Tax Monthly Digest: October 2024
Pankaj Bajpai
13 Nov 2024 9:00 AM IST
1. Kerala High Court Strikes Down Rule 96(10) of CGST Rules Retrospectively, Finds Them Ultra Vires To CGST Act The Kerala High Court struck down Rule 96(10) of the Central Goods and Service Tax Rules holding that it was ultra vires to the Section 16 of the Integrated Goods and Service Tax Act and was manifestly arbitrary. Justice P. Gopinath noted that Section 16 has not imposed...
The Kerala High Court struck down Rule 96(10) of the Central Goods and Service Tax Rules holding that it was ultra vires to the Section 16 of the Integrated Goods and Service Tax Act and was manifestly arbitrary.
Justice P. Gopinath noted that Section 16 has not imposed any restriction in availing refund of taxes paid on input goods and input services or claiming refund of IGST after payment of IGST on the exports. The Court, therefore held that the restriction imposed under Rule 96(10) on claiming refund is ultravires to the Act.
The Delhi High Court stated that two adjudication orders against one show cause notice for the same period is not permissible.
The Division Bench of Justices Yashwant Varma and Ravinder Dudeja was dealing with a case where a show-cause notice had been issued to the assessee under Section 74 of the CGST Act, 2017. This notice was duly adjudicated by the department, resulting in an order.
3. Proceedings U/S 130 Of UPGST Act Not Applicable If Excess Stock Is Found At Time Of Survey: Allahabad High Court
The Allahabad High Court has held that proceedings under Section 130 of the Uttar Pradesh Goods and Service Tax Act, 2017 cannot be initiated where stock is found excess at the time of survey.
Section 130 of the UPGST Act provides for confiscation of goods and penalty in cases where supply, transport of goods has been made in contravention to the provisions of the Act with the intention to evade tax. It also includes penalty when an assesee does not account for the goods on which tax is to be paid.
The Kerala High Court stated that an application for condonation of delay should focus on whether there was sufficient reason to condone the delay under Section 119(2)(B) of the Income Tax Act, rather than on the merits of the assessee's claim.
Section 119(2)(B) of the Income Tax Act, 1961 empowers CBDT to direct income tax authorities to allow any claim for exemption, deduction, refund and any other relief under the income tax act even after the expiry of the time limit to make such claim.
The Bombay High Court held that authorities under MVAT Act while exercising powers under Maharashtra Settlement of Arrears of Taxes, Interest, Penalties or Late Fees Act, 2022, cannot invoke provisions of Section 50 of MVAT and that too in review proceedings under Settlement Act.
The Division Bench of Justice M. S. Sonak and Justice Jitendra Jain observed that there is no provision under Settlement Act which provides for calculation of outstanding arrears of a particular year to be arrived at after adjustment of refund for another year more so in a case where there is no such adjustment of refund order on date of application or on date of settlement order u/s 13 of Settlement Act.
6. Temporary Suspension Of Business Activity On Account Of Ill Health Does Not Warrant Cancellation Of Taxpayer's GST Registration: Delhi HC
Finding that proper officer passed the order cancelling taxpayer's GST registration with retrospective effect, the Delhi High Court clarified that such order does not indicate any reason for cancelling the GST registration much less from retrospective effect.
The High Court found that the only allegation against the assessee was that it was non-existent, which was sufficiently addressed by the assessee in his reply by claiming that he had to go to Rajasthan due to ill health of his father.
The Delhi High Court has reiterated that entities commanding high profit margins cannot be included as comparables of those working on cost-plus markup basis, to determine Arm's Length Price for international transactions.
A Division bench of Justices Yashwant Varma and Ravinder Dudeja thus ordered the exclusion of TCS E-Serve International Ltd., TCS E-Serve and Infosys BPO Limited from the list of comparables of the Appellant- Cadence Designs.
The Andhra Pradesh High Court stated that the use of chemicals as raw materials would not change their categorisation as chemicals. Therefore, they must be taxed at 8% only.
The Division Bench of Justices R. Raghunandan Rao and Harinath N. was addressing a tax dispute in which the assessee challenged the Revisional Authority's imposition of a higher tax rate of 12% on goods, instead of the 8%.
The Delhi ITAT held that transaction between assessee and its subsidiary cannot be treated as deemed loan u/s 2(22)(e), as they are current transactions that pertain to travelling & other expenses incurred by assessee on behalf of its subsidiary.
Any loan/ advance given by a closely held company to a shareholder holding 10% or more voting power is considered a dividend under Section 2(22)(e) of Income tax Act. Such income is taxable in the hands of the recipient shareholder as income from other sources.
The Bangalore ITAT deleted the disallowance made by the AO u/s 40(a)(ia) on ground of non-deduction of tax at source on sales commission paid by the assessee company/ respondent to its US based subsidiary as well as other AE on account of selling & marketing services.
The Division Bench comprising George George K (Vice-President) and Padmavathy S (Accountant Member) observed that the sales and marketing services rendered to assessee by its US based subsidiary does not fall within the ambit of FTS as defined u/s 9(1)(vi) of Income tax act or Article 12 of India-US DTAA.
The Telangana High Court has held that the capital expenditure made prior to June 1998, for purchasing shares in any 'infrastructure facility', cannot be included in an assessee's total income.
A division bench of Justices Sujoy Paul and Namavarapu Rajeshwar Rao reasoned “The capital expenditure for purchasing shares falls under the category of infrastructure facilities and shall not be included in total income. This is because merely purchasing shares does not contribute to the income of the respondent/assessee. Since it does not count as income, no amount needs to be paid in taxes.”
12. Non-Disposal Of Application For Registration U/S 12AA Of IT Act Within 6 Months Doesn't Result In "Deemed Registration”: Bombay High Court
Referring to decision of CIT vs. Harshit Foundation Sehmalpur, the Bombay High Court reiterated that Sec 12AA(2) does not make any provision, to the effect that non-deciding of the registration application u/s 12AA(2) within a period of six months, brought about a deemed registration.
The Division Bench of Justice G. S. Kulkarni and Justice Firdosh P. Pooniwalla clarified that “non-disposal of application for registration by granting or refusing registration, before the expiry of six months as provided u/s 12AA(2), would not result in a deemed grant of registration”.
13. Residence Country Can't Deny Credit On Taxes Levied By Source Country: Mumbai ITAT Grants Treaty Benefit To Amarchand Mangaldas
The Mumbai ITAT ruled that tax credit cannot be denied in cases where the interpretation of the residence country about the applicability of a treaty provision is not the same as that of source jurisdiction about the provision and yet the source country had levied taxes directly or by way of tax withholding.
The Bench of Beena Pillai (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) clarified that that the DTAA provisions eliminate double taxation in all cases where the state of source has imposed its tax by applying to an item of income.
The Supreme Court recently ruled that a card issuing bank is not liable to separately pay service tax on the interchange fee when the said tax already stands paid on the Merchant Discount Rate (MDR).
The Three Judge Bench of Justice Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan observed that “the entire amount of the service tax payable on the MDR has been paid to the Government and there is no loss of revenue”.
15. Bombay HC Holds 'Income From Leasing Of Property' As 'Income From Business', Says Deciding Factor Is Not Ownership But Nature Of Activity
The Bombay High Court held that assessee had correctly accounted income from leasing out of properties under the head 'income from profits & gains of businesses', and not as 'income from house property'.
The High Held so after finding that income of assessee is derived from letting out of the properties, which in fact, is the principal business of the assessee as seen from its main objectives contained in its memorandum of association.
The Division Bench of Justice G. S. Kulkarni and Justice Firdosh P. Pooniwalla observed that “what must be borne in mind for the Court is to consider the main objective of the assessee as contained in the Memorandum of Association, and that the deciding factor, is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them”.
16. Section 67 CGST Act | Whether Cash Can Be Seized During GST Search? Supreme Court To Consider
Taking into account conflicting views of the Delhi High Court and the Madhya Pradesh High Court, the Supreme Court is set to consider the issue as to whether authorities can seize "cash" under Section 67 of the Central Goods and Services Tax Act, 2017.
The development comes as a bench of Justices PS Narasimha and Sandeep Mehta recently issued notice on a petition filed by tax authorities assailing Delhi High Court's direction for refund of seized cash to the respondents.
17. Delay In Allotting Shares No Basis To Treat Share Application Money In Hands Of Overseas AE As 'Loan': Mumbai ITAT Deletes Notional Interest
The Mumbai ITAT held that when no income had accrued from the transaction of remittance of share application money by assessee to its overseas AE, then such transaction cannot be subjected to the transfer pricing provisions
The ITAT deleted a transfer pricing addition made by the TPO on account of notional interest on share application money paid by assessee to its AEs.
Transaction between assessee/ Appellant and its AE was in the nature of remittance towards share application money and not in the nature of a loan transaction, accepted the Division Bench comprising Narendra Kumar Billaiya (Accountant Member) and Rahul Chaudhary (Judicial Member).
The Delhi ITAT deleted the addition made by AO in the absence of any supporting evidence, which was merely based on assumption and not on any material recovered during search and seizure.
The ITAT further clarified that assessee/ employee doing overtime beyond working hours may be classified as violation of banking rules, but could not form basis for addition, assuming that assessee has received commission from his manager for same.
The Bench of S. Rifaur Rahman (Accountant Member) and Sudhir Kumar (Judicial Member) observed that “the AO has made the addition on the basis that the assessee had helped Rajeev Singh Kushwaha in cash deposits by flouted the banking norms”.
The Supreme Court on Wednesday (October 16) held that banks can claim tax deductions for broken period interest on held to maturity (HTM) government securities if they are held as trading asset.
“Therefore, on facts, if it is found that HTM Security is held as an investment, the benefit of broken period interest will not be available. The position will be otherwise if it is held as a trading asset”, the Court held.
A bench of Justice Abhay Oka and Justice Pankaj Mithal observed that whether HTM securities are held as investments or stock-in-trade depends on the facts of each case. If a bank holds HTM securities until maturity and values them at cost, they may be considered investments, in which case the broken period interest would not be deductible. If held as trading assets, the deduction would be available.
The Gujarat High Court stated that there cannot be any blocking of the credit in electronic credit ledger if there is no sufficient balance available.
The Division Bench, comprising Justices Bhargav D. Karia and Niral R. Mehta, was hearing a case where the assessee contested the blocking of Input Tax Credit (ITC) amounting to ₹2,44,05,567 in its electronic credit ledger.
While considering a case where the Commercial tax department has flagrantly breached the statutory provisions of Sec 23(4) of the MVAT Act, the Bombay High Court ruled that assessment order passed by Commissioner of Sales tax is vitiated by total non-application of mind.
Since a strong prima facie case is made out about manipulating the date of passing the assessment order, the High Court found that such manipulation was to create an impression that the order was made within the prescribed statutory period of limitation.
The Division Bench comprising Justice M.S Sonak and Justice Jitendra Jain observed that “the impugned assessment order is required to be quashed for gross failure to comply with the statutory provisions in Section 23(4) of the MVAT Act and the principles of natural justice and fair play, non-application of mind and legal malafides”.
22. Value Of Free Fuel Can't Be Added To Value Of Taxable Supply U/S 15 Of CGST Act: Uttarakhand HC
The Uttarakhand High Court held that when as per the agreement, the cost of fuel was to be borne by recipient, then such cost cannot be subjected to charge of GST by adding its value in the transaction value of GTA service.
Pointing that the cost of fuel cannot be added in the account of the transporter, as was governed by the GST rules, the Division Bench comprising Justice Ritu Bahri and Justice Rakesh Thapliyal observed that “value of free fuel cannot be added to value of taxable supply under Section 15(1) and Section 15(2)(b) of the CGST Act, 2017”.
23. Notice Issued U/S 148A(B) Of Income Tax Act Against Dissolved Firm Is Not Valid: Gujarat High Court
The Gujarat High Court stated that notice issued under section 148A(b) of the Income Tax Act, 19861 against dissolved firm is not valid.
The Division Bench of Justices Bhargav D. Karia and Mauna M. Bhatt was dealing with a case where the Assessing Officer/respondent issued an impugned notice under Section 148A(b) of the Income Tax Act, 1961, in the name of the partnership firm and also passed an order under Section 148A(d) of the Income Tax Act against the same firm, which had already been dissolved.
The Delhi High Court held that when the payment of refund was delayed, the assessee automatically becomes entitled to interest u/s 42 of the DVAT Act. After the assessee succeeds in vindicating its stand that its claim for refund was correct, it would follow that that the assessee would be refunded the amount claimed and interest would be payable, added the High Court.
The High Court held so while referring to the statutory time frame constructed by Section 38(3)(a)(ii) of the DVAT Act, as per which the amount becomes refundable within the time frame stipulated u/s 38(3) of the DVAT Act.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “Once the tax payer succeeds in upsetting the assessments framed u/s 32 & 33 of the DVAT Act, which results in vindicating its claim for refund either in part or as a whole as claimed by either furnishing a return or Form DVAT-21, interest u/s 42(1)(a) of the DVAT Act would be payable from such date as the refund was due to be paid to the tax payer”.
The Hyderabad ITAT ruled that the assessee cannot make a fresh claim of deduction under Chapter VI-A of the Income Tax Act, for the first time, in the return of income filed in response to notice issued u/s 153A, pursuant to search conducted u/s 132 of the Act, in unabated/completed assessment as on the date of search.
However, in case of abated assessments, like the AO who can make an assessment based on incriminating materials and any other information made available to him, including information furnished in return, the assessee may claim all deductions towards any income or expenditure, as if it is a first return of income and fresh assessment, added the ITAT.
The Kerala High Court held that the initiation of an enquiry or the issuance of summons under Section 70 of the CGST Act cannot be deemed to be initiation of proceedings for the purpose of Section 6(2)(b) of the CGST Act.
The Bench of Justice Gopinath P. observed that “The term 'initiation of any proceedings' is no doubt a reference to the issuance of a notice under the provisions of the CGST/SGST Acts and the initiation of an enquiry or the issuance of summons under Section 70 of the CGST/SGST Acts cannot be deemed to be initiation of proceedings for the purpose of Section 6(2)(b) of the CGST/SGST Acts.”
27. Allotment Letter By Developer Shall Be Treated As 'Construction' For Benefit Of Set-Off Of Capital Gains U/S 54: Kolkata ITAT
Referring to the CBDT Circular No. 872 dated Dec 16, 1993, the Kolkata ITAT clarified that allotment of flats/houses by Cooperative Societies and other Institutions whose scheme of allotment and construction are similar to Delhi Development Authority (DDA) should be treated as 'construction' for purpose of Section 54 and 54F.
While treating the allotment letter by the developer as 'construction activity', the ITAT granted the benefit of set off of capital gain to the purchaser (appellant here).
The Bench of Rajpal Yadav (Vice-President) and Rakesh Mishra (Accountant Member) observed that allotment letter given by the developer to the assessee way back in 2010 would be construed as an agreement of purchase between the developer and the assessee. Thus, the Bench held that the payments made to the developer through account payee cheque would be an agreement to sell and granted benefit of proviso appended to section 56(2)(vii)(b).
28. Taxpayer Can't Be Denied ITC For Merely Filing GST Form Manually If Functionality Issues Are Attributable To Dept: Bombay High Court
The Bombay High Court ruled that concerned Revenue officials (Respondent) cannot deny the benefits of accrued ITC (input tax credit) to the assessee (Petitioner) only because the prescribed forms were not filed electronically but were filed manually.
Just because the GST ITC-02 Form was not available for filing electronically, neither the petitioner nor TDN could be faulted for not filing Form GST ITC-02 electronically on the department's common portal, added the Court.
The Division Bench of Justice M.S. Sonak and Justice Jitendra Jain therefore directed the Respondents to consider the manually filed forms by the TDN as expeditiously as possible.
29. Deduction U/S 80-IA Is Eligible For Industrial Undertakings Even If Infrastructural Development Is Performed With State's Nodal Agency: Calcutta HC
The Calcutta High Court recently confirmed the deduction u/s 80IA(4) to an Infrastructural development company, regarding development of a mechanised port handling system by entering into an agreement with a nodal agency recognised by the Andhra Government.
The Division Bench comprising Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya observed that deduction u/s 80IA(4) is legislated to promote industrial undertaking engaged in the infrastructural development, and therefore, its interpretation should advance the object of its introduction and should not frustrate it.
The Jammu and Kashmir and Ladakh High Court has upheld the UT government's decision to withdraw the 'Budgetary Support Scheme', notified in the year 2018 for providing budgetary support to manufacturing units in the UT, by reimbursement of Integrated Goods and Service Tax.
A division bench of Justices Sanjeev Kumar and Rajesh Sekhri observed that the Scheme did not create any legitimate expectation in the units nor did it attract promissory estoppel on the government.
The Delhi ITAT ruled that TDS u/s 194-I has no application on the franchise fee, if the franchisee/collaborator does not render any service, and claim of expenditure is nothing but sharing of revenue in accordance to the agreement undertaken by the parties. The ITAT emphasized that sharing of revenue and its impact of taxability vis-à-vis application of TDS provision depends upon the method of accounting adopted by respective assessees.
The Division Bench comprising S. Rifaur Rahman (Accountant Member) and Sudhir Pareek (Judicial Member) observed that “Whatever expenses claimed as share of surplus with the collaborator, it is only sharing of revenue and not the claim of expenditure, as per the terms of agreement, the collaborator does not render any service to the assessee”.
Pointing that the Department has delayed the refund on customs duty that was due & payable to assessee for almost ten years, the Bombay High Court ruled that such action of Department in avoiding the payment of interest on delayed refund by raising frivolous pleas, cannot be sustained.
Referring to Supreme Court decision in Union of India Vs. Hamdard (Waqf) Laboratories [AIR 2016 SC 1124], the High Court reiterated that the liability of the Revenue to pay the interest u/s 11BB, which corresponds to Sec 27A of the Customs Act, commences from the date of expiry of 3 months from the date of receipt of the application for refund or on the expiry of the said period from the date of which the order of refund is made.
The Division Bench comprising Justice M.S. Sonak and Justice Jitendra Jain observed that the respondent by misconceived construction of Section 27A of the Customs Act, cannot avoid payment of interest at the rate of 6% per annum, having retained and utilised the amount which was ultimately found to be refundable to the petitioner.
Finding that the payments were received by the bank from third parties, specifically named in the tripartite agreement, which was backed by a firm irrevocable purchase order, the Delhi High Court ruled that duty drawback could not be denied to an exporter.
Since the e-BRCs were issued by the DGFT after verification from the bank confirming the receipt of payments, the High Court held that payments made to local supplier through banking channels, could not be regarded as non-existence, without carrying out a proper investigation.
The Division Bench comprising of Justice Yashwant Varma and Justice Ravinder Dudeja observed that the petitioner is entitled for grant of duty drawback and its bank account could not be frozen by Customs authority, once export proceeds were realized within the stipulated period as prescribed under FEMA.
The Madhya Pradesh High Court has dismissed a petition moved by the Customs and Central Excise Department seeking priority over other secured creditors, for recovery of dues from an assessee's property.
Justices Vivek Rusia and Binod Kumar Dwivedi relied on Punjab National Bank V/s Union of India and others (2022) where the Top Court had held that SARFAESI Act will have an overriding effect on the provisions of the Central Excise Act and therefore, dues of the secured creditor will have priority over the dues of the Customs and Excise Department.
The Madhya Pradesh High Court has held that merely because payment is deferred by the State in terms of the works contract, the same cannot be grounds for a dealer to seek exemption from payment of taxes under the MP Commercial Tax Act, 1994 and MP Entry Tax Act, 1976.
The Mumbai ITAT held that capital reserve arising on account of amalgamation is a capital receipt and hence cannot be taxed as a benefit or perquisite arising from business u/s 28(iv).
Pointing that the assessee was the ultimate holding company of the merged entity and in the whole process, does not gain or lose anything, the Bench of Prashant Maharishi (Accountant Member) and Sandeep Singh Karhail (Judicial Member) observed that there is absolutely no benefit or perquisite arising out of the scheme of amalgamation.
The Kerala High Court stated that provisions of section 74 of CGST Act can be invoked if assessee fails to report actual sales to evade tax.
The Bench of Justice Gopinath P. observed that “It is for the assessee to get his claim adjudicated by the statutory authorities under the CGST / SGST Acts. The procedure under Article 226 of the Constitution of India cannot be invoked to determine disputed questions of fact especially on account of the procedure adopted in this Court in respect of writ petitions under Article 226 of the Constitution of India.”
38. No Service Tax Can Be Levied On Rental Agreements In Name Of Individual Partners For Jointly Owned Property: CESTAT
The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that rental agreements in the name of an individual partner regarding property jointly held by them are not liable to service tax.
The Bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that “post 01.07.2012, the firm was not functional, and the rental agreements are in the name of the individual partner, with regard to the property held by them jointly. So, there cannot be a case of service to oneself. Hence, they are not liable to service tax.”
39. Explained| Why Supreme Court Allowed Benefit Of TOLA In Extending Timelimits For Issuing Income Tax Reassessment Notices
The Supreme Court in its recent decision allowed the revenue authorities to issue notices for reassessment under the Income Tax Act for the period between 01.04.2021 and 30.06.2021 by granting the benefit of time extensions under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021.
The bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Manoj Misra had held that “if the legislative intention is clear and the language is unambiguous, full effect must be given to the legislative intention by reading the notification as applying not only to the incomplete assessments but also to assessments that had reached finality because of lapse of the earlier prescribed period.”
40. Absence Of Controlling Interest Renders Sale Of Shares By Spanish Entity Not Taxable In India As Per Indo-Spain DTAA: Mumbai ITAT
The Mumbai ITAT held that capital gain arising out of transfer of shares of an Indian entity cannot be taxed at hands of foreign entity in India, if foreign entity has less than 10% shareholding in such Indian entity.
The ITAT held so while referring to UN Model Convention commentary, which states that the provisions of Article 14(4) come into effect to prevent the case of indirect transfer of ownership of immovable property by transfer of shares owning these properties.
The Bench of Padmavathy S (Accountant Member) and Sunil Kumar Singh (Judicial Member) clarified that capital gain in hands of Spanish company (assessee/ appellant) from sale of shares of IMI Investments (Indian company) cannot be taxed in India, since assessee has no controlling interest in said Indian company.
41. Additions Made Under Income Tax Act Have No Bearing Under Black Money Act: Mumbai ITAT
The Mumbai ITAT held that any addition made as undisclosed foreign income and asset under the Black Money Act (BMA), shall not be repeated under the Income Tax Act. However, since there is no corresponding provision under the Income tax Act, the ITAT clarified that additions made under the Income tax Act have no bearing under the BMA.
Single Third Member Bench comprising Narendra Kumar Billaiya (Accountant Member) observed that the entire BMA revolves around taxing only 'undisclosed asset located outside India' and 'undisclosed foreign income and asset', whereas under the Income Tax Act, all income are taxable unless specifically exempt from tax or not included in taxable income.
42. Taxpayer Can't Claim Credit Against Tax Payable In India If He Has Not Paid Any Tax In Country Where He Sourced Income: Mumbai ITAT
While observing that the assessee is a resident of India in terms of Article 4(2)(a) of the Indo-US DTAA, the Mumbai ITAT held that all his income derived in the USA, is chargeable to tax in India by virtue of the provisions of section 5 of the Income tax Act.
Since the income tax return filed by the assessee in the USA, does not show that he is paid any tax in the USA, therefore, the ITAT clarified that in the absence of any payment of tax in the country of source, no credit is available against tax payable by the assessee in India.
The Bench of Prashant Maharishi (Accountant Member) and Shrianikesh Banerjee (Judicial Member) observed that “assessee is staying in India for the current year for more than 183 days and therefore according to the domestic law, he is considered to be the resident of India”.
