GST Evasion: DRI, DGGI carry out joint operations against fraudulently claiming refund of IGST by Exporters

In the biggest ever joint operation by Directorate General of GST Intelligence (DGGI) and Directorate General of Revenue Intelligence (DRI) against exporters who were claiming a refund of IGST fraudulently, pan-India searches were carried out at 336 different locations across the country yesterday.

The operation covered entities in the states of Delhi, Haryana, Uttar Pradesh, Gujarat, Maharashtra, Tamil Nadu, West Bengal, Karnataka, Madhya Pradesh, Telangana, Punjab, Rajasthan, Himachal Pradesh, Uttarakhand and Chhattisgarh. The joint operation of the two premier intelligence agencies of Central Board of Indirect Taxes and Customs ( CBIC ), was a first of its kind in the history of CBIC which involved about 1200 officers from both the agencies.

On the basis of data analytics, an intelligence developed in close coordination by both the agencies revealed that some exporters are exporting goods out of India on payment of tax (IGST), being done almost entirely out of the Input Tax Credit (ITC) availed on the basis of ineligible/ fake supplies. Further, such IGST payment was claimed as a refund on export. Based on the data provided by the Directorate General of Analytics and Risk Management (DGARM), the analysis was conducted wherein certain ‘red flag’ indicator filters were applied to Customs’ export data in conjunction with the corresponding GST data of the exporters. It was also noticed that there was no or negligible payment of tax through cash by the exporters as well as their suppliers. In a few cases, even the tax paid through ITC was more than the ITC availed by these firms. On the basis of this intelligence, massive searches were conducted on the premises of exporters and their suppliers.

The day-long operation revealed that many of the entities spread across the length and breadth of the country were either non-existent or had given fictitious addresses. The preliminary examination of the records/documents resumed during the course of the joint operation along with the statements recorded of various persons indicated that an Input Tax Credit of more than Rs. 470 Crore (Invoice value of approx. Rs 3500 Crores) is bogus/ fake which has been further utilized by the exporters for effecting exports on payment of IGST through ITC and claiming consequential cash refund of the same. Besides, an IGST refund amount of around Rs 450 crore is under examination. Further, some live export consignments of these exporters have been intercepted at Vadodara Rail Container Terminal, Mundra port and Nhava Sheva port for examination in order to ascertain mis-declaration.

 Further investigations in the matter are under progress.

Application for Compounding of Offences filed before the Competent Authority on or before 31-12-2019 shall be deemed to be filed in Time: CBDT [Read Circular]

The Central Board of Direct Taxes ( CBDT ) has clarified that, application for compounding of offences filed before the competent authority on or before 31-12-2019 shall be deemed to be filed in time.

In a Circular issued by CBDT said that, With a view to mitigate unintended hardship to taxpayers in deserving cases, and to reduce the pendency of existing prosecution cases before the courts, the CBDT in exercise of powers u/s 119 of the Income Tax Act, 1961 read with explanation below sub-section (3) of section 279 of the Act, As a one-time measure, the condition that compounding application shall be filed within 12 months, is hereby relaxed, under the following conditions:

i) Such application shall be filed before the Competent Authority i.e. the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned, on or before 31.12.2019.

ii) Relaxation shall not be available in respect of an offence which is generally/normally not compoundable, in view of Para 8.1 of the Guidelines dated 14.06.2019.

The Circular also said that Applications filed before the Competent Authority, on or before 31.12.2019 shall be deemed to be in time in terms of para 7(ii) of the Guidelines dated 14.06.2019.

The Circular also clarified that Para 9.2 of the Guidelines dated 14.06.2019, shall not apply to all such applications made under this one-time measure. The other prescriptions of the Guidelines dated 14.06.2019 including the compounding procedure, compounding charges etc. shall apply to such applications.

For the purposes of this Circular, the application can be filed in all such cases where-

a) prosecution proceedings are pending before any court of law for more than 12 months, or

b) any compounding application for an offence filed previously was withdrawn by the applicant solely for the reason that such application was filed beyond 12 months, or

c) any compounding application for an offence had been rejected previously solely for technical reasons.

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CBDT issues norms for launching Prosecution under Direct Tax Laws [Read Circular]

The Central Board of Direct Taxes ( CBDT ) has issued norms for identification and processing of cases for prosecution under Direct Tax Laws.

The prosecution is a criminal proceeding. Therefore, based upon evidence gathered, offence and crime as defined in the relevant provision of the Act, the offence has to be proved beyond a reasonable doubt. To ensure that only deserving cases get prosecuted the Central Board of Direct Taxes in exercise of powers under section 119 of the Act lays down the following criteria for launching prosecution in respect of the following categories of offences.

i. Offences u/s 276B: Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.

Cases where non-payment of tax deducted at source is Rs. 25 Lakhs or below, and the delay in the deposit is less than 60 days from the due date, shall not be processed for prosecution in normal circumstances. In case of exceptional cases like habitual defaulters, based on particular facts and circumstances of each case, prosecution may be initiated only with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

ii. Offences u/s 276BB: Failure to pay the tax collected at source.

Same approach as in Para 2.i above.

iii. Offences u/s 276C(1): Wilful attempt to evade tax, etc.

Cases where the amount sought to be evaded or tax on under-reported income is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

Further, prosecution under this section shall be launched only after the confirmation of the order imposing a penalty by the Income Tax Appellate Tribunal.

iv. Offences u/s 276CC: Failure to furnish returns of income.

Cases where the amount of tax, which would have been evaded if the failure had not been discovered, is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

For the purposes of this Circular, the constitution of the Collegium of two CCIT/DGIT rank officers would mean the following-

As per section 279(1) of the Act, the sanctioning authority for offences under Chapter XXII is the Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. For proper examination of facts and circumstances of a case, and to ensure that only deserving cases below the threshold limit as prescribed in Annexure get selected for filing of prosecution complaint, such sanctioning authority shall seek the prior administrative approval of a collegium of two CCIT/DGIT rank officers, including the CCIT/DGIT in whose jurisdiction the case lies. The Principal CCIT(CCA) concerned may issue directions for a pairing of CCsIT/DGIT for this purpose. In case of disagreement between the two CCIT/DGIT rank officers of the collegium, the matter will be referred to the Principal CCIT(CCA) whose decision will be final. In the event that the Pr.CCIT(CCA) is one of the two officers of the collegium, in case of disagreement the decision of the Pr.CCIT(CCA) will be final.

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ICAI Extends Last Date of Filling Multipurpose Empanelment Form 2019-20

The Institute of Chartered Accountants in India ( ICAI ) has extended last date for filing for submission of online Multipurpose Empanelment Form for the year 2019-20.

In a press release issued by ICAI said that, Considering the requests of various Members of ICAI, it has been decided by Professional Development Committee to extend the last date for submission of online Multipurpose Empanelment Form for the year 2019-20 till 20th September, 2019. The last date for submission of Declaration is 25th September, 2019.

The last date for submission of MEF applications pertaining to Jammu & Kashmir is 30th September, 2019 alongwith Declaration.

GST Council to meet on Sep 20: Likely to Propose Single Refund Mechanism to sanction Refund

The most powerful GST Council, in its meeting scheduled on 20th September is likely to propose a procedure to permit a single authority for sanctioning and processing GST refunds for exporters in a quick and an efficient manner.

As per the proposed mechanism, the Government or the tax officials may check, review and sanction full tax refund (both Central GST and State GST once the refund claim is filed.

The move became necessary so as to boost the stressed exports sector, which contracted 0.37 per cent to USD 107.41 billion in April-July 2019-20 as the sector is facing challenges because of sluggish global demand and liquidity crunch.

The GST Council, headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states, is slated to meet in Goa and discuss the single-authority mechanism, which is likely to come into effect in September.

Last month, Finance Minister Sitharaman unveiled a slew of measures, including simplification of goods and services tax return forms, quicker tax refunds, and self-certification for startups in a bid to prevent a further economic slowdown.

More importantly, the finance minister stated that all pending GST refunds due to micro, small and medium enterprises (MSMEs) would be paid within 30 days and future refunds in 60 days of application. GST collections in August have fallen below Rs 1 lakh crore, which is a sign of slump in the economy. Many industry watchers say the current mechanism of two authorities settling the same refund claims makes the process complex and cause too much inconvenience for the taxpayers.

ICAI extends Last date for Online Application of CA Exams Nov 2019

The Institute of Chartered Accountants of India ( ICAI ) has extended the last date for filing of online applications for the Chartered Accountants exams scheduled in November 2019.

“In partial modification of the Institute’s Announcement No. 13-CA(Exam)/N/2019 dated 14th August, 2019, it is hereby informed that the last date for submission of the Online flling up of examination application form for Chartered Accountants Examinations scheduled in the month of November 2019 has been extended,” the ICAI said in an announcement.

 Online flling up of Examination Application Form Previously Announced Date Extended Date Last date for submission of online examination form (without late fee) was 7th September 2019 (Saturday). This has been extended to 12th September 2019 (Thursday).

The last date for submission of online examination form (with late fee of Rs 600/- or US $ 10) is 10th September 2019 (Tuesday) 15th September 2019 (Sunday).

“Further, as already announced vide Announcement dated 2nd September, 2019, the last date for submission of exam forms by candidates residing in Jammu & Kashmir only will be 15th September 2019 (without late fee). The candidates are advised to stay in touch with the website of the Institute, www.icai.org.,” it said.

CBDT enters into 26 APAs during the current Financial Year

The Central Board of Direct Taxes ( CBDT ) has entered into 26 Advance Pricing Agreements (APAs) in the first 5 months of the current financial year (April to August, 2019). With the signing of these APAs, the total number of APAs entered into by the CBDT as of now stand at 297, which includes 32 Bilateral Advance Pricing Agreements (BAPAs).

Out of these 26 APAs, 1 is a BAPA entered into with the United Kingdom and the remaining 25 are Unilateral Advance Pricing Agreements (UAPAs).

The BAPAs and UAPAs entered into during this period pertain to various sectors and sub-sectors of the economy like Information Technology, Banking, Semiconductor, Power, Pharmaceutical, Hydrocarbon, Publishing, Automobile, etc.

The international transactions covered in all these agreements, inter alia, include the following:-

The progress of the APA scheme strengthens the Government’s resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

Kerala High Court upholds IT Deduction to Future Expenses in respect of a Liability that accrued during the related Accounting Year [Read Judgment]

A division bench of the Kerala High Court has held that an expenditure to be incurred in future in respect of a liability that accrued during the related accounting year would be eligible for a deduction in the said accounting year under the provisions of the Income Tax Act.

The assessee is a leading mall operator in the State of Kerala. Whilst the Mall was under construction, the assessee had during the financial year 2008-09 sold a portion of the Mall to certain third parties.  The said portion of the Mall was sold on the basis that a fully constructed and operating mall would be provided to the concerned buyers.

According to the assessee, the Mall was fully completed during Financial Year 2011-12.  In arriving at the profit chargeable to tax on the sale of the said portion for FY 2008-09, the assessee claimed a deduction in respect of the proportionate expenditure incurred during the subsequent years, ie, FY 2009-10 and 2010-11, which was challenged by the Tax authorities.  The said deduction of future expenses was upheld by the Income-tax Appellate Tribunal on the basis that there was an obligation on the part of the assessee to provide a fully furnished mall to the various buyers.

The department, then approached the High Court for relief against the Tribunal order.

The bench comprising Justice C K Abdul Rehim and Justice R. Narayana Pisharadi observed that as long as there was an obligation to incur an expenditure, the fact that the said expenditure was paid during the subsequent years would have no relevance.

Accordingly, it was observed that as the liability had accrued during the concerned financial, though discharged in the subsequent year, a deduction was to be granted in the first mentioned year.  The division bench in arriving at its judgment placed reliance on the judgment of the Supreme Court in the cases of Calcutta Company Limited Vs CIT AIR 1959 SC 1165, Madras Industrial Investment Corporation Limited Vs CIT  and Bharat Earth Movers Limited Vs CIT which have upheld the grant of deduction once a liability has accrued.  The bench also held that the fact a payment would need to be effected in the subsequent years (ie, in future) would have no bearing as long as the liability has been incurred in praesenti.

Advocates Sherry Samuel Oommen, Nerish Niranjan Zaveri and Sukumar Nainan Oommen appeared for the assessee.

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Cash Withdrawals over Rs 1 cr to attract 2% TDS from Sep 1: CBDT

The Central Board of Direct Taxes ( CBDT ) has issued Clarification on applicability of Tax Deduction at Source ( TDS ) on cash withdrawals.

In order to discourage cash transactions and move towards less cash economy, the Finance (No. 2) Act, 2019 has inserted a new Section 194N of the Income Tax Act, 1961, to provide for levy of tax deduction at source (TDS) @2% on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from one or more accounts maintained with it by the recipient. The above section shall come into effect from 1st September, 2019.

Since the section provided that the person responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year to deduct income tax @2% on cash payment in excess of rupees one crore, queries were received from the general public through social media on the applicability of this section on withdrawal of cash from 01.04.2019 to 31.08.2019.

The CBDT, having considered the concerns of the people, hereby clarifies that section 194N inserted in the Act, is to come into effect from 1st September, 2019. Hence, any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under section 194N of the Act.

However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of the amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 1st April, 2019. Hence, if a person has already withdrawn Rs. 1 crore or more in cash up to 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the two per cent TDS shall apply on all subsequent cash withdrawals.

Salary to Teachers / Lectures / Staff of College subject to TDS u/s 192, not FTS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Jaipur has held that the salary paid to teachers, lectures and staff by the college would not amount to the fee for technical services and the same is subject to TDS under Section 192 of the Income Tax Act.

The assessee runs a college under the name and style of Sri Sathya Sai P.G. College for Women. During the Assessment Years under consideration, the assessee paid salary to its employees who are teaching thereon which assessee deducted the tax at source under section 192 of the Act. During the course of assessment, the Assessing Officer held that the employees to whom assessee paid salary are not having an employer-employee relationship between the college teachers/lecturers/ staff. It was, therefore, held that the assessee is liable to deduct tax at source under section 194J of the Act in place of 192 of the Income Tax Act, 1961.

The Tribunal noted that the month-wise salary sheet was also prepared by the college on the basis of the attendance register of the employees. The salary was paid to the employees and due taxes are being deducted u/s 192 of the I.T. Act, 1961.

“From the record, I found that the assessee is running a college for women under a registered society in the name ‘’Sri Sathya Sai College for Women’’ at Jawahar Nagar, Jaipur. The assessee has appointed teachers/ lecturers and staff for full-time employment as per terms of the appointment letter issued by the college. The assessee is paying monthly fixed salary as per the terms of employment of service. The appointment is made under an employer-employee relationship between the college and the teachers/lecturers/ staff. I also found that the college authorities have full control over the teachers/ lecturers/ staff as per their working hours and working days fixed by the employer and they were also supposed to do other work related to the college activities as and when required. Since there were employee and employer relationship between the college teachers/lecturers/staff, therefore, tax on the salary paid to them was correctly deductible u/s 192 of the Act. I also found that in order to establish employee and employer relationship between the college teachers/lecturers/staff, the assessee also produced salary registers and appointment letters before the lower authorities,” the Tribunal said.

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CBDT issues Clarifications on filling-up of the ITR Forms [Read Circular]

The Central Board of Direct Taxes ( CBDT ) has issued Clarifications in respect of filling-up of the ITR forms for the Assessment Year 2019-20.

In a circular issued by CBDT has said that, In ITR Form-2 and ITR Form-3, in Part-A General, at column (h), the taxpayer is required to state whether he was Director in a company at any time during the previous year. In case of an affirmative answer, the taxpayer is further required to disclose following information relating to each company in which he was a Director:- (a) Name of Company (b) PAN (c) Whether its shares are listed or unlisted (d) Director Identification Number (DIN).

With regarding to non-residents are required to pay tax only in respect of income received in India or income accruing or arising in India. Nonresidents are not required to disclose their assets outside India. Therefore, non-residents should not be required to disclose details of directorship in foreign companies. The disclosure requirement in ITR forms should be limited only to assets and incomes which have a nexus with India.

The Circular also stated that the disclosure requirement in ITR forms in respect of directorship in a company is meant only for the purpose of reporting. The details entered in this column are, in general, not relevant for computation of total income or tax liability of the assessee. As such, the requirement to disclose directorship in a foreign company by a non-resident taxpayer does not tantamount to the disclosure of any foreign source income or foreign asset held by such taxpayer.

The Circular also said that, a non-resident shall not be required to disclose details of his directorship in a foreign company, which does not have any income received in India, or accruing or arising in India. In other words, a non-resident taxpayer who is Director only in a foreign company, which does not have any income received in India, or accruing or arising in India, should answer the relevant question in the negative, whereupon he would not be required to disclose details of such foreign company. It is further clarified that a non-resident taxpayer, who is Director in a domestic company and also in a foreign company, which does not have any income received in India, or accruing or arising in India, should answer the relevant question in the affirmative, and provide details of directorship in the domestic company only. It is also clarified that a resident taxpayer would continue to be required to disclose details of his directorship in any company, including foreign company, in the relevant column.

Further, in ITR Form-2, ITR Form-3, ITR Form-5, ITR Form-6 and ITR Form-7, in Part-B-TTI, before the verification part, a taxpayer, who is resident in India, is required to state whether he had any time during the previous year:- (a) held, as beneficial owner, beneficiary or otherwise, any asset (including financial interest in any entity) located outside India; or (b) had signing authority in any account located outside India; or (c) had income from any source outside India?

While concluding the circular, the department also said that, a taxpayer shall be required to answer the
relevant question in the affirmative, only if he has held the foreign assets etc. at any time during the “previous year” (in India) as also at any time during the “relevant accounting period” (in the foreign tax jurisdiction), and fill up Schedule FA accordingly.

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Registration can’t be denied to Charitable Institution merely because It is solely for benefit of Christian Community: Patna HC [Read Judgment]

The Patna High Court has held that, Registration can’t be denied to Charitable Institution merely because It is solely for benefit of Christian Community.

The appellant is an educational institution which was granted registration under section 12AA on April 26, 1985. In the year 2011, the income tax department cancelled its registration on the ground that its activities were exclusive to benefit of Christians rather than for the public.

The assessee, before the High Court, held that the registration of an Educational Society cannot be cancelled if the CIT omits to record to its satisfaction that the activities of the institution are not in accordance with its objective.

After hearing both the sides, the bench comprising Justices Jyoti Saran and Partha Sarthy observed that in sub-section 3 of Section 12AA of the Income Tax Act, it is only in two circumstances that such power can be exercised by the Principal Commissioner or the Commissioner. Those are (a) if the activities of such trust or institution are not found genuine; or (b) the activities of such trust or institution are not being carried out in accordance with the objects of the trust or institution.

“The legislative intent of the provision of sub-section 3 of Section 12AA is loud and clear and it is if and only if, the institution in question is found violating either of the two conditions that the Principal Commissioner or the Commissioner can exercise such power to cancel the registration and in no other circumstance,” the bench said.

“A plain reading of the order would confirm that the Commissioner has got mixed up in between the stipulations warranting exercise u/s 12AA(3) and Section 13(1) (b) in so far as it dis-entitles a trust or a charitable institution to the exclusion from the total income of the previous year, any income, if the same is used for benefit of any particular religious community or caste. Any such issue can be a subject matter of assessment proceeding but certainly cannot lay a foundation for cancellation of registration of the institution altogether unless the two prerequisites as present in sub-Section 3 of Section 12AA are satisfied. Since, there is no satisfaction recorded by the CIT either that the activities of the assessee was not genuine or that it was not being carried in accordance with the objects for which it was set up, the conclusion is drawn by the authorities in the order in reference to the provision of Section 13(1)(b), is a confirmation of perversity,” the bench said.

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Ex-Gratia Payment to Prematurely retiring Employees Deductible even in the absence of a Scheme: ITAT [Read Order]

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that the amount of ex-gratia payment to the prematurely retiring employees can be allowed as a deduction under the provisions of Income Tax Act even though there is no such scheme providing the same.

After the conclusion of the assessment proceedings, the Assessing Officer was of the view that in the absence of any scheme formulated by the assessee bank, the amount paid as ex-gratia to prematurely retiring employees was not to be allowed as deduction.

The assessee, on the other hand, has held that the said payment was made in recognition of long term and meritorious services of the employees. The assessee had claimed the said expenditure as ex-gratia payment as in the nature of profits and in lieu of salary, and on the same, TDS was also deducted.

However, the Assessing Officer disallowed the said expenses in view of section 35DDA of the Act and also held that they were not allowed as a deduction under section 37(1) of the Act. The CIT(A) allowed the claim of assessee following the order of Tribunal in the case of another bank.

Relying on its earlier order in the case of assessees’ own matter, the Tribunal found that this issue also arose before the Tribunal in assessee’s own case in the assessment year 2011-12 and the Tribunal vide paras 9 to 14 had decided the issue and allowed the claim of the assessee.

“Accordingly, we find no merit in the ground of appeal No.2 raised by the Revenue and the same is dismissed,” the Tribunal said.

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Cenvat Credit allowable to Legal Consultancy Services: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the legal consultancy services can be treated as an input for which cenvat credit is allowable.

Appellant, a Software Technology Park duly registered and engaged in the exportation of online information and database access/retrieval services, had filed two refund claims under Rule 5 of the Cenvat Credit Rules, 2004 in respect of the period from October 2016 to December 2016 and January 2017 to March 2017. On appeal, the First Appellate Authority, rejected the appeals.

After hearing the rival contentions, the CESTAT noticed that the Ahmedabad Bench of the Tribunal in the case of one Advertising & Communication Services Ltd. has held that hotel services is directly relatable to the business of the appellant and have a nexus and, therefore, cenvat credit is admissible.

“Even the High Court of Judicature at Allahabad in the case of HCL Technologies has held that legal consultancy services fulfil the definition of the expression “input service” – on the other hand, revenue was unable to distinguish the applicability of the above case-laws nor filed any contrary decisions/orders and, therefore, following the above orders/judgements, the appellant is entitled to refund and rejection of the same cannot sustain -the impugned orders are set aside and the claim of refund is allowed -with regard to the other claim of Rs.2 lakhs being not considered for refund, there is no finding given by both the lower authorities and, therefore, in the interests of justice, this requires fresh adjudication -this issue is, therefore, set aside and remanded to the file of the Adjudicating Authority who shall pass a de novo order on this issue after considering all the contentions urged by the appellant -in the result, the appeals are treated as partly allowed and partly remanded on the above terms,” the Tribunal said.

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No differential regime between FPIs, Domestic Investors, says CBDT

The Central Board of Direct Taxes ( CBDT ) said today that an incorrect perception is being created in a section of media as if announcements made by Smt. Nirmala Sitharaman, Union Minister of Finance & Corporate Affairs, in a press conference on 23rd August 2019, which brought in a number of responsive structural measures to boost up the economy, have created a differential regime between FPIs and domestic investors including AIF category III.

Dispelling this false impression being created in certain sections of media including social media, CBDT said that differential regime between domestic investors (including AIF category III) and FPIs existed even prior to the General Budget 2019 and was therefore not the creation of the Finance (No. 2) Act, 2019 or the announcement made by the Finance Ministry on 23rd August 2019.

In this regard, CBDT has further stated that in case of Foreign Institutional Investors (FPIs), Income Tax Act, 1961 (the Act) contains special provisions [section 115AD read with section 2(14) of the Act] for taxation of income from derivatives. Under this regime, income of FPIs arising from derivatives was treated as capital gains and liable for special rate of tax as per section 115AD of the Act. However, income arising from derivatives for the domestic investors including Alternative Investment Funds (AIFs) category-III as well as for foreign investors who are not FPIs, has always been treated as business income and not as capital gains, and taxed at applicable normal income tax rates. The differential regime therefore already existed for FPIs through Section 115 AD. Therefore, to say that General Budget 2019 or FM’s announcement on 23rd August 2019 created a differential regime between FPI and domestic investor is incorrect.

Transfer of Right to Sue would not constitute Capital Gain: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai has held that the assessee cannot be assessed for capital gain on the ground of transfer of right to sue.

The assessee, a lawyer by profession, was assessed for the compensation of Rs.900 Lakhs received by the assessee during impugned AY pursuant to certain consent terms as approved by Hon’ble Supreme Court.

The property under consideration was the subject matter of extensive litigation which ultimate got culminated into the sale of the property by the assessee in terms of consent terms dated 03/01/2012 between the assessee and certain other parties. The assessee, along with others, has executed the deed of conveyance on 31/12/2011 in favour of Hubtown Limited for an aggregate sale consideration of Rs.4 Crores. The additional compensation of Rs.9 Crores was payable to the assessee only pursuant to consent terms dated 03/01/2012 filed before Hon’ble Supreme Court.

The Tribunal noted that as per Clause-5 of the consent terms, the assessee was to be paid the said compensation for time, money and effort put in by him to challenge the acquisition of the suit property and for pursuing litigation before the Authorities, Hon’ble Bombay High Court and Hon’ble Supreme Court.

“The additional compensation was towards time, cost and effort of the assessee in pursuing the litigation. This being so, we are unable to concur with the submissions of Ld. DR that the said compensation was part and parcel for the sale transaction and received by the assessee as a consideration of the sale of the property. On the other hand, the learned CIT(A), in our considered opinion, has clinched the issue in the proper perspective. As rightly held, there could not be any transfer of a “right to sue” under Indian Law and any capital receipt arising from a right to sue cannot thus be considered capital gains under Section 45. Additionally, the cost of the said right being indeterminable, the charging Section would fail as per the cited decision of Hon’ble Supreme Court rendered in CIT V/s B.C.Srinivasa Shetty [supra]. Therefore, no infirmity could be found on the issue in adjudication done by learned CIT(A),” the Tribunal said.

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CA Inter May 2020 Exam Eligibility: ICAI relaxes requirement to undergo 8 months Study Period to appear in May, 2020 Intermediate Examination

The Institute of Chartered Accountants of India ( ICAI ) has relaxed the requirement to undergo 8 months Study Period to appear in May, 2020 Intermediate Examination in respect of students who have cleared May/June, 2019 Foundation Examinations.

In order to mitigate the hardship being faced by the students while registering themselves in Intermediate Course through Foundation Route on Self Service Portal to be eligible for appearing in May 2020 examinations, the Council has decided to give the following relaxation to students who have cleared Foundation Examination in the results declared on 13th of August, 2019

The eligibility criteria of completion of eight months study period for admission to Intermediate examinations to be held in May, 2020 for students who have cleared Foundation Examination in the results declared on 13th of August, 2019, be relaxed to seven months study period. Accordingly, such students may be allowed to register till 1st October, 2019 (instead of 1st September, 2019) to be eligible for admission to the Intermediate Examination to be held in May, 2020 after completion of seven months Study Period in place of eight months Study Period.

CBIC extends Due Date for filing GST Annual Return and Reconciliation Statement for FY 2017-18 to Nov 30th

The Central Board of Indirect Taxes and Customs ( CBIC ) has Extended the Due Date for furnishing GST Annual Return and Reconciliation Statement (GSTR-9 / 9A and GSTR-9C) for FY 2017-18 to November 30th 2019.

The press release issued by CBIC stated that, “It is hereby informed that the last date for furnishing of Annual Return in the FORM GSTR-9 / FORM GSTR-9A and Reconciliation Statement in the FORM GSTR-9C for the Financial Year 2017-18 is extended from 31st August, 2019 to 30th November, 2019”.

GSTR 9 is an annual return to be filed yearly by taxpayers registered under GST. It consists of details regarding the outward and inward supplies made/received during the relevant previous year under different tax heads i.e. CGST, SGST & IGST and HSN codes. Basically, it is a consolidation of all the monthly/quarterly returns (GSTR-1, GSTR-2A, GSTR-3B) filed in that year. Though complex, this return helps in extensive reconciliation of data for 100% transparent disclosures.

The late fees for not filing the GSTR 9 within the due date is Rs 100 per day, per act. That means late fees of Rs 100 under CGST & Rs 100 under SGST will be applicable in case of delay. Thus, the total liability is Rs 200 per day of default. This is subject to a maximum of 0.25% of the taxpayer’s turnover in the relevant state or union territory. However, there is no late fee on IGST yet.

CBDT issues clarification on eligibility of small Start-Ups to avail Tax Holiday

The Central Board of Direct Taxes (CBDT) has clarified today that small start-ups with turnover upto Rs. 25 crores will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act, 1961, which provides deduction for 100 per cent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation.

CBDT further clarified that all the start-ups recognised by DPIIT which fulfilled the conditions specified in the DPIIT notification did not automatically become eligible for deduction under Section 80-IAC of the Act. A start-up has to fulfil the conditions specified in Section 80-IAC for claiming this deduction. Therefore, the turnover limit for small start-ups claiming the deduction is to be determined by the provisions of Section 80-IAC of the Act and not from the DPIIT notification.

CBDT dispelled the confusion created by some media report claiming discrepancy that the I-T law was yet to reflect DPIIT’s higher turnover threshold of Rs. 100 crore. CBDT said that there was no contradiction in DPIIT’s notification dated 19.02.2019 and Section 80-IAC of the I.T. Act, 1961 because in para 3 of the said notification, it has clearly been mentioned that a start-up shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction under Section 80-IAC of the Act, only if the start-up fulfils the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation of Section 80-IAC. Therefore, the turnover limit for eligibility for deduction under section 80-IAC of the Act, as per the DPIIT’s notification is also Rs. 25 crore.

It is further stated that Section 80-IAC contains a detailed definition of the eligible start-up which, interalia, provides that a start-up which is engaged in the eligible business shall be eligible for the deduction, if (i) it is incorporated on or after 1st April 2016, (ii) its turnover does not exceed Rs. 25 crore in the year of deduction, and (iii) it holds a certificate from the Inter-Ministerial Board of Certification.

It was explained that this was the major reason as to why there was a wide difference between the number of start-ups recognised by the DPIIT and the start-ups eligible for deduction under section 80-IAC of the Act. It is pertinent to state that Section 80-IAC was inserted vide Finance Act, 2016 as an exception to the Government’s stated policy of phasing out the profit-linked deduction for promoting small start-ups during their initial year of operation. Since the intention was to support the small start-ups, the turnover limit of Rs. 25 crores was considered reasonable for granting profit linking deduction.

Sabka Vishwas – Legacy Dispute Resolution Scheme Notified; To be Operationalized from 1st Sep 2019

In the Union Budget 2019-20, the Hon’ble Finance Minister announced the Sabka Vishwas-Legacy Dispute Resolution Scheme, 2019. The Scheme has now been notified and will be operationalized from 1st September 2019. The Scheme would continue till 31st December 2019. The government expects the Scheme to be availed by a large number of taxpayers for closing their pending disputes relating to legacy Service Tax and Central Excise cases that are now subsumed under GST so they can focus on GST.

The two main components of the Scheme are dispute resolution and amnesty. The dispute resolution component is aimed at liquidating the legacy cases of Central Excise and Service Tax that are subsumed in GST and are pending in litigation at various forums. The amnesty component of the Scheme offers an opportunity to the taxpayers to pay the outstanding tax and be free of any other consequence under the law. The most attractive aspect of the Scheme is that it provides substantial relief in the tax dues for all categories of cases as well as full waiver of interest, fine, penalty, In all these cases, there would be no other liability of interest, fine or penalty. There is also a complete amnesty from prosecution.

For all the cases pending in adjudication or appeal – in any forum – this Scheme offers relief of 70% from the duty demand if it is Rs.50 lakhs or less and 50% if it is more than Rs. 50 lakhs. The same relief is available for cases under investigation and audit where the duty involved is quantified and communicated to the party or admitted by him in a statement on or before 30th June 2019. Further, in cases of confirmed duty demand, where there is no appeal pending, the relief offered is 60% of the confirmed duty amount if the same is Rs. 50 lakhs or less and it is 40% if the confirmed duty amount is more than Rs. 50 lakhs. Finally, in cases of voluntary disclosure, the person availing the Scheme will have to pay only the full amount of disclosed duty.

As the objective of the Scheme is to free as large a segment of the taxpayers from the legacy taxes as possible, the relief given thereunder is substantial. The Scheme is specially tailored to free a large number of small taxpayers of their pending disputes with the tax administration. Government urges the taxpayers and all concerned to avail the SabkaVishwas – Legacy Dispute Resolution Scheme, 2019 and make a new beginning.

Govt. withdraws enhanced Surcharge on Tax payable on Transfer of Certain Assets

In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No. 2) Act, 2019 on tax payable at special rate on income arising from the transfer of equity share/unit referred to in section 111A and Section 112A of the Income Tax Act,1961 from the current FY 2019-20. The following capital assets are mentioned in section 111A and section 112A of the Act:

  1. Equity Shares in a Company;
  2. Unit of an equity-oriented fund; and
  3. Unit of a Business Trust

The derivatives (Future & options) are not treated as a capital asset and the income arising from the transfer of the derivatives is treated as business income and liable for the normal rate of tax. However, in the case of Foreign Institutional Investors (FPI), the derivatives are treated as capital assets and the gains arising from the transfer of the same is treated as capital gains and subjected to a special rate of tax as per the provisions of section 115AD of the Act. Therefore, it is also decided that the tax payable on gains arising from the transfer of derivatives (Future & options) by FPI which are liable to the special rate of tax under Section 115AD of the Income Tax Act shall also be exempted from the levy of the enhanced surcharge.

Therefore, the enhanced surcharge shall be withdrawn on tax payable at special rate by both domestic as well as foreign investors on long-term & short-term capital gains arising from the transfer of equity share in a company or unit of an equity-oriented fund/business trust which are liable for securities transaction tax and also on tax payable at special rate under section 115AD by the FPI on the capital gains arising from the transfer of derivatives. However, the tax payable at the normal rate on the business income arising from the transfer of derivatives to a person other than FPI shall be liable for the enhanced surcharge.