are - to breed thecattle and endeavour to improve the quality ofthe cows and oxen in view of the need of goodoxen as India is prominent agricultural country;to produce and sale the cow milk; to hold andcultivate agricultural lands; to keep grazinglands for cattle keeping and breeding; torehabilitate and assist Rabaris and Bharwads;to make necessary arrangements for gettinginformatics and scientific knowledge and to doscientific research with regard to keeping andbreeding of the cattle, agriculture, use of milkand its various preparations, etc.; to establishother allied institutions like leather work andto recognize and help them in order to makethe cow keeping economically viable; topublish study materials, books, periodicals,monthlies etc., in order to publicize the objectsof the trust as also to open schools and hostelsfor imparting education in cow keeping andagriculture having regard to the trust objects.

12. All these were the objects of the general publicutility and would squarely fall under section 2(15) of the Act. Profit making was neither the

aim nor object of the Trust. It was not theprincipal activity. Merely because while carryingout the activities for the purpose of achievingthe objects of the Trust, certain incidentalsurpluses were generated, would not render theactivity in the nature of trade, commerce orbusiness. As clarified by the CBDT in itsCircular No. 11/2008 dated 19th December2008 the proviso aims to attract those activitieswhich are truly in the nature of trade, commerceor business but are carried out under the guiseof activities in the nature of ‘ public utility’.

13. Delhi High Court in case of Institute ofChartered Accountants of India v. DGIT [2012]347 ITR 99/[2011] 202 Taxman 1/13taxmann.com 175 considered these veryprovisions in the context of activities of theInstitute of Chartered Accountants holding thatthe fundamental or dominant function of theInstitute was to exercise overall control andregulate the activities of the members/enrolledchartered accountants and merely because theInstitute was holding coaching classes which alsogenerate income, the Court held that proviso toSection 2 (15) of the Act would not beapplicable. It thus held and observed as under:—xxx…

Mudra Foundation for CommunicationsResearch & Education v. Chief Commissionerof Income-tax, Ahmedabad-IV [2015] 64taxmann.com 275 (Gujarat)xxx…

14. It is an admitted position that a certificate underSection 12A of the Act has already been issuedin favour of the petitioner and the same hascontinued till date. Therefore, it is etablishedthat the petitioner-institution is a charitable trustas far as applicability of the Income Tax Act isconcerned.xxx…

16. If the objects mentioned in the memorandum ofassociation as mentioned in paragraph 3(i) andmore particularly (a), (b) and (c) are perused, itappears that the institution is awarding diplomas,certificates, etc. after providing training incommunication, advertising and related subjects

Judicial Analysis


to equip them thoroughly to practice the art andprofession of Communication in which theyhave been trained and by giving special trainingthey do prepare the outstanding and talentedmature young persons for careers leading toCommunication including advertising withteaching them their responsibilities towards thepublic at large. Clause (f) makes it clear that thefee collected shall not exceed the cost of training,hostel expenses etc., and the petitioner societyshall not be precluded from subsidising suchcosts. As far as object 3(i) which has been reliedupon by Mr Bhatt, learned Senior Counsel, weare of the opinion that by providing training tothe individuals as well as those persons who havebeen sent by the companies to meet the needs ofthe Indian industry and Commerce andintroducing them with new products andinforming them about market conditions, etc.would not establish that the petitioner is carryingon such activity which would treat the same asservice provided in relation to any trade,commerce and industry. Education does notmean teaching the students only, in the mannerand method, the regular schools or colleges adoptto teach. In the progressive world, it is expectedfrom certain institutions that they educate, teachand train persons so that those persons cancompete similar experts worldwide. Therefore,we are not in agreement with the submissionsmade by Mr Bhatt, learned Senior Counsel thatthe sole object of the institution is not to imparteducation. By providing latest information andthereafter training to those persons who arealready in the field of advertisingcommunication, etc. and in such process ifcertain persons become super-specialists inparticular field and for which the institution ischarging fee, we are of the opinion that the casewould not fall under proviso to Section 2(15) assubmitted by Mr Bhatt, learned Senior Counselappearing for the respondent.

17. In case of Queen’s Educational Society (supra)the Honourable Supreme Court has dealt withthe similar provisions and more particularlyprovision of Section 10(23C) (vi), etc. With regardto the case of the respondent authority that the

surplus funds of the institution have ever beenused for other purpose than the purpose ofpromoting educational activities includingresearch, etc. by relying upon the case of AditanarEducational Institution v. Addl. CIT [1997] 224ITR 310/90 Taxman 528 (SC) the HonourableSupreme Court in paragraph 9 has held that theoverall future of the matter is to be examined whileconsidering the object of the institution i.e.whether the same is established to make profit ornot. In paragraph 10 of the aforesaid judgmentthe Honourable Supreme Court has, by relyingupon the case of American Hotel & Lodging Assn.Educational Institute v. CBDT [2003] 301 ITR86/170 Taxman 306 held that if the institutionhas surplus at the end of the year, the same wouldincidental form the activities carried on by theinstitution and if it is established before theauthority that the institution is not established solelyfor the educational purpose. After consideringseveral decision, certain criteria have been laiddown in paragraph 11 of the judgment, whichreads as under:“11. Thus, the law common to Section 10(23C)

(iiiad) and (vi) may be summed up asfollows:

(1) Where an educational institution carries onthe activity of education primarily foreducating persons, the fact that it makes asurplus does not lead to the conclusion thatit ceases to exist solely for educationalpurposes and becomes an institution for thepurpose of making profit.

(2) The predominant object test must be applied- the purpose of education should not besubmerged by a profit making motive.

(3) A distinction must be drawn between themaking of a surplus and an institution beingcarried on “for profit”. No inference arisesthat merely because imparting educationresults in making a profit, it becomes anactivity for profit.

(4) If after meeting expenditure, a surplusarises incidentally from the activity carriedon by the educational institution, it will notbe cease to be one existing solely foreducational purposes.

Judicial Analysis


(5) The ultimate test is whether on an overallview of the matter in the concernedassessment year the object is to make profitas opposed to educating persons.”

18. The Honourable Supreme Court while dealingwith the case of Queen’s Educational Society(supra) has dealt with the decision of the DivisionBench of Punjab and Haryana High Court inthe case of Pine Grove International CharitableTrust v. Union of India [2010] 327 ITR 73/188Taxman 402 and has confirmed the viewexpressed by the Punjab and Haryana HighCourt with regard to applicability of Section10(23C)(vi) of the Act. The Honourable ApexCourt has also considered different judgmentsof various High Courts which have relied uponthe decision of the Pine Grove InternationalCharitable Trust (supra) and the observations arereflected in paragraph 23 of the judgment. It hasalso been held by the Honourable Apex Courtthat the Assessing Authority under the Act canmonitor the income and expenditure of theassessee who has been granted the certificateunder Section 10(23C)(vi) of the Act. Therelevant paragraph viz. paragraph 25 of theaforesaid judgment in the case of Queen’sEducational Society (supra) reads as under:

“25. We approve the judgments of the Punjaband Haryana, Delhi and Bombay HighCourts. Since we have set aside thejudgment of the Uttarakhand High Courtand since the Chief CIT’s orders cancellingexemption which were set aside by thePunjab and Haryana High Court werepassed almost solely upon the law declaredby the Uttarakhand High Court, it is clearthat these orders cannot stand.Consequently, Revenue’s appeals from thePunjab and Haryana High Court’s judgmentdated 29.1.2010 and the judgmentsfollowing it are dismissed. We reiterate thatthe correct tests which have been culled outin the three Supreme Court judgments statedabove, namely, Surat Art Silk Cloth,Aditanar, and American Hotel and Lodging,would all apply to determine whether an

educational institution exists solely foreducational purposes and not for purposesof profit. In addition, we hasten to add thatthe 13th proviso to Section 10(23C) is ofgreat importance in that assessing authoritiesmust continuously monitor from assessmentyear to assessment year whether suchinstitutions continue to apply their incomeand invest or deposit their funds inaccordance with the law laid down. Further,it is of great importance that the activities ofsuch institutions be looked at carefully. Ifthey are not genuine, or are not being carriedout in accordance with all or any of theconditions subject to which approval hasbeen given, such approval and exemptionmust forthwith be withdrawn. All thesecases are disposed of making it clear thatrevenue is at liberty to pass fresh orders ifsuch necessity is felt after taking intoconsideration the various provisions of lawcontained in Section 10(23C) read withSection 11 of the Income Tax Act.”

The case relied upon by the petitioner ofDirector of Income-tax (Exemption)(supra) delivered by the Division Benchof this Court has dealt with a case of aneducational institution in appeal for whichthe Division Bench has opportunity toexamine the income and expenditure of theeducational institution. In our opinion, inthe present facts and circumstances of thecase, the same would not be applicable.

19. Considering the overall facts and circumstancesof the case, the object of the petitioner institution,we are of the opinion that the petitioner institutionis established for the sole purpose of impartingeducation in a specialised field. Hence, thepetition is allowed. Order dated 29th September2014 passed by the Respondent-ChiefCommissioner of Income-tax, Ahmedabad-IVvide which he refused to issue exemptioncertificate under Section 10(23C)(vi) of the Actin favour of the petitioner has been set aside.Rule is made absolute.

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Judicial Analysis


1. Executive SummaryAs we have detailed out the draft rules

thpublished by the CBDT on 6 October 2017on the provisions for additional transfer pricing(TP) documentation and Country-by-Country(CbC) reporting. Following the submission ofpublic comments from various industrystakeholders, on 31 October 2017, the IndianTax Administration issued the final rules forCbC reporting and the furnishing of the masterfile (Final Rules). The Final Rules contain afew administrative changes and clarifications.Key highlights of the Final Rules are:

- The contents of the master file and the CbCreport are largely in line with therecommendations specified in Action 13barring a few additional requirements forthe master file

- A monetary threshold, based oncumulative conditions of consolidatedrevenue and the value of internationaltransactions, is prescribed for maintenanceof the master file, while the threshold forCbC reporting is in line with the OECDrecommendation

- Filing of the master file and CbC report(including notification) would be madeelectronically in accordance with thespecification to be prescribed by thedesignated authorities who are alsoresponsible for evolving and implementingappropriate security, archival and retrievalpolicies

- The due date for the first year, i.e., financialyear (FY) 2016-17 master file compliance,as well as for CbC reporting has been

stextended to 31 March 2018. Forsubsequent FYs, the master file and CbC

CA. Dhinal A. [email protected]

Indian Tax Administrationreleases Final rules on Countryby Country reporting andMaster File implementation CA. Sagar Shah

[email protected]

report need to be filed on or before the duedate for filing the income tax return

- For every constituent entity resident inIndia, if its parent entity is not resident inIndia, the notification regarding the detailsof the parent entity or the alternatereporting entity (which files CbC report)needs to be filed at least two months priorto the due date for filing income tax return.For FY 2016-17, such due date would be

ston or before 31 January 2018

We have provided below an overview of theFinal Rules on Master File and CbC report.

2. Master File

2.1 OverviewIn accordance with Action 13, the master fileshould provide an overview of the MNE groupbusiness, its overall TP policies, and its globalallocation of income and economic activity inorder to place the MNE group’s TP practicesin their global economic, legal, financial andtax context. The master file shall containinformation which need not be restricted to thetransaction undertaken by a particularconstituent entity situated in particular country.In that aspect, information in the master filewould be more comprehensive than typicalcurrent documentation standards.

2.2 Who are subject to MF

Under the ITL, as amended through FinanceAct, 2016, entities that are constituents of aninternational group, shall be required to maintainsuch information and documents as prescribed(i.e., master file) in addition to the informationrelated to the international transactionsundertaken by such constituent entity in thecontemporaneous local documentation. TheFinal Rules provide that the master filerequirements apply to every taxpayer, being a


constituent entity of an international group, ifthe following two conditions are satisfied:

- The consolidated revenue of theinternational group, of which such taxpayeris a constituent entity, as reflected in theconsolidated financial statement of theinternational group for the accounting year,exceeds INR 500 crores. Further, the FinalRules clarify that for the purpose ofcomputation of the INR value of theconsolidated group revenue (if it is reportedin a foreign currency), telegraphic transferbuying rate of such foreign currency (asquoted by State Bank of India) on the lastday of the accounting year would beadopted.

- Either of the below transactional thresholdis achieved for the accounting year:

o The aggregate value of internationaltransactions as per the books ofaccounts maintained by the taxpayerexceeds INR 50 crores

o The purchase, sale, transfer, lease or useof intangible property (IP) as per thebooks of accounts maintained by thetaxpayer exceeds INR 10 crores

Under the ITL, the accounting year where theultimate parent entity/alternate reporting entityresident in India would be the FY starting from

st st1 April and ending on 31 March of thefollowing year. In all other cases, the reportingaccounting year would be an annual accountingperiod, with respect to which the parent entityof the international group prepares its financialstatements under any law for the time being inforce or the applicable accounting standards ofthe country or territory of which such entity isresident.

Upon meeting the above thresholds, eachtaxpayer, being a constituent entity of aninternational group resident in India, would berequired to maintain the prescribed informationand documents as part of the master file forannual compliance purposes.

Indian Tax Administration releases Final rules on Country by Country reporting and Master Fileimplementation

2.3 Monetary penalty for non-maintenance andnon-filing of master fileUnder the ITL, monetary penalties areapplicable if the constituent entity fails tomaintain and furnish the master file in Form3CEAA within the due date unless the taxpayeris able demonstrate “reasonable cause” for suchnon-compliance. The prescribed sum of penaltyis INR 5,00,000.

3. CbC report

3.1 OverviewThe Action 13 report provides for CbCreporting to be done separately from the masterfile and the local file. The CbC report will behelpful for high level TP risk assessmentpurposes. Action 13 emphasizes that suchinformation should not be used as a substitutefor a detailed TP analysis based on a fullfunctional and comparability analysis and so,it does not constitute conclusive evidence thattransfer prices are or are not appropriate.

3.2 MNEs who are subject to CbC reportingrequirementAccording to the Final Rules, CbC reportingrequirements would apply to an internationalgroup for an accounting year, if the totalconsolidated group revenue, as reflected in theconsolidated financial statement for thepreceding accounting year exceeds INR 5500crores. Similar to the Final Rules on master filemaintenance, the Final Rules on CbC reportingprovide that for the purpose of computation ofthe INR value of the consolidated group revenue(if it is reported in a foreign currency), telegraphictransfer buying rate of such foreign currency (asquoted by State Bank of India) on the last dayof the accounting year would be adopted. Theamount prescribed is consistent with the OECDrecommendation of Rs. 750 million.

3.3 Taxpayers who are subject to CbCreporting requirements in IndiaUnder the ITL, the CbC report filingrequirements would arise in the case of thefollowing entities:


- The parent entity of an international group(which has been defined to include two ormore enterprises including a permanentestablishment which are resident ofdifferent countries or territories), if it isresident in India

- An entity in India belonging to aninternational group, if the parent entity ofthe group is resident:

o In a country with which India does nothave an arrangement for exchange ofthe CbC reporting; or

o Such country is not exchanginginformation with India even thoughthere is an agreement; and this fact hasbeen intimated to the constituent entityby the Indian Tax Administration

The ITL also provides that if an internationalgroup, with a parent entity which is not residentin India, has designated an alternate entity forfiling its report with the tax jurisdiction in whichthe alternate entity is resident, then the entitiesof such group operating in India would not berequired to furnish a CbC report if the same canbe obtained under the agreement of exchangeof CbC reports by the Indian Tax Administration.

3.4 Monetary penalty for non-maintenance andnon-filing of CbC report

Under the ITL, monetary penalties areapplicable if the reporting entity fails to furnishor furnishes an inaccurate CbC report withinthe due date unless the taxpayer is abledemonstrate “reasonable cause” for such non-compliance. The prescribed sum of penaltiesare as follows:

Event Penalty

Non-filing of - INR 5,000 per dayCbC report by up to one monthIndian resident parent- INR 15,000 per daycompany or alternate beyond one monthresident company - INR 50,000 per day

for continuingdefault after serviceof notice

Not furnishing the - INR 5,000 per dayinformation called up to service offor by the Indian tax penalty orderauthority within the - INR 50,000 per daygiven time limit for default beyond

date of service ofpenalty order

Furnishing inaccurate - INR 500,000details or non-filingof corrected reportwithin 15 days

4. Concluding remarks

The Indian master file and CbC reporting FinalRules released by the Indian TaxAdministration are broadly in line with OECDguidance in Action 13. While the Final Rulesrequire the Indian constituent entities to furnisha few additional details in the master file whichdeviates from the BEPS Action 13recommendation, it appears that the Indian TaxAdministration has considered suchrequirement to be relevant for risk assessmentpurposes from an India standpoint. The FinalRules however still do not provide clarity ontransitional issues which may arise wherejurisdictions where the parent entity is locatedhave a delayed implementation of CbCreporting or are not able to sign a competentauthority agreement for exchange of the CbCreport before the due date for Indian filing.

International groups should focus on the newreporting requirements and should assessreadiness as to whether the necessary data isavailable, what must be done to ensure that datacan be sourced and presented in an effective,efficient and clear manner and also analyze howtax authorities are likely to assess suchinformation. Taxpayers will need to adopt aconsistent and harmonized approach topreparing their master file and local files as wellas CbC reporting and be prepared for a moredetailed information or document requestsduring an audit.

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Indian Tax Administration releases Final rules on Country by Country reporting and Master Fileimplementation


CA. Savan [email protected]

Issuance of Rupee Denominated Bonds(RDBs) Overseas

This is in context to the provisions contained inparagraphs 2 and 8 of A.P. (DIR Series) CircularNo.60 dated April 13, 2016 on issuance of Rupeedenominated bonds overseas and paragraphs 3.2and 3.3.9 of Master Direction No.5 dated January1, 2016 on “External Commercial Borrowings,Trade Credit, Borrowing and Lending in ForeignCurrency by Authorised Dealers and Persons otherthan Authorised Dealers”, as amended from timeto time.

It has been decided, in consultation with theGovernment of India, to exclude issuances of RDBsfrom the limit for investments by FPIs in corporatebonds with effect from October 3, 2017 vide A. P.(DIR Series) Circular No. 05 dated September 22,2017.

Consequently, reporting requirement in terms ofparagraph 8 (additional email reporting of RDBtransactions for onward reporting to depositories)of A.P. (DIR Series) Circular No. 60 dated April13, 2016 has been dispensed with. However, itshould be noted that the reporting of RDBs willcontinue as per the extant ECB norms.

All other aspects of the ECB policy remainunchanged. AD Category - I banks may bring thecontents of this circular to the notice of theirconstituents and customers.

The aforesaid Master Direction No. 5 dated January01, 2016 will be updated to reflect the changes.

The directions contained in this circular have beenissued under section 10(4) and 11(1) of the ForeignExchange Management Act, 1999 (42 of 1999) andare without prejudice to permissions / approvals, if

A.P. (DIR Series) Circular No. 06, September

any, required under any other law.

22, 2017

For Full Text refer to https://www.rbi.org.in/Scripts/BS_Circular Index Display.aspx?Id=11128

Investment by Foreign PortfolioInvestors (FPI) in Government SecuritiesMedium Term Framework

This refers to Schedule 5 to the Foreign ExchangeManagement (Transfer or Issue of Security by aPerson Resident outside India) Regulations, 2000notified vide Notification No. FEMA.20/2000-RBdated May 3, 2000, as amended from time to time,and RBI/2017-18/12 A.P.(Dir Series) Circular No.1dated July 3, 2017.

Revision of Limits for the next quarter Oct-Dec2017

The limits for investment by FPIs for the quarterOctober-December 2017 is increased by INR 80billion in Central Government Securities and INR62 billion in State Development Loans. The revisedlimits are allocated as per the modified frameworkprescribed in the RBI/2017-18/12 A.P.(Dir Series)Circular No.1 dated July 3, 2017, and given asunder.

Limits for FPI investment in Government Securities

¹ Billion

Quarter Central State LoansEnding Government Development Aggregate

securitiesGeneral Long TotalGeneralLongTotal

Term Term

ExistingLimits 1877 543 2420 285 46 331 2751

December31, 2017 1897 603 2500 300 93 393 2893

The revised limits will be effective from October3, 2017.

FEMA Updates

12

13



CA. Ashwin H. [email protected]

thPress Release (dated 10 November, 2017)

The GST Council, in its 23rd meeting held atGuwahati on 10th November 2017, hasrecommended the following facilitative measuresfor taxpayers:

Return Filing

a) The return filing process is to be furthersimplified in the following manner:

i. All taxpayers would file return in FORMGSTR-3B along with payment of tax by20th of the succeeding month till March,2018.

ii. For filing of details in FORM GSTR-1 tillMarch 2018, taxpayers would be dividedinto two categories. Details of these twocategories along with the last date of filingGSTR 1 are as follows:

(a) Taxpayers with annual aggregateturnover upto Rs. 1.5 crore need to fileGSTR-1 on quarterly basis as perfollowing frequency:

Period DatesJul- Sep 31st Dec 2017

Oct- Dec 15th Feb 2018

Jan- Mar 30th April 2018

(b) Taxpayers with annual aggregateturnover more than Rs. 1.5 crore needto file GSTR-1 on monthly basis as perfollowing frequency:

Period DatesJul- Oct 31st Dec 2017

Nov 10th Jan 2018

Dec 10th Feb 2018

Jan 10th Mar 2018

Feb 10th Apr 2018

Mar 10th May 2018

GST Updates

iii. The time period for filing GSTR-2 andGSTR-3 for the months of July, 2017 toMarch 2018 would be worked out by aCommittee of Officers. However, filing ofGSTR-1 will continue for the entire periodwithout requiring filing of GSTR-2 &GSTR-3 for the previous month / period.

b) A large number of taxpayers were unable tofile their return in FORM GSTR-3B withindue date for the months of July, August andSeptember, 2017. Late fee was waived in allsuch cases. It has been decided that where suchlate fee was paid, it will be re-credited to theirElectronic Cash Ledger under “Tax” headinstead of “Fee” head so as to enable them touse that amount for discharge of their futuretax liabilities. The software changes for thiswould be made and thereafter this decisionwill be implemented.

c) For subsequent months, i.e. October 2017onwards, the amount of late fee payable by ataxpayer whose tax liability for that month was‘NIL’will be Rs. 20/- per day (Rs. 10/- per dayeach under CGST & SGST Acts) instead ofRs. 200/- per day (Rs. 100/- per day each underCGST & SGST Acts).

Manual Filing

d) A facility for manual filing of application foradvance ruling is being introduced for the timebeing.

Further benefits for service providers

e) Exports of services to Nepal and Bhutan havealready been exempted from GST. It has nowbeen decided that such exporters will also beeligible for claiming Input Tax Credit in respectof goods or services used for effecting suchexempt supply of services to Nepal andBhutan.

f) In an earlier meeting of the GST Council, it wasdecided to exempt those service providers whose


annual aggregate turnover is less than Rs. 20 lakhs(Rs. 10 lakhs in special category states except J& K) from obtaining registration even if they aremaking inter-State taxable supplies of services.As a further measure towards taxpayer facilitation,it has been decided to exempt such suppliersproviding services through an e-commerceplatform from obtaining compulsory registrationprovidedtheiraggregateturnoverdoesnotexceedtwenty lakh rupees. As a result, all serviceproviders, whether supplying intra-State, inter-State or through e- commerce operator, will beexemptfromobtainingGSTregistration,providedtheir aggregate turnover does not exceed Rs. 20lakhs (Rs. 10 lakhs in special category Statesexcept J & K).

Extension of dates

g) Taking cognizance of the late availability orunavailability of some forms on the commonportal, it has been decided that the due datesfor furnishing the following forms shall beextended as under:S. FORM and Original RevisedNo. Details due date due date

1 GST ITC-04 for 25.10.2017 31.12.2017the quarter July-September, 2017

GST Updates

2 GSTR-4 for the 18.10.2017 24.12.2017quarter July-September, 2017

3 GSTR-5 for 20.08.2017 or 11.12.2017July, 2017 7 days from the

last date ofregistration whichever is earlier

4 GSTR-5A for 20.08.2017 15.12.2017July, 2017

5 GSTR-6 forJuly, 2017 13.08.2017 31.12.2017

6 TRAN-1 30.09.2017 31.12.2017 (One-time option ofrevision also tobe given till thisdate)

Revised due dates for subsequent tax periodswill be announced in due course.

Benefits for Diplomatic Missions/UNorganizations

h) In order to lessen the compliance burden onForeign Diplomatic Missions / UNOrganizations, a centralized UIN will be issuedto every Foreign Diplomatic Mission / UNOrganization by the Central Government andall compliance for such agencies will be doneby the Central Government in coordinationwith the Ministry of External Affairs.

❉ ❉ ❉


CA. Bihari B. [email protected].

Important Judgment delivered by Hon. GVATTribunal in the case of Meghmani Organics Ltd.

Issue:

An important judgment delivered by Gujarat ValueAdded Tax Tribunal in case of the assessee inrespect of reduction @ 2% of Input Tax Credit incase of goods are sold in course of inter-state tradeon the purchase of capital goods.

Held:

The Hon. Tribunal held that the reduction @ 2% isnot legal.

The gist of the judgment is reproduced hereunderfor the benefit of the readers.

The appellant is a company engaged in manufactureand sales of pesticides and chemicals. The appellantis registered under the Gujarat Value Added TaxAct 2003 [“the GVAT Act” in short] as well asunder the Central Sales Tax Act, 1956 [“the CSTAct” in short]. It is the case of the appellant that theappellant affected local sales with the State ofGujarat as well as sales in the course of Inter-StateTrade and Commerce and duly discharged outputtax liability under the GVAT Act and the CST Act;that the appellant claimed input tax credit of taxpaid on purchase of “raw materials” as well as“capital goods”, that the appellant also reduced theclaim of tax credit @ 2% of the purchase value of“raw material” used in manufacture of goods soldin the course of inter-state trade and commerce asrequired by Entry No. 2of the Notification No.(GHN-14) VAT-2010-S. 11(6)(2)/TH dated29.06.2010 (“Notification dated 29.06.2010”, inshort) for the assessment year 2012-13; that theassessing officer issued a notice for audit assessmentfor the year 2012-13; that the appellant producedbooks of account in support of tax liabilitydischarged with returns filed under the GVAT Actand the CST Act; that the assessing officer passed

GST & VATJudgments / Updates

the assessment order and reduced the tax credit inrespect of ‘capital goods’ also and took a view thatthe tax credit in respect of purchase of ‘capitalgoods’ used in manufacture of taxable goods thatwere sold in the course of inter-state trades andcommerce was also required to be reduced.

That the assessing officer did not assign any reasonfor reduction of input tax credit in the assessmentorder and there were also certain calculation errorsin the assessment order; that the assessing officerdid not issue show cause notice to the appellant forthe reduction of input tax credit in respect of capitalgoods and hence the assessment order is passed inbreach of principles of natural justice; that theassessing officer reduced the tax credit in respectof ‘capital goods’ by considering them to be ‘input’for the purpose of Notification dated 29.06.2010;that the appellant preferred the first appeal beforethe learned First Appellate Authority and the learnedfirst appellate authority accepted the error committedby the learned assessing officer determining theliability of tax, however, the contention of non-reduction of input tax credit in respect of purchaseof ‘capital goods’ used in manufacture of goods soldin the course of inter-stated trade and commercewas not accepted. It is further contended by theappellant that the learned first appellate authoritycommitted error in confirming reduction of tax creditrelating to ‘capital goods’ under the Notificationdated 29.06.2010 as the said notification requiredreduction of tax credit only of goods used as ‘inputincluding raw materials’ and hence ‘capital goods’are neither ‘input’ nor ‘raw materials’ therefore,reduction of tax credit relating to ‘capital goods’ isbad in law; that the term ‘input’ suggests that issomething which is put into the process and hence‘’raw materials’ which go into final product by themanufacturing process is ‘input’; that the ‘capitalgoods’ are machinery for carrying on business andcannot be considered as ‘input’ or ‘raw materials’


therefore, the interpretation of the authorities belowto include ‘capital goods’ as ‘input’ for the purposeof reduction of tax credit frustrates the scheme ofthe GVAT Act and ‘capital goods’ are durable innature and they are used in manufacturing goodswhich are sold locally as well as in the course ofinter-state trade and commerce, therefore,Notification dated 29.06.2010 does not apply to the‘capital goods’; that the interpretation to include‘capital goods’ in the terms of ‘input’ is contrary tothe intention of the Government in introducing theNotification dated 29.06.2010 in view of budgetspeech of Hon’ble Finance Minister of GujaratState for the year 2010-11 therefore, it was neverthe intention of the Government to include ‘capitalgoods’ under purview of Notification dated29.06.2010 therefore, present Second Appeal isfiled challenging the order passed by the authoritiesbelow.

The Ld. Advocate for the appellant submitted thatthe assessment order is passed against the principlesof natural justice as no show cause notice was issuedto the appellant regarding reduction of tax credit inrespect of ‘capital goods’. He also submitted thatthe assessment order does not assign any reasonfor reduction of tax credit and the assessing officercommitted error in passing order by considering the‘capital goods’ to be ‘input’ for the purpose ofNotification dated 29.06.2010. He further submittedthat the Notification dated 29.06.2010 requiredreduction of tax credit only in respect of goods usedas ‘input including raw materials’ and ‘capitalgoods’ are neither ‘input’ nor ‘raw materials’ andtherefore, reduction of tax credit relating to ‘capitalgoods’ is illegal. He also submitted that the term‘input’ suggests that it is something

Which is put into the process and so raw material,processing material, consumable stores which areput into the manufacturing process are ‘input’ but‘capital goods’ (plant and machinery) are used formanufacturing process of converting various inputinto the final product, therefore, ‘capital goods’ arenot ‘input’. He also submitted that Section 11(3)(vi)of the GVAT Act provides for granting of tax creditin respect of raw materials used in manufacturingof taxable goods and section 11(3)(vii) provides for

tax credit in respect of ‘capital goods’ meant foruse in manufacture of taxable goods. He furthersubmitted that the term ‘raw materials’ and ‘capitalgoods’ are defined under the GVAT Act and hencethere are two different and distinct class of goodsand therefore, ‘capital goods’ cannot be coveredunder the term ‘input’. He also submitted thataccording to the definition ‘capital goods’ meansplant and machinery is not input and hencenotification dated 29.06.2010 does not cover ‘capitalgoods’. He also submitted that budget speech alsoenvisages reduction of tax credit in respect of ‘rawmaterials’ and not ‘capital goods’, thereforeauthorities below committed serious error ininterpretation of Notification dated 29.06.2010 andtherefore, they are required to be set aside. Thelearned Advocate for the appellant relied uponnumerous decisions which have been discussed atappropriate place in this judgment.

The Hon. Tribunal considered the contentions raiedby the parties and oral as well as written submissionssubmitted by them.

Section 2(19) defines ‘raw materials’ as under.

‘raw material’ means goods used as ingredient inthe manufacture of other goods and includesprocessing materials, consumable stores andmaterial used in the packing of the goods somanufactured but does not include fuels for thepurpose of generation of electricity’.

In view of the above definition ‘raw materials’ aregoods used as ingredient in the manufacturing ofother goods and includes processing materials,consumable stores and materials used in packingof the goods so manufactured.

Ld. Advocate for the appellant has relied upon thedecision of M/s. Tata Engineering & LocomotiveCo. Ltd. v. State of Bihar and another reported in96 STC 2011 [SC] in support of his contention thatthe expression ‘input including raw materials\ usedin Notification dated 29.06.2010 cannot have theeffect of including the ‘capital goods’; In the saiddecision, Hon. Supreme Court made the followingobservations as to what can be considered as ‘input’.

GST & VAT Judgments / Updates


“Raw Material has been further explained by usingthe word ‘inputs’ which dictionarily means, ‘whatis put in’, ‘enter’, ‘enter system’. The concessionalrate of tax is thus applicable to that raw materialthat is put in the manufacture

or use of the goods. In Collector of Central Excise,Calcutta v. Jay Engineering Works Ltd. [1989] 75STC 313 (SC); [1998] Supp 3 SCR 998 a questionarose whether name-plates used by manufacturerof fans being ‘input’ were exempt from the paymentof excise duty which provided that duty of exciseleviable on such goods falling under item 1-A ofSerial No. 68 as used ‘inputs’ would be exempt. Itwas held that name-plate affixed on the fan wasnot a piece of decoration and the fan without name-plate could not be marked, therefore, it was exemptas provided in the notification and the assessee wasentitled to exemption. The tyres, tubes and batterieswere purchased for being put in the vehicle, with

could be operative without it. They were thus’input’. The use of this word was indicative thatthe benefit was intended for every item which wasraw material in the widest sense made wider byusing the expression ‘input’.

In view of the various discussions, the Hon.Tribunal has passed the order as under.

The Second Appeal No. 427 of 2016 is allowed.The order passed by the Ld. Deputy Commissionerof Commercial Tax, Circle-6, Ahmedabad on 05/06-11-2015 and partly confirmed by the Ld. JointCommissioner of Commercial Tax (Appeal),Vibhag-2, Ahmedabad on 22.03.2016 in first appealto the extent of reduction of 2% tax credit on ‘capitalgoods’ under Notification No. (GHN-14) VAT-2010-S. 11(6)(2)/TH dated 29.06.2010 are setaside. The assessing officer is directed to passconsequential order.

❉ ❉ ❉

contd. from page 372 FEMA Updates

The operational guidelines relating to allocation andmonitoring of limits will be issued by the Securitiesand Exchange Board of India (SEBI).

A.P. (DIR Series) Circular No. 07, September28, 2017

For Full Text refer to https://www.rbi.org.in/S c r i p t s / N o t i f i c a t i o n U s e r . a s p x ?Id=11127&Mode=0

Risk Management and Inter-BankDealings – Facilities for Hedging TradeExposures invoiced in Indian Rupees

This circular refers to the Foreign ExchangeManagement (Foreign Exchange DerivativeContracts) Regulations, 2000 dated May 3, 2000(Notification No. FEMA. 25/RB-2000 dated May3, 2000) and Master Directions on RiskManagement and Inter-Bank Dealings dated July5, 2016 as amended from time to time.

In terms of para 6 under Section II (Facilities forPersons Residents outside India) of theaforementioned master direction, non-residents are

permitted to hedge the currency risk arising out ofINR invoiced exports from and imports to Indiawith AD Category I banks in India. On a review ofthis facility, it has been decided to permit the centraltreasury (of the group and being a group entity) ofsuch non-residents to undertake hedges for andbehalf of such non-residents with AD Category Ibanks in India as per the existing Model I and ModelII. The revised operational guidelines, terms andconditions are placed at Annex to this circular.

The directions contained in this circular have beenissued under Sections 10 (4) and 11(1) of theForeign Exchange Management Act, 1999 (42 of1999) and is without prejudice to permissions /approvals, if any, required under any other law.

A.P. (DIR Series) Circular No. 08, October 12,2017

For Full Text refer to https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11144

❉ ❉ ❉

14

GST & VAT Judgments / Updates


CA. Naveen [email protected]

Corporate Law Update

MCA Updates:

1. Companies (Acceptance of Deposits) SecondAmendment Rules, 2017:The following changes have been made in theCompanies (Acceptance of Deposits) Rules,2014:

A. In Rule 3, in sub-rule (3), for theproviso, the following has beensubstituted:-“Provided that a Specified IFSC Publiccompany and a private company mayaccept from its members monies notexceeding one hundred per cent ofaggregate of the paid up share capital, freereserves and securities premium accountand such company shall file the details ofmonies so accepted to the Registrar in FormDPT-3.

Explanation.—For the purpose of thisrule, a Specified IFSC Public companymeans an unlisted public company whichis licensed to operate by the Reserve Bankof India or the Securities and ExchangeBoard of India or the Insurance Regulatoryand Development Authority of India fromthe International Financial Services Centrelocated in an approved multi servicesSpecial Economic Zone set-up under theSpecial Economic Zones Act, 2005 (28 of2005) read with the Special EconomicZones Rules, 2006:

Provided further that the maximum limitin respect of deposits to be accepted frommembers shall not apply to followingclasses of private companies, namely:—

(i) A private company which is a start-up, for five years from the date of itsincorporation;

(ii) A private company which fulfils all ofthe following conditions, namely:—

(a) Which is not an associate or asubsidiary company of any othercompany;

(b) the borrowings of such a companyfrom banks or financial institutionsor anybody corporate is less thantwice of its paid up share capitalor fifty crore rupees, whichever isless ; and

(c) Such a company has not defaultedin the repayment of suchborrowings subsisting at the timeof accepting deposits undersection 73:

Provided also that all the companiesaccepting deposits shall file the details ofmonies so accepted to the Registrar in FormDPT-3"

B. Form DPT”3 for Return of depositspursuant to rules 3 and 16 of the Companies(Acceptance of Deposits) Rules, 2014 hasalso been substituted.

[F. No. 1/8/2013-CL-Vdated 19/09/2017]

2. The Companies (Restriction on Number ofLayers) Rules, 2017:These Rules provides for restriction on numberof layers for certain classes of holdingcompanies and filing of return in Form CRL-1(disclosing the details regarding number oflayers) within 150 days from the date ofpublication of the this notification. These Rulesshall be effective from 20.09.2017.

Restriction on Number of Layers for certainClasses of Holding Companies :(1) No company, other than a company

belonging to a class specified in sub-rule


(2), shall have more than two layers ofsubsidiaries:—

Provided that the provisions of this sub-rule shall not affect a company fromacquiring a company incorporated outsideIndia with subsidiaries beyond two layersas per the laws of such country:

Provided further that for computing thenumber of layers under this rule, one layerwhich consists of one or more whollyowned subsidiary or subsidiaries shall notbe taken into account.

(2) The provisions of this rule shall not applyto the following classes of companies,namely:—

(a) a banking company as defined inclause (c) of section 5 of the BankingRegulation Act, 1949 (10 of 1949);

(b) a non-banking financial company asdefined in clause (f) of Section 45-I ofthe Reserve Bank of India Act, 1934(2 of 1934) which is registered withthe Reserve Bank of India andconsidered as systematically importantnon-banking financial company by theReserve Bank of India;

(c) an insurance company being acompany which carries on the businessof insurance in accordance withprovisions of the Insurance Act, 1938(4 of 1938) and the InsuranceRegulatory Development AuthorityAct, 1999 (41 of 1999);

(d) a Government company referred to inclause (45) of section 2 of the Act.

(3) The provisions of this rule shall not be inderogation of the proviso to sub-section (1)of section 186 of the Act.

(4) Every company, other than a companyreferred to in sub-rule (2), existing on orbefore the commencement of these rules,which has number of layers of subsidiariesin excess of the layers specified in sub-rule(1) –

(i) shall file, with the Registrar a return inForm CRL-1 disclosing the detailsspecified therein, within a period ofone hundred and fifty days from thedate of publication of these rules inthe Official Gazette;

(ii) shall not, after the date ofcommencement of these rules, haveany additional layer of subsidiariesover and above the layers existing onsuch date; and

(iii) shall not, in case one or more layersare reduced by it subsequent to thecommencement of these rules, have thenumber of layers beyond the numberof layers it has after such reduction ormaximum layers allowed in sub rule(1), whichever is more

(5) If any company contravenes any provisionof these rules the company and everyofficer of the company who is in defaultshall be punishable with fine which mayextend to ten thousand rupees and wherethe contravention is a continuing one, witha further fine which may extend to onethousand rupees for every day after the firstduring which such contraventioncontinues.”

Form CRL-1 for Return regardingnumber of layers as per clause (i) of sub-rule (4) of rule2) has been annexed to therules notified.

[F. No. 01/13/2013 CL-V (Vol.III)] dated20/09/2017]

3. Commencement of proviso to section 2(87)of Companies Act, 2013:The Central Government has appointed the

th20 September, 2017 as the date on whichproviso to clause (87) of section 2 of the saidAct shall come into force.

[F. No. 01/13/2013-CL-V dated 20.09.2017]4. Clarification regarding the timelines for

making applicable/available new FormDPT-3 issued vide the Companies



(Acceptance of Deposits) SecondAmendment Rules, 2017:This Ministry had issued the Companies(Acceptance of Deposits) Second AmendmentRules, 2017 and the said amendment Rulesinter-alia provide for substitution of existingForm DPT-3 with a new Form DPT-3. In thisregard the ministry has clarified that new FormDPT-3 shall be made available for E-filing afterthe month of November, 2017 and till the timethe new e-form is made available, the existinge-form can be used.

[General Circular No. 11 /2017 dated27.09.2017]

5. Investor Education and Protection FundAuthority (Accounting, Audit, Transfer andRefund) Second Amendment Rules, 2017:

thW. e. f. 13 October, 2017, following changeshave been effected vide The Investor Educationand Protection Fund Authority (Accounting,Audit, Transfer and Refund) SecondAmendment Rules, 2017.

1. In the Investor Education and ProtectionFund Authority (Accounting, Audit,Transfer and Refund) Rules, 2016,(hereinafter referred to as the principlerules), in rule 6-(I) in sub-rule (1),—

a. for the second proviso, the followingproviso shall be substituted, namely:

“Provided further that in cases wherethe period of seven years providedunder sub-section (5) of section 124has been completed or beingcompleted during the period from 7th

1stSeptember, 2016 to 3 October, 2017,the due date of transfer of such sharesshall be deemed to be 31st October,2017.”;

b. after the second proviso, the followingproviso shall be inserted, namely:

“Provided further that transfer ofshares by the companies to the Fundshall be deemed to be transmission ofshares and the procedure to be

followed for transmission of sharesshall be followed by the companieswhile transferring the shares to thefund.”

(II) in sub-rule(3), for clause (d), the followingclause shall be substituted, namely;

‘(d) For the purposes of effecting thetransfer shares held in physical form-

(i) the Company Secretary or the personauthorised by the Board shall make anapplication, on behalf of the concernedshareholder, to the company, for issueof a new share certificate;

(ii) on receipt of the application underclause (a), a new share certificate foreach such shareholder shall be issuedand it shall be stated on the face of thecertificate that “Issued in lieu of sharecertificate No for the purpose oftransfer to IEPF” and the same berecorded in the register maintained forthe purpose;

(iii) particulars of every share certificateshall be in Form No. SH-1 as specifiedin the Companies (Share Capital andDebentures) Rules, 2014;

(iv) after issue of a new share certificate,the company shall inform thedepository by way of corporate actionto convert the share certificates intoDEMAT form and transfer in favourof the Authority.’;

(III)after sub-rule (12), the following sub-rulesshall be inserted, namely:

“(13) Any amount required to be creditedby the companies to the Fund as providedunder sub-rules (10), (11) and sub-rule (12)shall be remitted into the specified accountof the IEPF Authority maintained in thePunjab National Bank.

(14) Authority shall furnish its report to theCentral Government as and whennoncompliance of the rules by companiescame to its knowledge.”



2. In the principle rules, in rule 7—

(a) after sub-rule (2), the following sub-rule shall be inserted, namely:

“(2A) Every company which hasdeposited the amount to the Fund shallnominate a Nodal Officer for thepurpose of coordination with IEPFAuthority and communicate thecontact details of the Nodal Officerduly indicating his or her designation,postal address, telephone and mobilenumber and company authorized e-mail ID to the IEPF Authority, withinfifteen days from the date ofpublication of these rules and thecompany shall display the name ofNodal Officer and his e-mail ID on itswebsite.”;

(b) after sub-rule (3), the following provisoshall be inserted, namely:

“Provided that in case of non receiptof documents by the Authority afterthe expiry of ninety days from the dateof filing of Form IEPF-5, theAuthority may reject Form IEPF-5,after giving an opportunity to theclaimant to furnish response within aperiod of thirty days.”

(c) after sub-rule (7), the following provisoshall be inserted, namely:

“Provided that in case of non receiptof rectified documents by theAuthority after the expiry of ninetydays from the date of suchcommunication, the Authority mayreject Form IEPF-5, after giving anopportunity to the claimant to furnishresponse within a period of thirtydays.”.

[F. No. 05/17/2017-IEPFdated13.10.2017]

6. Transfer of Shares to IEPF Authority:1. Pursuant to second proviso to Rule 6 of

Investor Education and Protection Fund

Authority (Accounting, Audit, Transferand Refund) Rules, 2016 as amended timeto time, wherein the seven years periodprovided under sub-section (5) of section124 is completed for unpaid/unclaimeddividends during September 7, 2016 toOctober 31, 2017, the due date for transferof such shares by companies is October

st31 , 2017.2. The IEPF Authority has opened demat

accounts with National SecuritiesDepository Limited (NSDL) and CentralDepository Services Limited (CDSL)through Punjab National Bank andSBICAP Securities Limited respectively,as Depository Participants. The details ofsaid accounts are as under:

Particulars PNB SBICAP

DP ID IN300708 12047200

Client ID 10656671 13676780

3. These demat accounts will have featuresand functionality to support IEPFoperations using paperless, digitalprocesses and facilitate record keeping ofshares transferred to the IEPF Authority tomeet the requirements of the Rules.

4. All companies which are required totransfer shares to IEPF Authority under theaforesaid Rules, shall transfer such shares,whether held in dematerialised form orphysical form, to the demat accounts ofIEPF Authority by way of corporateaction. The Information related to theshareholders, whose shares are being’transferred to IEPE’s demat accounts withPNB or SBICAP shall be provided by thecompanies to NSDL or CDSLrespectively as per the prescribed formatby the concerned depository.

5. The Ministry of Corporate Affairs has heldseparate discussions with NSDL andCDSL during which they have agreed tolevy reduced charges for accountmaintenance and record keeping pertainingto shares transferred to the demat accounts



of IEPF Authority. A Memorandum ofUnderstanding (MOU) to the effect isbeing finalized with the two depositoriesand the same will also be uploaded onwebsite www.iepf.gov.in on finalization.NSDL and CDSL shall, based on thesediscussions, separately notify the charges,which shall not be more than those finalizedin the MOU. NSDL and CDSL arerequired to allow the services withimmediate effect.

6. Any cash benefit accruing on account ofshares transferred to IEPF such as dividend,proceeds realised on account of delistingof equity shares of the company, amountentitled on behalf of security holder if thecompany is being wound up as per Rule6, sub-rule (10), (1 1) and (12) of InvestorEducation and Protection Fund Authority(Accounting, Audit, Transfer and Refund)Rules, 2016, shall be transferred bycompanies to bank account opened by theAuthority with Punjab National Bank,sansad marg. New Delhi, which has beenlinked to demat accounts mentioned at para2 above.

7. It is clarified that Only amounts mentionedin para 6 above are to be transferred toBank account indicated above. Transfer ofamount due to be transferred under section125(2) of the Companies Act, 2013 or anyother amount to aforesaid account is strictlyprohibited.

[General Circular No. 12/2017 dated16.10.2017]

7. Notification for Commencement of section247 of Companies Act, 2013:The Central Government has appointed the

th18 October, 2017 as the date on which theprovisions of section 247 of the said Act shallcome into force.

[F. No. 1/27/2013-CL-V dated 18.10.2017]

8. Delegation of powers to the Insolvency and

W. e. f. 23.10.2017, the Central Government

Bankruptcy Board of India:

has delegated the powers and functions vestedin it under section 247 of the Companies Act,2013 to the Insolvency and Bankruptcy Boardof India, subject to the condition that the CentralGovernment may revoke such delegation ofpowers or it may exercise the powers underthe said section, if in its opinion such a courseof action is necessary in the public interest.

[F. No. 01/13/2013-CL-V (Part-I) dated23.10.2017]

nd9. Companies (Removal of Difficulties) 2Order 2017:

The Ministry has issued The Companies(Removal of Difficulties) Second Order, 2017w. e. f. 23.10.2017 remove the doubts withrespect to the valuers to be appointed forvaluation required to be made in respect of anyproperty, stocks, shares, debentures, securitiesor goodwill or any other assets or net worth ofa company or its liabilities.

Vide this order, in the Companies Act, 2013,in section 247, in sub-section (1), for the words“a person having such qualifications andexperience and registered as a valuer in suchmanner, on such terms and conditions as maybeprescribed”, the words “a person having suchqualifications and experience, registered as avaluer and being a member of an organisationrecognised, in such manner, on such terms andconditions as may be prescribed” shall besubstituted.

[F. No. 1/27/2013-CL-V dated 23.10.2017]

10. Clarification regarding approval ofresolution plans under section30 and 31 ofInsolvency and Bankruptcy Code, 2016:The Ministry has clarified about whetherapproval of shareholders/members of thecorporate debtor/company is required for aresolution plan at any stage during the processfor its consideration and approval as laid downunder sections 30 and 31 of the Insolvency andBankruptcy Code, 2016 (the Code) and afterapproval during its implementation, for any




Adjudicating Authority) Rules, 2016 wasnot sent by the ‘Operational Creditor’, butby a ‘Law Firm’ and,

(iii) There is a dispute in existence and thereforethe application under Section 9 was notmaintainable.

C. Findings of the NCLAT:

1. Regarding the issuance of notice by theLaw Firm, the Hon’ble NCLAT heldas under :

1.1 The Hon’ble NCLAT observed thatsimilar issue fell for consideration beforethe Appellate Tribunal in Uttam GalvaSteels Ltd. v. DF Deutsche Forfait AG[2017] 84 taxmann.com 183/143 SCL318 (NCLT - New Delhi) wherein theAppellate Tribunal by its judgment dated28th July, 2017 held as follows: —

“30. From bare perusal of Form-3 andForm-4, read with sub-rule (1) ofRule 5 and Section 8 of the I&BCode, it is clear that an OperationalCreditor can apply himself or througha person authorised to act on behalfof Operational Creditor. The personwho is authorised to act on behalf ofOperational Creditor is also requiredto state “his position with or inrelation to the Operational Creditor”,meaning thereby the personauthorised by Operational Creditormust hold position with or in relationto the Operational Creditor and onlysuch person can apply.

31. The demand notice/invoiceDemanding Payment under the I&BCode is required to be issued inForm-3 or Form - 4. Through thesaid formats, the ‘Corporate Debtor’

Allied Laws Corner

Adv. Ankit [email protected]

Notice issued by the Law Firm on behalf of theOperational Creditor without authorization isinvalid and therefore application to initiateinsolvency resolution process cannot beaccepted.Recently, the National Company Law AppellateTribunal, Delhi Bench in the case of Smartcity(Kochi) Infrastructure Pvt. Ltd. vs. SynergyProperty Development Services Pvt. Ltd.reported in 87 taxmann.com 7 held that demandnotice under section 8 on behalf of the OperationalCreditor cannot be issued by any person in theabsence of any authority of the Board of Directors,and holding no position with or in relation to theOperational Creditor.

A. Facts of the case :

The demand notice was issued by the Law Firmof the Operational Creditor (Synergy PropertyDevelopment Services Pvt. Ltd.) u/s 8 of theInsolvency and Bankruptcy Code, 2016 to theCorporate Debtor (Smartcity (Kochi)Infrastructure Pvt. Ltd.). Thereafter, theapplication to initiate corporate insolvencyprocess was filed by the Operational Creditorand the National Company Law Tribunal,Chennai Bench entertained the said applicationand passed the order u/s 9 of the Code admittingthe application and appointing Interim ResolutionProfessional and ordered for Moratorium.

B. Appeal filed by the Corporate Debtor :

Aggrieved Corporate Debtor filed the appealagainst the order passed by the AdjudicatingAuthority on the following grounds :

(i) Notice under sub-section (1) of Section 8was not issued by the ‘OperationalCreditor’ but by the ‘Law Firm’, which isnot in accordance with law.

(ii) Notice under Rule 4(3) of the Insolvencyand Bankruptcy (Application to


is to be informed of particulars of‘Operational Debt’, with a demandof payment, with clearunderstanding that the ‘OperationalDebt’ (in default) required to pay thedebt, as claimed, unconditionallywithin ten days from the date ofreceipt of letter failing which the‘Operational Creditor’ will initiatea Corporate Insolvency Process inrespect of ‘Corporate Debtor’, asapparent from last paragraph no. 6of notice contained in Form - 3, andquoted above.

Only if such notice in Form-3 isserved, the ‘Corporate Debtor’ willunderstand the seriousconsequences of non- payment of‘Operational Debt’, otherwise likeany normal pleader notice/Advocatenotice, like notice under Section 80of C.P.C. or for proceeding underSection 433 of the Companies Act,1956, the ‘Corporate Debtor’ maydecide to contest the suit/case if filed,distinct Corporate ResolutionProcess, where such claim otherwisecannot be contested, except wherethere is an existence of dispute, priorto issue of notice under Section 8.

32. In view of provisions of I&B Code,read with Rules, as referred to above,we hold that an ‘Advocate/Lawyer’or ‘Chartered Accountant’ or‘Company Secretary’ in absence ofany authority of the Board ofDirectors, and holding no positionwith or in relation to the OperationalCreditor cannot issue any noticeunder Section 8 of the I&B Code,which otherwise is a ‘lawyer’s notice’as distinct from notice to be given byoperational creditor in terms ofsection 8 of the I&B Code.”

1.2 In the present case also the notice has beenissued by a Law Firm and there was

Allied Laws Corner

nothing on the record to suggest that thesaid Law Firm has been authorised by theBoard of Directors of the ‘OperationalCreditor’- M/s. Synergy PropertyDevelopment Services Pvt. Ltd. Therewas nothing on the record to suggest thatany Lawyer or Law Firm hold anyposition with or in relation with theRespondents-’Operational Creditor’.

1.3 In view of the aforesaid facts and thedecision of this Appellate Tribunal inUttam Galva Steels Ltd. (supra) we holdthat the notice(s) issued by the LawFirm on behalf of Respondents-’Operational Creditor’ cannot betreated as a notice under section 8 ofthe ‘I&B Code’ and for that the petitionunder section 9 at the instance of theRespondents against the appellant wasnot maintainable.

2. Regarding the existence of the dispute,the Hon’ble NCLAT observed asunder:

2.1 From bare perusal of the record, it wasclear that on 12th November, 2016, oneMr. Govindan Kutty M on behalf of theAppellant- ‘Corporate Debtor’ intimatedthe Respondent-’Operational Creditor’that the Respondent discontinued theservice and abandoned the work. Therelevant portion of the letter reads asfollows:—

“Synergy Property Development ServicesPvt. Ltd.

Easwaravilasom Road

Vazhuthacaud, Trivandrum

Kerala - 695 014

Attn.: Mr. Liju Eapen - Associate Director

Dear Mr. Liju Eapen

We refer to the mail from Mr. GovindanKutty M dated 4th November, 2016 withcopy to you on discontinuation of PMCservices on alleged non-payment of duesand wish to bring to your attention to thefollowing aspects:


1. This is the third unilateraldiscontinuation of the PMC servicesby you till date. We feel that suchaction of you by abandoning thework and withdrawing the staffwithout proper notice and formalhanding over of documents isunprofessional and delaying theproject completion resulting in lossesto SCK for which you alone will beresponsible. This action of you isagainst the true spirit of theengagement.

2. We confirm that all ourcommitments for payments, thoseare due as per conditions ofextension letter will be honored andpaid on the due dates. As a gestureof goodwill, an amount of Rs. 30lakhs was paid as advance.

3. We also wish to bring to your noticethat the documents especially thoserelated to ongoing works includingbills some of which are kept in thework stations allotted to you in SCKPavilion, have not been handed overin an orderly manner with properindex thereby putting us in difficultyto trace out the same. We also wouldlike to bring to your notice thatkeeping of official documents ofSCK in your office outside SCKpremises is detrimental to thecontract conditions and you arerequested to take immediateremedial steps.

4. The delays in completion of theproject has mainly resulted from younon-adherence to PMC ServicesContract conditions including takingover of certain responsibilities to beperformed by the Lead Architectand Consultant while abandoningyour own responsibilities withrespect to design management andcoordination of work under your

scope. There are many instances oflack or poor coordination a few ofwhich is pointed out here.

(i) Water cascading - The work wasbeing executed without coordinatedshop drawings approved by theConsultant or any coordinationduring work stage.

(ii) Sliding doors provided by theContractor in the reception lobbies.The installed units do not match withthe BOQ or specification.

Therefore, we request you to takenecessary immediate action forcompleting your scope of work inan orderly fashion as envisaged inthe contact.

Yours faithfully.

For Smart City (Kochi)Infrastructure Pvt. Ltd.

Sd/-

Kurian Kurjan

Director Projects”

2.2 Accordingly, the Hon’ble AppellateTribunal observed that it was clear thatmuch prior to the so-called notice undersection 8 of the ‘I&B Code’, a dispute wasraised by Appellant-’Corporate Debtor’regarding non-completion and abandoningof the work.

2.3 In view of the aforesaid reasons andfindings recorded above, it was held thatthe impugned order dated 9th June, 2017is illegal and was required to be set asidethe said order passed by AdjudicatingAuthority, Chennai Bench in CP/484 (IB)/CB/2017.

2.4 The Hon’ble Appellate Tribunal furtherheld that, order(s), if any, passed byAdjudicating Authority appointing any‘Interim Resolution Professional’ ordeclaring moratorium, freezing of accountand all other order(s) passed byAdjudicating Authority pursuant to

Allied Laws Corner


impugned order and action, if any, takenby the ‘Interim Resolution Professional’,including the advertisement, if any,published in the newspaper calling forapplications all such orders and actions aredeclared illegal and are set aside.

2.5 The Hon’ble Appellate Tribunal directedthe Adjudicating Authority to close theproceeding and declared the appellantcompany released from all the rigour oflaw and is allowed to function

actions contained in the resolution plan whichwould normally require specific approval ofshareholders/members under provisions ofCompanies Act, 2013 or any other law.

1. The matter has been examined in theMinistry in the light of provisions ofsections 30 and 31 of the Code whichprovide a detailed procedure from the timeof receipt of resolution plan by theresolution professional to its approval bythe Adjudicating Authority and there is norequirement for obtaining approval ofshareholders/members of the corporatedebtor during this process.

2. It is understood that the requirement ofsection 30(2) (e) of the Code is to ensurethat the resolution plan(s) considered andapproved by the Committee of Creditorsand the Adjudicating Authority is compliantwith the provisions of the applicable lawsand therefore is legally implementable

3. Section 31(1) of the Code further providesthat a resolution plan approved by theAdjudicating Authority shall be binding onthe corporate debtor and its employees,members, creditors, guarantors and otherstakeholders involved in the resolutionplan. The notes to clauses appended to theInsolvency and Bankruptcy Code, 2015(Bill) in respect of such clause explains:“Therefore, if a plan requires stakeholders

contd. from page 382 Corporate Law Update

independently through its Board ofDirectors from immediate effect.

2.6 The Hon’ble Appellate Tribunal furtherdirected the Adjudicating Authority to fixthe fee of ‘Interim ResolutionProfessional’, if appointed and theRespondent will pay the fees of the InterimResolution Professional, for the period hehas functioned.

❉ ❉ ❉

to do or not do certain actions for thesuccessful implementation of a plan, it shallbe binding on all the affected parties whoshall be bound to undertake the actions setout in the plan”.

4. in view of above, it is also clarified thatthe approval of shareholders/members ofthe corporate debtor/company for aparticular action required in the resolutionplan for its implementation, which wouldhave been required under the CompaniesAct, 2013 or any other law if the resolutionplan of the company was not beingconsidered under the Code, is deemed tohave been given on its approval by theAdjudicating Authority.

[General Circular No. IBC/01/2017 dated25.10.2017]

11. Relaxation of additional fees and extensionof last date of filing AOC-4 and AOC-4(XBRL non Ind AS) under the CompaniesAct, 2013:The Ministry has extended the time for filinge-forms AOC-4 and AOC-4 (XBRL non IndAS) and the corresponding AOC-4 CFS e-forms up to 28.11.2017.

[General Circular No. 14/2017 dated27.10.2017]

❉ ❉ ❉

CornerAllied Laws


CA. Pamil H. [email protected]

From Published Accounts

Accounting Standard-20 Earning per Share (EPS)Notes Forming Part of Financial Statements

For the year ended March 31, 2017

BGR Energy Systems Limited

a. Basic earning per share

Basic earnings per share is calculated bydividing

i. The profit attributable to owners of theGroup

ii. By the weighted average number of equityshares outstanding during the financialyear, adjusted for bonus elements in equityshares issued during the year and excludingtreasury shares.

b. Diluted earnings per share

Diluted earning per share adjusts the figuresused in the determination of basic earnings pershare to take into account:

i. The after income tax effect of interest andother financing costs associated withdilutive potential equity shares, and

ii. The weighted average number ofadditional equity shares that would havebeen outstanding assuming the conversionof all dilutive potential equity shares.

Indian Terrain Fashions Limited

Basic earnings per share is computed by dividingthe net profit after tax by the weighted averagenumber of equity shares outstanding during theperiod. Diluted earnings per share is computed bydividing the profit after the tax by the weightedaverage number of equity shares considered forderiving basic earnings per share and also theweighted average number of equity shares that couldhave been issued upon conversion of all dilutivepotential equity shares. The diluted potential equity

shares are adjusted for the proceeds receivable hadthe shares been actually issued at fair value whichis the average market value of the outstandingshares. Dilutive potential equity shares are deemedconverted as of the beginning of the period, unlessissued at a later date. Dilutive potential equityshares are determined independently for each periodpresented.

HOV Services Limited

Particulars For the year For the yearended March ended March

31, 2017 31, 2016

Net Profit/(Loss) as perStatement of Profit andLoss (Rs.) (1,455,280,971) (2.756.364.221)

Weighted average numberof equity shares 12,532,522 12,524,217

Add: Effect of dilutiveissue of options(Nos.) 54,902 40,208

*Diluted WeightedAverage Number ofEquity Shares (Nos.) 12,587,424 12,564,425

Basic and DilutedEarnings per Share (116.12) (220.08)

Normal value perEquity Share (Rs.) 10 10

*Not considered in view of loss.

Auro Laboratories Limited

The basic earnings per share (EPS) is computed bydividing the net profit after tax for the year by theweighted average number of equity sharesoutstanding during the year. For the purpose ofcalculating diluted earning per share, net profit aftertax for the year and the weighted number of sharesoutstanding during the year are adjusted for theeffects of all dilutive potential equity shares. Thedilutive potential equity shares are deemed convertedas of the beginning of the period, unless they havebeen issued at a later date. The dilutive potentialequity shares have been adjusted for the proceeds


From Published Accounts

receivable had the shares been actually issued atfair value (i.e. the average market value of theoutstanding shares.)

Abhishek Corporation Limited

The basic earnings per share (EPS) is computed bydividing the net profit/(loss) after tax for the yearby the number of equity shares outstanding duringthe year.

Particulars 2016-17 2015-16

Net Loss after tax 107,73,88,952 948,883,302

Number ofEquity Shares 1.60.08,462 1,60,08,462

Basic EPS (67.30) (59.37)

Ravi Kumar Distilleries Limited

In determining the Earnings Per share, the companyconsiders the net profit after tax including any posttax effect of any extraordinary / exceptional item.The number of shares used in computing basicearnings per share is the weighted average numberof shares outstanding during the period. Thenumber of shares used in computing Dilutedearnings per share comprises the weighted averagenumber of shares considered for computing BasicEarnings per share and also the weighted numberof equity shares that would have been issued onconversion of all potentially dilutive shares.

In the event of issue of bonus shares, or share splitthe number of equity shares outstanding is increasedwithout an increase in the resources. The numberof Equity shares outstanding before the event isadjusted for the proportionate change in the numberof equity shares outstanding as if the event hadoccurred at the beginnings of the earliest periodreported.

Manaksia Coated Metals & Industries Ltd

Basic earnings per share is calculated by dividingthe net Profit or Loss for the period attributable toequity shareholders by the weighted averagenumber of equity shares outstanding during theperiod. For the purpose of calculating dilutedearnings per shares, the net profit or loss for the

period attributable to equity shareholders and theweighted average number of shares outstandingduring the period are adjusted for the effects of alldilutive potential equity shares.

Bajaj Hindusthan Sugar Ltd

Basic EPS is calculated by dividing the net profitor loss for the year attributable to equityshareholders by the weighted average number ofequity shares outstanding during the year. DilutedEPS is computed using the weighted averagenumber of equity and dilutive equity equivalentshares outstanding during the year.

Celebrity Fashions Limited

Basic earnings per share is computed by dividingthe net profit after tax by the weighted averagenumber of equity share is computed by dividingthe profit after tax by the weighted average numberof equity shares considered for deriving basicearnings per share and also the weighted averagenumber of equity shares that could have been issuedupon conversion of all dilutive potential equityshares. The diluted potential equity shares areadjusted for the proceeds receivable had the sharesbeen actually issued at fair value which is theaverage market value of the outstanding shares.Dilutive potential equity shares are deemedconverted as of the beginning of the period, unlessissued at a later date. Dilutive potential equity sharesare determined independently for each periodpresented.

The number of share and potentially dilutive equityshares are adjusted retrospectively for all periodspresented for any share splits and bonus sharesissues including changes effected prior to theapproval of the financial statements by the Boardof Directors.

❉ ❉ ❉


From the Government

CA. Kunal A. [email protected]

Income Tax

1). Notification regarding Transfer Pricing

The Central Board of Direct Taxes herebymakes the following rules further to amend theIncome-tax Rules, 1962, namely:-

In the Income-tax Rules, 1962 (hereafterreferred to as the Principal Rules), in Part II,after rule 10D, the following rules shall beinserted, namely:-

“Information and documents to be kept andmaintained under proviso to sub-section (1)of section 92D and to be furnished in termsof sub-section (4) of section 92D.

10DA. (1) Every person, being a constituententity of an international group shall,-

(i) if the consolidated group revenue of theinternational group, of which such personis a constituent entity, as reflected in theconsolidated financial statement of theinternational group for the accounting year,exceeds five hundred crore rupees; and

(ii) the aggregate value of internationaltransactions,-

(A) during the accounting year, as per thebooks of accounts, exceeds fifty crorerupees, or

(B) in respect of purchase, sale, transfer,lease or use of intangible propertyduring the accounting year, as per thebooks of accounts, exceeds ten crorerupees, keep and maintain theinformation and documents of theinternational group as prescribed in theNotification No. 92/2017, dated 31/10/2017.

(2) The report of the information referred to in sub-rule (1) shall be in Form No. 3CEAA and itshall be furnished to the Director General ofIncome-tax (Risk Assessment) on or before thedue date for furnishing the return of income asspecified in sub-section (1) of section 139:

Provided that the information in Form No.3CEAA for the accounting year 2016-17 maybe furnished at any time on or before the 31stday of March, 2018.

(3) Information in,

(i) Part A of Form No. 3CEAA shall befurnished by every person, being aconstituent entity of an international group,whether or not the conditions as providedin sub-rule (1) are satisfied;

(ii) Part B of Form No. 3CEAA shall befurnished by a person, being a constituententity of an international group, in thosecases where the conditions as provided insub-rule (1) are satisfied.

(4) Where there are more than one constituententities resident in India of an internationalgroup, then the report referred to in sub-rule(2) or information referred to in clause (i) ofsub-rule (3),as the case may be, may befurnished by that constituent entity which hasbeen designated by the international group tofurnish the said report or information, as thecase may be, and the same has been intimatedby the designated constituent entity to theDirector General of Income- tax (RiskAssessment) in Form 3CEAB.

(5) The intimation referred to in sub-rule (4) shallbe made at least thirty days before the due dateof filing the report as specified under sub-rule(2).


(6) The Principal Director General of Income-tax(Systems) or Director General of Income-tax(Systems), as the case may be, shall specifythe procedure for electronic filing of Form No.3CEAA and Form No. 3CEAB and shall alsobe responsible for evolving and implementingappropriate security, archival and retrievalpolicies in relation to the information furnishedunder this rule.

(7) The information and documents specified insub-rule (1) shall be kept and maintained for aperiod of eight years from the end of therelevant assessment year.

(8) The rate of exchange for the calculation of thevalue in rupees of the consolidated grouprevenue in foreign currency shall be thetelegraphic transfer buying rate of suchcurrency on the last day of the accounting year.

Furnishing of Report in respect of anInternational Group

10DB. (1) For the purposes of sub-section (1) ofsection 286, every constituent entity resident inIndia, shall, if its parent entity is not resident in India,intimate the Director General of Income-tax (RiskAssessment) in Form No. 3CEAC, the following,namely:-

(a) whether it is the alternate reporting entity ofthe international group; or

(b) the details of the parent entity or the alternatereporting entity, as the case may be, of theinternational group and the country or territoryof which the said entities are residents.

(2) Every intimation under sub-rule (1) shall bemade at least two months prior to the due datefor furnishing of report as specified under sub-section (2) of section 286.

(3) Every parent entity or the alternate reportingentity, as the case may be, resident in India,shall, for every reporting accounting year,furnish the report referred to in sub-section (2)of section 286 to the Director General ofIncome-tax (Risk Assessment) in Form No.3CEAD.

(4) A constituent entity of an international group,resident in India, other than the entity referredto in sub-rule (3), shall furnish the reportreferred to in sub-rule (3) within the timespecified therein if the provisions of sub-section(4) of section 286 are applicable in its case.

(5) If there are more than one constituent entitiesresident in India of an international group, otherthan the entity referred to in sub-rule (3), thenthe report referred to in sub-rule (4) may befurnished by that entity which has beendesignated by the international group to furnishthe said report and the same has been intimatedto the Director General of Income-tax (RiskAssessment) in Form No. 3CEAE.

(6) For the purposes of sub-section (7) of section286, the total consolidated group revenue ofthe international group shall be five thousandfive hundred crore rupees.

(7) Where the total consolidated group revenue ofthe international group, as reflected in theconsolidated financial statement, is in foreigncurrency, the rate of exchange for the calculationof the value in rupees of such total consolidatedgroup revenue shall be the telegraphic transferbuying rate of such currency on the last day ofthe accounting year preceding the accountingyear.

(8) The Principal Director General of Income-tax(Systems) or Director General of Income-tax(Systems), as the case may be, shall specifythe procedure for electronic filing of Form No.3CEAC, Form No. 3CEAD and Form No.3CEAE and shall also be responsible forevolving and implementing appropriatesecurity, archival and retrieval policies inrelation to the information furnished under thisrule.

(For full text and new forms namely3CEAA, 3CEAB, 3CEAC, 3CEAD,3CEAE refer Notification No. 92/2017,dated 31/10/2017.)

❉ ❉ ❉

From the Government


1 Forthcoming Programmes

Date/Day Time Programmes Speaker Venue

25.11.2017 Cricket Match with - At RajkotRajkot Branch

of WIRC of ICAI15.12.2017 6.30 a.m. CAA Foundation Day - River Front,

Celebration with Near Vallabh Sadan,Walkathon. Opp. Gujarat Vidhyapith,

Ashram Road, A'bad15.12.2017 2.30 p.m. Lecture meeting on CA. V. Raghuraman Atma Hall,

to “Current Issues in GST & (Bangaluru) Ashram Road,7.30 p.m. Latest Judicial Decisions Ahmedabad

under Income Tax”under aegis of Late Shri

K T Thakor &C F Patel Memorial

Association News

CA. Maulik S. DesaiHon. Secretary

Lecture

CA. Riken J. PatelHon. Secretary

01/11/2017 Diwali Get-together Celebration

Glimpses of Past Events


Across1. The trigger point under CGST/SGST law for

the levy of GST is _______.2. The freedom to modify the past and to create a

future, either for the better or for the worse, is_______ or self effort.

3. Buyer’s credit can be availed for ______ yearin case the import is for trade-able goods (Raw

Down4. Loss incurred by the assessee on account of

Material).

settlement of future and option is not___________ loss and is eligible for set offagainst business profit.

5. A donation will be treated as ________donation only if it is accompanied by a specificwritten direction of the donor.

6. Diwali Get-together of CAA was held at

ACAJ Crossword Contest # 42

_________ Party Plot at Satellite, Ahmedabad.

Notes:

1. The Crossword puzzle is based on previousissue of ACA Journal.

2. Two lucky winners on the basis of a draw willbe awarded prizes.

3. The contest is open only for the members ofChartered Accountants Association and nomember is allowed to submit more than oneentry.

4. Members may submit their reply eitherphysically at the office of the Association orby email at [email protected] on orbefore 27/11/2017.

5. The decision of Journal Committee shall be final

ACAJ Crossword Contest # 41 - Solution

and binding.

Across1. Partially 2. Information3. Six

Down4. Benami 5. Natural

Winners of ACAJ Crossword Contest # 41

1.

6. Cancelled

❉ ❉ ❉

CA. M. R. Pandhi

2. CA. Hardik Vora

4 6

1

5

2

3

ahmedabad chartered accountants · or equal to five years, in case of membership of (icai) for a...

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