AHMEDABAD CHARTERED ACCOUNTANTS · 2018. 1. 24. · Ahmedabad Chartered Accountants Journal...

BETI BACHAOBETI PADHAO

Volume : 41 | Part 9 | December, 2017

AHMEDABADCHARTERED

ACCOUNTANTS

Ahmedabad Chartered Accountants Journal December, 2017 453

Volume : 41 Part : 9 December, 2017

E-

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

C O N T E N T S To Begin with

- Be Happy, Live in Present............................................... CA. Ajit C. Shah..........................455

Editorial - Economy on a High!......................................................... CA. Ashok Kataria........................456

From the President.............................................................................CA. Kunal A. Shah.......................457

ArticlesInvite, Accept and Renew Deposit under the Companies Act, 2013......Riddhi Khaneja..........................458

Mukesh Pamnani

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................471

From the Courts.................................................................................. CA. C.R. Sharedalal &CA. Jayesh Sharedalal............... 472

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................. 475

Unreported Judgements......................................................................CA. Sanjay R. Shah.................... 479

Controversies.......................................................................................CA. Kaushik D. Shah....................483

Judicial Analysis..................................................................................Adv. Tushar P. Hemani................487

FEMA & International Taxation

India’s positions on Permanent Establishment in OECD’s 2017.........CA. Dhinal A. Shah &Update to Model Tax Convention and Commentary........................... CA. Sagar Shah.............................495

FEMA Updates.................................................................................. CA. Savan Godiawala..................499

Indirect Taxes

GST Updates.......................................................................................CA. Ashwin H. Shah.....................500

GST & VAT Judgments / Updates ....................................................... CA. Bihari B. Shah.......................502

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara...............505

From Published Accounts .................................................................CA. Pamil H. Shah..................... 509

From the Government ......................................................................CA. Kunal A. Shah........................513

Association News.............................................................................. CA. Riken J. Patel &CA. Maulik S. Desai .................. 514

ACAJ Crossword Contest......................................................................................................................516

- caaahmedabad

Ahmedabad Chartered Accountants Journal Decemer, 2017454

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,the

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

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


For every action undertaken by any human being, the ultimate object is to be happy. Happinessis not a gross concrete product that can be purchased or borrowed from the market. Man,today, is making greatest of efforts to attain that piece of happiness but unfortunately findingit difficult. Many believe that life today is full of sorrow and happiness is just an illusion orit is a moment when we are not in distress, only then we seem to be happy. If it is so, what asorry state of affairs it is!

A man wants to be happy every moment of his life but the truth is far from the expectation.He is always found to be worrying about the past or anxious of the future and in the processcompletely disassociated with the present. The easiest way to be happy and stay in present,enjoy every moment forgetting past or the future.

One needs to be content with what he has but somehow we concentrate more on what we donot have. We are not grateful to the Lord for all that has been bestowed upon us. I have a carbut if my neighbor has two, my happiness is lost. I have a small house but my businesspartner has a bigger one, it makes me restless and agitated. Thinking about what we do nothave, we often forget to enjoy what we have. There are numerous reasons to be happy aboutbut somehow our focus shifts to ‘have nots’ instead of ‘haves’. This sense of discontentwithin is the cause of all our sorrows. More often, this discontent is not because of nothaving but somebody else having.

We are in a time when everybody is found in hustle and bustle of life. From morning toevening man is trying to reach the pinnacle but somehow everything appears to be misdirectednot knowing where is he going. In this run, he may attain materialistic prosperity but in theprocess inner peace is lost somewhere.

There is a Russian proverb “There is no sickness in the man, there is sick man.” There maybe certain unhappy incidents like death in a family, disease, divorce, deceit, dishonor etc.All these are temporary testing times in life and one has to grow out of it. If you keep onholding onto these incidents you are bound to remain unhappy all through your life.Happiness in not in remembering and remaining in past, so forget the past. Happiness in notin being anxious about the future because we do not know what happens next. Thereforeenjoy the present with what we have, be grateful for anything and everything you have andthat

Be Happy, Live in Present

is the true happiness of life.

Don’t let the silly little things steal your happiness.

CA. Ajit [email protected]


The year 2017 was undoubtedly one of the most happening and vibrant year since 1990 whenthe Indian economy opened for foreign investors. The demonetization happened in November2016 and its effects were felt till the beginning of the second half of 2017. The growth rateslowed down for the Indian economy in 2017 but now it appears to be on the growth trajectoryonce again. With the effects of GST and demonetization already behind us, the coming yearaugurs well for the Indian economy. The latest UN report suggests that the Indian economywill grow at 7.2 percent in the coming year and that will again be a world beating GDP growth.

Sensex is also on a roll and after some small corrections hitting it its record high every day. Ithas managed to send a strong signal to the short sellers that it is in no mood to give up its gains.It is at its peak high around 35700. The Indian markets have reacted positively to the BJP winin Gujarat and Himachal Pradesh. The BJP win, which also gives an insight into the possibleoutcome of the polls in 2019, comes as a reaffirmation for the continuation of the NarendraModi’s policies, keeping the markets upbeat.

The upward growth sentiment is also visible from the words of Prime Minister Modi where inan interview to one of the TV channels he said “as far as economic growth is concerned, youwill remember that in 2013-14 India was named in the ‘fragile five’. It was considered a lostbattle. Within three years, India has come out from the ‘fragile five’ and our economic policyis being seen as a shining star with optimism and expectation. If you take average of threeyears, we have brought inflation to 3% from 10%. Secondly FDI from $30 billion is now over$60 billion. We brought down fiscal deficit to 3.5% from 4.5%. Current account deficit was4%, we have got it down to between 1 and 2%.”

To another question on ease of doing business he said “India has actually jumped 42 placesand not 30 in ease of doing business after we assumed office. My personal belief is that ease ofdoing business is very good but in a country like India, the ultimate goal should be ease ofliving. That is w ing struggles of the common man whhy my focus is more on end o has to fightthe system. The system should be proactive for the needs of the common man”.

Though there may be some warning signals appearing about the state of economy in section ofmedia and by some economists, the intent and the action of the government makes it absolutelyclear the Indian economy is marching ahead and best of times are yet to come. This governmentis not just trying to better the state of economy but also improve the state of living of thecitizens of the country.

CA. Ashok Kataria

Ed [email protected] on a High!


From the President

Dear Members,W ou ishing Y a Very Happy and a Prosperous NewYear 2018!!!Let our New Year’s resolution be : Start making ourdreams happen, by changing the old ways that keeppulling us down. Let’s make resolutions...and evenif we break them...let’s start again! Let’s fly higheron the wings of our intuition and imagination andachieve our desired goals.The time barring assesments are over now and theunion budget 2018 is approaching fast. TheGovernment’s aggressive and impressive trackrecord in devising and implementing tougheconomic initiatives is finally paying off. The yearis on its last legs but there’s plenty of enthusiasm inthe stock markets, with the sensex crossing the 34Kmark.India of late has upgraded infrastructure, raisedforeign investment limits and digitized approvalsand registrations. Another major step taken by thegovernment was the introduction of the Bankruptcyand Insolvency Act, 2017. The act will make iteasier to exit or attempt a revival of a business,thereby improving the nonperforming assets(NPAs) dilemma for the financial services sector.This will make it easier for financial institutions andbanks to deal with NPAs arising from failed corporateventures; it also helps firms by making the revivalprocess and/or liquidation easier.GST was successfully launched this year but nowis facing some implementation problems. The focusof the GST Council is clearly now on boostingrevenue collection. Nationwide launch of the e-waybill from February 1 is expected to check evasionby ensuring goods are tagged and tax paid.One Kind Act A Day Could Work WondersMany people today feel hopeful that their lives willimprove, either their personal life or the worldaround them. The news every day showswidespread religious, cultural, and racial strife;economic challenges for many; and mass migrationsof refugees. What can we do? How can we changeourselves? Sometimes it seems impossible. But it’sreally very simple. As Paramhansa Yoganandataught, when we act in ways that positively affectothers, we also begin to change ourselves. Evenwhen we don’t have a particular quality or tendency,sim

CA. Kunal A. [email protected]

ply acting in that way will begin to change us.

Patel Power Goes Business ClassSetting the stage for community developmentthrough collaborative efforts , hundreds of Patidarindustrialists from Gujarat and abroad came to oneplatform, at the Global Patidar Business Summit,20 th18. Speaking on e occasion, Chief Minister VijayRupani lauded the efforts of the Patidar community.Activities at the Association:To understand what is “Trust” – Its registration andtaxation , the accountant plus committee of CAAhad organized a lecture meeting on 18/12/2017 andthe topic was very well highlighted by the pastpresident CA Ajit C. Shah.Every year Chartered Accountants Association,Ahmedabad organizes cricket match betweenPresident XI and Secretary XI. Also since last yearin addition to the said match, even a match betweenVice President XI and Jt. Secretary XI was playedo rdn 23 December, 2017. Both the matches werewon by the Secretaries.A lecture on Companies Amendment Bill, 2017 byCS M. C. Gupta was organized on 29/12/2017 inwhich participants were enriched by the eminentspeaker on the subject.A half day seminar was organized on 10/01/2018on the topic of Tax Planning through HUF andFamily Arrangement by Dr. Girish Ahuja from Delhiand Succession Planning, Inbound & OutboundInvestments and Liberalized Remittance Scheme byCA. Rashmin Sanghvi from Mumbai. The seminarwas well responded by the participants and all theparticipants were enriched by the knowledge sharedby both the eminent speakers.I would like to conclude with a thought onhumanity – “You must not lose faith in humanity.Humanity is an ocean; if a few drops of the oceanare dirty, the ocean does not become dirty.-Mahatma Gandhi“All human actions have one or more of these sevencauses: chance, nature, compulsions, habit, reason,passion, desire. – AristotleWishing you a Happy Uttarayan and our6 th8 Republic Day!!Looking forward to your support and participationin future activities of the Association.With best regards,CA. Kunal A. ShahPresident


Invite, Accept and RenewDeposit under theCompanies Act, 2013

Finance is one of the first most requirement for anybusiness. For corporates, raising finance throughdeposits from public is considered as the importantsource. When there is a discussion of obtainingfunds, acceptance of deposits have been consideredone of the cheaper financial source in the CorporateSector. Most of the deposits accepted by theCompanies are unsecured in nature, and thereforeto safeguard the interests of the depositors havingregard to the failure of some companies to meettheir obligations to the depositors under the previousAct, the Companies Act, 2013 has made innovativeand positive changes in the manner of invitation,acceptance and renewal of deposits both from theinner as well as outer sources i.e. members & publicat large.

One of the major concern of corporates to acceptdeposits is to minimize their existing dependenceon bank finance to meet their financial requirements.

Under the 1956 Act, acceptance of deposits frommembers, directors or their relatives could be donewithout any regulatory compliance, however underSection 73 of the 2013 Act, a private company isrequired to undergo a lot of formalities beforeaccepting any deposits from its members also.

Exclusion of the Applicability:

Proviso to Section 73(1) read with rule 1(3) ofCompanies (Acceptan 2014ce of Deposits) Rules excludes g bankin Companies, NBFCs as definedin the Reserve Bank of India Act, 1934 andregistered with Reserve Bank of India, a housingfinance company registered with National HousingBank established under the National Housing BankAct 1987 and any other company as may bespecified.

Who is a depositor?

Rule 2(1)(d) under Chapter XV defines depositoras under ‘Depositor’ means-

i. any member of the company who has made adeposit with the company in accordance withsub-section (2) of section 73 of the Act, or

i ai. any person who has made deposit with a publiccompany in accordance with section 76 of theAct.

Maximum Cap to which a Company can acceptDeposits:

(A) Conditions for Acceptance of Deposits fromMembers:

A company may, subject to

(i) the passing of a resolution in generalmeeting; and

(ii) subject to such rules as may be prescribedin consultation with the Reserve Bank ofIndia,

accept deposits from its members on suchterms and conditions, including the provisionof security, if any, or for the repayment of suchdeposits with interest, as may be agreed uponbetween the company and its members, subjectto the fulfilment of the following conditions,namely:—

a) issuance of a circular to its membersincluding therein a statement showing thefinancial position of the company, thecredit rating obtained, the total number

Mukesh [email protected]

Riddhi [email protected]


of depositors and the amount due towardsdeposits in respect of any previousdeposits accepted by the company andsuch other particulars in such form and insuch manner as may be prescribed;

b) filing a copy of the circular along withsuch statement with the Registrar within30 days before the date of issue of thecircular;

c) depositing such sum which shall not beless than 15% of the amount of its depositsmaturing during a financial year and thefinancial year next following, and kept ina scheduled bank in a separate bankaccount to be called as deposit repaymentreserve account;

d) providing such deposit insurance;

e) certifying that the company has notcommitted any default in the repaymentof deposits accepted either before or afterthe commencement of this Act or paymentof interest on such deposits; and

f) providing security, if any for the duerepayment of the amount of deposit or theinterest thereon including the creation ofsuch charge on the property or assets ofthe company.

In case when a company does not secure thedeposits or secures such deposits partially, then,the deposits shall be termed as ‘‘unsecureddeposits’’ and shall be so quoted in everycircular, form, advertisement or in anydocum related to ent invitation or acceptanceof deposits.

(B) Acceptance of Deposit from Public bycertain Companies:

A public company having a net worth of notless than one hundred crore rupees or aturnover of not less than five hundred crorerupees and which has obtained prior consentof its members in general meeting by meansspecial resolution and filed the same with theRegistrar, can invite the public for acceptance

of deposits. (Section 76(1) of the Act and Rule2(e) of the Companies (Acceptance ofDeposits) Rules, 2014.)

However, a company exercising borrowinglimit within the over-all limit not exceedingaggregate of its paid up capital and freereserves may accept deposit by an ordinaryresolution

An eligible Public Company may acceptdeposits from persons other than its members.It shall be required to obtain the rating(including its networth, liquidity and ability topay its deposits on due date) from a recognisedcredit rating agency for informing the publicthe rating given to the company at the time ofinvitation of deposits from the public whichensures adequate safety and the rating shall beobtained for every year during the tenure ofdeposits.

A Govt. Company is eligible to accept depositsincluding renewal thereof, if the amount of suchdeposits together with the amount of other depositsoutstanding as on the date of acceptance or renewaldoes not exceed 35% of the aggregate of the paidup share capital and free reserves of the company.

Creation of Charge in case of Secured Deposits:

A company accepting secured deposits from thepublic shall within 30 days of such acceptance,create a charge on its assets of an amount not lessthan the amount of deposits accepted in favour ofthe deposit holders.

Restriction of usage of Deposit Repaymentreserve (DRR)

DRR shall not be used by the company for anypurpose other than repayment of deposits. [Section73(5)].

Tenure of Deposit:

No Company and the eligible company shall acceptor renew any deposit, whether secured orunsecured, which is repayable on demand or uponreceiving a notice, within a period of less than sixmonths or more than thirty-six months from the date

Invite, Accept and Renew Deposit under the Companies Act, 2013


of acceptance or renewal of such deposit. [Section73(2)].

Exceptions to above:

A company may, for the purpose of meeting any ofits short term requirements of funds, accept or renewsuch deposits for repayment earlier than six monthsfrom the date of deposit or renewal, as the case maybe, subject to the condition that-

(a) such deposits shall not exceed 10% of theaggregate of the paid up share capital and freereserves of the company, and

(b) such deposits are repayable not earlier thanthree months from the date of such deposit orrenewal thereof.

Rate of interest of deposits/payment ofbrokerage: Rule 3(6) –

No company or any Eligible company shall inviteor accept or renew any deposits in any form,carrying a rate of interest or pay brokerage thereonat a rate exceeding the maximum rate of interest orbrokerage prescribed by the RBI for acceptance ofdeposits by NBFCs.

Who is eligible to receive brokerage ?

Only the person who is authorized, in writing, by acompany to solicit deposits on its behalf and throughwhom deposits are actually procured will be entitledto the brokerage and payment of brokerage to anyother person for procuring deposits shall be deemedto be in violation of these Rules.

Form and particulars of advertisements/circulars [Rule 4]

(1) Every company referred to in section 73(2) andan eligible company, shall issue a circular to allits members and to the public respectively byRPAD or speed post or by electronic mode inForm DPT-1. Circular may be published inEnglish language in an English newspaper andin vernacular language in a vernacularnewspaper having wide circulation in the Statein which the registered office of the companyis situated.

(2) Every company inviting deposits from thepublic shall upload a copy of the circular on itswebsite, if any.

(3) Company shall not allow any other person toissue or cause to be issued the circular on itsbehalf, unless it is issued on the authority.

(4) A copy should be delivered to the Registrarnot less than thirty days before the date of suchissue, signed by a majority of the directors.

(5) It shall be valid until the expiry of 6 monthsfrom the date of closure of the financial year inwhich it is issued or until the date on which thefinancial statement is laid before the companyin AGM or, where the AGM for any year hasnot been held, the latest day on which thatmeeting should have been held, whichever isearlier, and a fresh circular or circular in theform of advertisement shall be issued, in eachsucceeding financial year.

(6) Effective date of issuance: For the purpose ofthis rule, the date of the issue of the newspaperin which the advertisement appears shall betaken as the date of issue of the advertisementand the effective date of issue of circular shallbe the date of dispatch of the circular.

Deposit Insurance [Rule 5]

The Ministry has made some practical amendmentsfrom time to time with regard to the DepositInsurance criteria provided under Rule 5 of heCompanies (Acceptance of Deposits) Rules, 2014.The latest amendment has been made videNotification Dated 11th May, 2017 in theCompanies (Acceptance of Deposits) AmendmentRules, 2017, wherein they have relaxed the needto have a deposit insurance upto 31st March 2017or till the availability of a deposit insurance product,whichever is earlier” .

Creation of Security [Rule 6]:

(1) For the purposes of providing security, everycompany except the Government Companyinviting secured deposits shall provide forsecurity by way of a charge on its assets asreferred to in Schedule III of the Act excluding



intangible assets of the company for the duerepayment of the amount of deposit and interestthereon for an amount which shall not be lessthan the amount remaining unsecured by thedeposit insurance.

In the case of deposits which are secured bythe charge on the assets referred to in ScheduleIII of the Act excluding intangible assets, theamount of such deposits and the interest payablethereon shall not exceed the market value ofsuch assets as assessed by a registered valuer.For the purposes of this sub-rule it is clarifiedthat the company shall ensure that the total valueof the security either by way of depositinsurance or by way of charge or by both oncompany’s assets shall not be less than theamount of deposits accepted and the interestpayable thereon.

(2) The security (not being in the nature of apledge) for deposits as specified in sub-rule (1)shall be created in favour of a trustee for thedepositors on:

(a) specific movable property of the company,or

(b) specific immovable property of thecompany wherever situated, or any interesttherein.

Appointment of deposit trustees [Rule 7]:

Consent of deposit trustees with respect to theirappointment:

Every company except a Government Companyshall issue a circular or advertisement invitingsecured deposits unless it has appointed one or moredeposit trustees for creating security. A writtenconsent shall be obtained from the deposit trustee(s)before their appointment and the same consent shallappear in the circular or circular in the form ofadvertisement.

Execution of deposit trust deed before issuingadvertisement:

The company shall execute a deposit trust deed inForm No.DPT-2 at least 7 days before issuing thecircular

Certain persons not to be appointed as deposit

or circular in the form of advertisement.

trustees:

No person including a company that is in thebusiness of providing trusteeship services shall beappointed as a trustee for the deposit holders, if theproposed trustee –

a. is a director, key managerial personnel or anyother officer or an employee of the companyor of its holding, subsidiary or associatecompany or a depositor in the company;

b. is indebted to the company, or its subsidiary orits holding or associate company or a subsidiaryof such holding company;

c. has any material pecuniary relationship with thecompany;

d. has entered into any guarantee arrangement inrespect of principal debts secured by thedeposits or interest thereon;

e. is related to any person specified in clause (a)above.

Removal of deposit trustees:

No deposit trustee may be removed after the issueof circular or advertisement and before the expiryof his term except with the consent of all thedirectors present at a meeting of the board. In casethe company is required to appoint independentdirectors, at least one independent director shall bepresent in such meeting of the Board

Duties of deposit trustees:

(1) ensure that the assets of the company, togetherwith the amount of deposit insurance aresufficient to cover the repayment of the principalamount of secured deposits outstanding andinterest accrued thereon;

(2 t ) satisfy himself tha the circular or advertisementinviting deposits does not contain anyinformation which is inconsistent with the termsof the deposit scheme;

(3) ensure that the company does not commit anybreach of covenants and provisions of the trustdeed;



(4) take such reasonable steps as may be necessaryto procure the interest of deposit holders;

(5) take steps to call a meeting of the holders ofdepositors;

(6) supervise the implementation of the conditionsregarding creation of security for deposits andthe terms of deposit insurance;

(7) do such acts as are necessary in the event thesecurity becomes enforceable;

Meeting of depositors through deposit trustee:[Rule 9]

The meeting of all the depositors shall be called bythe deposit trustee on –

(1) requisition in writing signed by at least onetenthof the depositors in value for the time beingoutstanding;

(2) the happening of any event, which constitutesa default or which in the opinion of the deposittrustee affects the interest of the depositors.

Form of application for deposits [Rule 10]:

I. No Company shall accept, or renew anydeposit, whether secured or unsecured, unlessan application, in the form prescribed by thecompany, is submitted by the intendingdepositor.

II. The application shall contain a declaration bythe intending depositor to the effect that thedeposit is not being made out of any moneyborrowed by him from any other person.

Nomination [Rule 11]:

A depositor may, at any time, make a nomination.

Furnishing of deposit receipts to depositors [Rule12]:

Every company shall, on the acceptance or renewalof a deposit, furnish to the depositor or his agent adeposit receipt for the amount received by thecompany, within a period of two weeks from thedate of receipt of money or realization of chequeswhich shall be signed by an officer of the companyduly authorized by the Board and shall state thedate of deposit, the name and address of the

depositor, the amount received by the company asdeposit, the rate and periodicity of interest payablethereon and the date on which the deposit isrepayable.

Maintenance of liquid assets and creation ofDeposit Repayment Reserve Account [Rule 13]:

Every company except the Government Companyshall on or before the 30th day of April of eachyear deposit the sum as prescribed in Act with anyscheduled bank and the amount so deposited shallnot be utilised for any purpose other than for therepayment of deposits. The amount remainingdeposited shall not at any time fall below fifteenpercent of the amount of deposits maturing, untilthe end of the current financial year and the nextfinancial year.

Registers of deposits [Rule 14]:

Any Company accepting deposits is required tomaintain one or more separate registers for depositsaccepted/renewed with all the details as requiredunder Rule 14. Further it is also required under thesaid Rule that the entry in the register shall be madewithin 7 days from the date of issuance of depositsand that it shall be authenticated by a director orsecretary of the company or by any other officerauthorized by the Board for this purpose.

Return of deposits to be filed with the Registrar[Rule 16]:

Every company shall on or before the 30th day ofJune, of every year, file with the Registrar, a returnin Form DPT-3 and furnish the informationcontained therein as on the 31st day of March ofthat year duly audited by the auditor of thecompany.

Damages for fraud:

When a company fails to repay the deposit or partthereof or any interest within the stipulated time orsuch further time as may be allowed by theTribunal, therefore it is deemed to be proved thatthe deposits had been accepted with intent todefraud the depositors or for any fraudulentpurpose, every officer of the company who wasresponsible for the acceptance of such deposit shall,



without prejudice to the provisions contained in sub-section (3) of that section and liability under section447, be personally responsible, without anylimitation of liability, for all or any of the losses ordamages that may have been incurred by thedepositors. (Section 75(1))

Any suit, proceedings or other action may be takenby any person, group of persons or any associationof persons who had incurred any loss as a result ofthe failure of the company to repay the deposits orpart thereof or any interest thereon. (Section 75(2))

Disclosure in Board Report:

Rule 8 of the Companies (Accounts) Rules, 2014:

(v) The details relating to deposits, covered underChapter V of the Act:

Amount of Deposit Accepted

Amount that remained unpaid orunclaimed at the end of thefinancial year

There has been default in repayment of deposits orpayments of interest thereon during the year, detailsare as under

Amount at the beginning of the Year

Maximum amount during the year

Amount at the end of the year

Deposits which are not inCompliance with the requirementof Schedule V of the Act

Powers Conferred On National Company LawTribunal:

1. Power To extend the repayment period:Section 74(2) states that the tribunal may on anapplication made by the company, afterconsidering the financial condition of thecompany, the amount of deposit or part thereofand the interest payable thereon and such othermatters, allow further time as consideredreasonable to the company to repay the deposit.

2. Right of Depositor to approach NCLT:Section 73(4) states that when a company failsto repay the deposit or part thereof or any

interest thereon under subsection (3), thedepositor concerned may apply to the Tribunalfor an order directing the company to pay thesum due or for any loss or damage incurred byhim as a result of such non- payment and forsuch other orders as the Tribunal may deem fit.

3. Directions to Company: To direct thecompany to make repayment of the matureddeposits or for any loss or damage incurred byhim as a result of non-payment.

4. Open doors to depositors: As per Section245(1) (g) requisite number of depositor ordepositors may, if they are of the opinion thatthe management or conduct of the affairs ofthe company are being conducted in a mannerprejudicial to the interests of the company orits members or depositors, file an applicationbefore the Tribunal on behalf of the depositorsfor seeking orders including claiming damagesor compensation or demand any other suitableaction from or against—

- the company or its directors for anyfraudulent, unlawful or wrongful act oromission or conduct or any likely act oromission or conduct on its or their part;

- the auditor including audit firm of thecompany for any improper or misleadingstatement of particulars made in his auditreport or for any fraudulent, unlawful orwrongful act or conduct; or

- any expert or advisor or consultant or anyother person for any incorrect or misleadingstatement made to the company or for anyfraudulent, unlawful or wrongful act orconduct or any likely act or conduct on hispart;

- to seek any other remedy as the Tribunalmay deem fit.

5. Liability of the Audit Firm: Section 245 (2)states that when the depositors seek anydamages or compensation or demand any othersuitable action from or against an audit firm,the liability shall be of the firm as well as of



each partner who was involved in making anyimproper or misleading statement of particularsin the audit report or who acted in a fraudulent,unlawful or wrongful manner.

6. Requisite depositors means:Section245(3)(ii) states that the requisite number ofdepositors provided in sub-section (1) shall notbe less than one hundred depositors or not lessthan such percentage of the total number ofdepositors as may be prescribed, whichever isless, or any depositor or depositors to whomthe company owes such percentage of totaldeposits of the company as may be prescribed.

More losses to the Company and to the Boardon making defaults:

A company shall not declare Dividend on its equityshares in case of non-compliance of provisionsrelating to the acceptance of deposits under the Act,till such time the deposits accepted have been repaidwith interest in accordance with the terms andconditions of the agreement entered with thedepositors.

Disqualification of directors due to default inpayment of deposit:

Further with regard to default in payment ofdeposits apart from other penalties and punishmentsthe Companies Act, 2013 has made a strong catchon the responsibilities of the Directors and has laiddown the heaviest penalty by disqualifying theDirectors on default in payment of deposit amountand interest thereon for a period of one year or more.

As per Section 164(2): “No person who is or hasbeen a Director of a Company which has failed torepay the deposits accepted by it or pay interestthereon or to redeem any debentures on the duedate or pay interest due thereon or pay dividenddeclared and such failure to pay or redeemcontinues for one year or more.”

Further as Per Rule 14(2) of the Companies(Appointment & Qualifications of Directors) Rules,2014 whenever a Company fails to repay anydeposit as specified in sub-section 2 of Section 164,the Company shall immediately file Form DIR9,

to the Registrar of Companies furnishing thereinthe names and addresses of all the Directors of theCompany during the relevant financial years.

And when a Company fails to file Form DIR9within the relevant period of thirty days of the failurethat would attract the disqualification under sub-section (2) of Section 164, officers of the Companyspecified in clause (60) of Section 2 of the Act shallbe the officers in default.

Class action suit:

The other class which is allowed to file class actionsuit is depositors, which is defined under theCompanies (Acceptance of Deposits) Rules, 20149(in short “Deposit Rules”) as under:

(i). any member of the company who has made adeposit with the company in accordance with theprovisions of sub-section (2) of section 73 of theAct, or (ii). any person who has made a depositwith a public company in accordance with theprovisions of section 76 of the Act.

(According to me the amendment section shallnot be included in the Article, rather it shall beexplained while discussing the relevant section.)

Amendments effected:

1. ON 31.03.2015:

(l) in rule 2, h sub-rule (l), in clause (c),-

(a) in sub-clause (vii), in n (a), theExplanatiofollowing proviso shall be inserted, namely:-

“Provided that unless otherwise required underthe Companies Act, 1956 (1 of 1956) or theSecurities and Exchange Board of lndia Act,1992 (15 of 1992) or rules or regulations madethereunder to allot my share, stock, bond, ordebenture within a specified period, if acompany had received any amount by way ofsubscriptions to any shares, stock, bonds ord stebentures before the 1 April, 2014 anddisclosed it in the balance sheet for the financialyear stending on or before the 1 March, 2014against which the allotment is pending on the3lst stMarch, 2015, the company shall, by the 1June 2015, either return such amounts to the



persons from whom these were received orallot shares, stock, bonds or debentures orcomply with these rules.”

(b) in sub-clause (xii), in item (b),-

(A) for the words “consideration for property”,the words “consideration for an immovableproperty” shall be substituted;

(B) for the words “against the property”, thewords “against such property” shall besubstituted;

(c) in sub-clause (xii), in the explanation, forthe words ‘referred to in the first proviso”,the words “referred to in the proviso” shallbe substituted

(2) in rule 3, after sub-rule (7), the followingsub-rule shall be inserted, namely:-

“(8) Every eligible company shall obtain,at least once in a year, credit rating fordeposits accepted by it in the mannerspecified herein below and a copy of therating shall be sent to the Registrar ofCompanies along with the return ofdeposits in Form DPT-3;

Name of Agency Minimum InvestmentGrade Rating

(a) The Credit Rating FA- (FA Minus)Information Servicesof India Limited.

(b) ICRA Ltd MA- (MA Minus)

(c) Credit Analysis and CARE BBB (FD)Research Ltd

(d) Fitch Rating India tA-(ind)(FD)Private Ltd

(e) Brickwork Ratings BWR F AIndia Pvt. Ltd

(f) SME Rating Agency SMERA A”of India Ltd.

(3) in rule 5, in sub-rule (1), for the proviso,the following proviso shell be substitued,namely:-

“Provided that the companies may acceptdeposit without deposit insurance contract tillthe st31 March, 2016 or till the availability of a

deposit insurance product, whichever isearlier.”

2. ON 15.09.2016:

2. In the Companies (Acceptance of Deposits)Rules, 2014 (hereinafter referred to as saidrules), in rule 2, in sub-rule (1), in clause (c),for sub-clause (viii), the following shall besubstituted, namely:—

“(viii) any amount received from a person who,at the time of the receipt of the amount, was adirector of the company or a relative of thedirector of the private company:

Provided that the director of the company orrelative of the director of the private company,as the case may be, from whom money isreceived, furnishes to the company at the timeof giving the money, a declaration in writing tothe effect that the amount is not being givenout of funds acquired by him by borrowing oraccepting loans or deposits from others and thecompany shall disclose the details of money soaccepted in the

Board’s report;”.

3. In the said rules, in rule 3,—

(a) for the words “paid-up share capital and freereserves”, wherever they occur, the words“paid-up share capital, free reserves andsecurities premium account” shall besubstituted;

(b) in sub-rule (8), in the Table, for item (e)and entries relating thereto the following shallbe substituted, namely:-

3. ON 29.06.2016:

The Companies (Acceptance of Deposits)Amendment Rules, 2016 notified on June 29,2016, amending and expanding the list ofexempted Deposits.

Rule 2 (1) (c)

Under existing sub-clause (ix), compulsoryconvertible bonds or debentures convertiblewithin a period of five years are included in‘exempt Deposits’. Now, compulsorily



convertible bonds or debentures convertiblewithin a period of ten years are included in‘exempt Deposits’.

Under sub-clause (xi), any non-interest bearingamount received or held in trust. The word ‘or’has been replaced with ‘and’ to clarify that anynon-interest bearing amount held in trust isexcept from the ambit of ‘Deposit’.

Amendment in the Rule 3 – specifying limitsfor acceptance of deposits from members:

In sub rule (3), limits for accepting or renewingany deposit from members of a public companyhas been increased from ‘25%’ of the aggregateof the paid-up share capital and free reservesof the company to ‘35%’.

For private companies, a separate limit has beenprescribed for acceptance of deposits from itsmembers. Private companies may accept fromits members, deposits not exceeding 100% ofthe aggregate of the paid up share capital, freereserves and securities premium account. Forpublic companies, securities premium accountis not available in calculating such limits.

Further, the company has to file details ofmonies so accepted from members to theRegistrar in the manner as may be prescribed.

Amendment in the Rule 4

Advertisement inviting deposits has to be postedon the website of the company.

Advertisement in Form DTP-1 now contains aDisclaimer paragraph.

Amendment in the Rule 5

An exemption has been granted from obtainingdeposit insurance till March 31, 2017, or tillthe availability of a deposit insurance product,whichever is earlier.

The following additional items are includedin ‘exempt Deposits’ category under Rule 2(1) (c)

Sub clause (ixa): Money raised by issue of non-convertible debentures not constituting a charge

on the company’s assets, and listed on stockexchange.

Sub clause (xii): In the course of, or for thepurpose of, the business:

(e): Advances received towards considerationfor providing future services in the form of awarranty/ maintenance contract as per writtenagreement/ arrangement, if the period forproviding such services does not exceed theperiod as prevalent in common businesspractice, or five years from the date ofacceptance of service, whichever is less.

(f): Amount received as an advance and asallowed by any sectoral regulator/ inaccordance with directions of Government.

(g): Amount received as an advance forsubscription towards publication, whether inprint or in electronic, to be adjusted againstreceipt of such publications.

If the above-mentioned amounts becomerefundable, due to non-availability of necessarypermission required or approval required, ifany, to deal in goods or provision of servicesfor which such amount is received, it will bedeemed to be a deposit on the expiry of 15 daysfrom the day it becomes due for refund.

Sub clauses (xv) and (xvi): Any amountreceived by way of subscription under ChitFund Act or SEBI’s CIS Regulations.

Sub clause (xvii): Amounts of Rs. 25 lacs ormore received start-up comp by a any by wayof convertible note (convertible into equityshares or repayable within a period notexceeding 5 years from date of issue) in asingle tranche, from a person.

‘Start-up Company’ is defined to mean aprivate company incorporated under theCompanies Act, 2013 or the Companies Act,1956, and also fulfilling Start-up IndiaGuidelines issued by the DIPP.

‘Convertible note’ has been defined to meanan instrument evidencing receipt of moneyinitially as a debt, which is repayable at the



option of the holder, or which is convertibleinto such number of equity shares of the start-up company upon occurrence of specifiedevents, and as per sother terms and conditionagreed to and indicated in the instrument.

Sub clause (xviii): Any amount received fromSEBI-registered Alternative Investment Funds,Domestic Venture Capitalists and MutualFunds.

New Rule 16A Disclosure in Notes to theFinancial Statement

In case of private companies -money receivedfrom the Directors and their relatives.

In case of other companies - money receivedfrom the Director.

4. ON 11.05.2017:

2. In the Companies (Acceptance of Deposits)Rules, 2014 (hereinafter referred to as theprincipal rules),—

(a) in rule 2, in sub-rule (1), in clause (c), insub-clause (xviii), after the words “DomesticVenture Capital Funds” the words “,Infrastructure Investment Trusts” shall beinserted.

(b) in rule 5, in sub-rule (1), for the proviso,the following proviso shall be substituted,namely:—

“Provided that the companies may acceptdeposits without deposit insurance contract tillthe 31st March, 2018 or till the availability ofdeposit insurance product, whichever isearlier.”.

5. ON 19.09.2017:

2. In the Companies (Acceptance of Deposits)Rules, 2014 (hereinafter referred to as theprincipal rules), in rule 3, in sub-rule (3), forthe proviso, the following shall be substituted,namely:-

“Provided that a Specified IFSC Publiccompany and a private company may accept

from its members monies not exceeding onehundred percent of aggregate of the paid upshare capital, free reserves and securitiespremium account and such company shall filethe details of monies so accepted to the Registrarin Form DPT-3.

Explanatio the n.—For purpose of this rule, aSpecified IFSC Public company means anunlisted public company which is licensed tooperate by the Reserve Bank of India or theSecurities and Exchange Board of India or theInsurance Regulatory and DevelopmentAuthority of India from the InternationalFinancial Services Centre located in anapproved multi services Special EconomicZone set-up under the Special Economic ZonesAct, 2005 (28 of 2005) read with the SpecialEconomic Zones Rules, 2006:

Provided further that the maximum limit inrespect of deposits to be accepted frommembers shall not apply to following classesof private companies, namely:—

(i) a private company which is a start-up, forfive years from the date of its incorporation;

(ii) a private company which fulfils all of thefollowing conditions, namely:—

(a) which is not an associate or a subsidiarycompany of any other company;

(b) the borrowings of such a company frombanks or financial institutions or any bodycorporate is less than twice of its paid up sharecapital or fifty crore rupees, whichever is less ;and

(c) such a company has not defaulted in therepayment of such borrowings subsisting at thetime of accepting deposits under section 73:

Provided also that all the companies acceptingdeposits shall file the details of monies soaccepted to the Registrar in Form DPT-3.”.

3. In the principal rules, in the Annexure, forForm DPT”3, the following shall besubstituted, namely:—



Situation or scenario of Indian companiesaccepting overseas deposits:

Apart from complying the provisions ofCompanies Act, 2013 one is also required tohave a look at the Foreign ExchangeManagement (Deposit) Regulations, 2016 madeeffe stctive from 1 April, 2016, however noamendments has been made to ForeignExchange Management (Deposit) Regulations,2000 with respect to regulation 6 whichprovides for Acceptance of deposits by personsother than authorised dealer/ authorised bank.

The said FEMA Regulations restrict acceptanceof deposits by a person resident in India from aperson resident outside India.

The word “Deposit” as defined under the saidregulations is different as defined under thecompanies act, 2013.

Regulation 2(iv) of the FEMA Regulationsdefines it as under:

‘Deposit’ includes deposit of money with abank, company, proprietary concern,partnership firm, corporate body , trust or anyother person;

On analyzing the definition it can beunderstood that any deposit of money i.e.whether it is business deposit or a securitydeposit or a statutory deposit are covered inthe definition. Alike the Companies Act, whichtreats any receipt of money as deposit exceptthe exemptions provided, the FEMARegulations has restricted itself to the worddeposits which automatically excludes variousother receipts.

Restrictions on Deposits Between A PersonResident In India And A Person ResidentOutside India:-

Regulation 3 contains a restricting clause which isapprehended herein below:

“Save as otherwise provided in the Act orRegulations or in rules, directions and orders madeor issued under the Act, no person resident in India

shall accept any deposit from, or make any depositwith, a person resident outside India:

Provided that the Reserve Bank may, on anapplication made to it and on being satisfied that itis necessary so to do, allow a person resident inIndia to accept or make deposit from or with aperson resident outside India”

Exemptions provided in the regulation:

On explaining broadly there are no exemptionsprovided as such in relation to the Companies andBanks as all of them have been incorporated with aregulatory point of view and for easing theinternational transactions by a Indian resident whois engaged for a diplomatic mission and who isholding a designated position in the foreign ministryviz. an ambassadors, envoys, ministers, and chargeof departmental affairs. Apart from these with a viewto continue the strong bond with our friendlycountries any deposit from Nepal and Bhutan havebeen exempted.

Moreover any deposit from a multilateralorganization are also exempted such as UnitedNations (UN) and World Trade Organization(WTO) are exempted as various governmentcompanies may require to receive funding fromsuch organizations under various governmentprograms and initiatives.

Exemptions as provided under the Regulationsare provided hereunder:-

1) Deposits held in rupee accounts maintained byforeign diplomatic missions and diplomaticpersonnel and their family members in Indiawith an authorised dealer.

2) Deposits held by diplomatic missions anddiplomatic personnel in special rupee accountsnamely Diplomatic Bond Stores Account tofacilitate purchases of bonded stocks from firmsand companies who have been granted specialfacilities by customs authorities for import ofstores into bond, subject to followingconditions:

a) Credits to the account shall be only by wayof proceeds of inward remittances receivedfrom outside India through banking



channels or by a transfer from a foreigncurrency account in India of the accountholder maintained with an authoriseddealer in accordance with clause 3 of thisRegulation ;

b) All cheque leaves issued to the accountholder shall be superscribed as “DiplomaticBond Stores Account No.”;

c) Debits to the accounts shall be for localdisbursements, or for payments forpurchases of bonded stocks to firms andcompanies who have been granted specialfacilities by customs authorities for importof stores into bond;

d) y The funds in the account ma be repatriatedoutside India without the approval ofReserve Bank.

3) Deposits held in accounts maintained in foreigncurrency by diplomatic missions, diplomaticpersonnel and non-diplomatic staff, who arethe nationals of the concerned foreign countriesand hold official passport of foreign embassiesin India subject to the following conditions:

a) Credits to the account shall be only by wayof:-

(i) proceeds of inward remittancesreceived from outside India throughbanking channels; and

(ii) transfer of funds, from the rupeeaccount of the diplomatic mission inIndia, which are collected in India asvisa fees and credited to such account;

b) Funds held in such account if converted inrupees shall not be converted back intoforeign currency;

c) The account may be held in the form ofcurrent or term deposit account, and in thecase of diplomatic personnel and non-diplomatic staff, may also be held in theform of savings account;

d) The rate of interest on savings or termdeposits shall be such as may be

determined by the authorised dealermaintaining the account;

e) The funds in the account may be repatriatedoutside India without the approval ofReserve Bank.

4. Deposits held in accounts maintained in rupeeswith an authorised dealer by persons residentin Nepal and Bhutan.

5. Deposits held in accounts maintained with anauthorised dealer by any multilateralorganization and its subsidiary/ affiliate bodiesand officials in India of such multilateralorganization, of which India is a member nation.

Acceptance of deposits by persons other thanauthorised dealer/ authorised bank:-

Acceptance of deposits by Companies incorporatedunder the Companies Act, 2013 are dealt with underRegulation 6 of the said FEMA Regulations.

With steffect from 1 April, 2016 RBI has prohibitedto accept fresh deposits by Indian entities onrepatriation basis from a Non Resident Indian anda Person of Indian Origin, however the renewal ofthe existing deposits have been allowed under thesaid condition is allowed by following the termsand conditions as set out in Schedule 6 of theRegulations.

Further the acceptance of deposits under non-repatriation basis is still allowed by IndianCompanies but only after complying the conditionsas specified under Schedule 7 of the saidRegulations.

Terms and conditions as specified in schedule7:

i) In the case of a company, the deposits may beaccepted either under private arrangement orunder a public deposit scheme.

ii) If the deposit accepting company is a non-banking finance company, it should beregistered with the Reserve Bank and shouldhave obtained the required credit rating asstipulated under the guidelines issued byReserve Bank for such companies.



i deii) The maturity period of posit shall not exceed3 years.

iv) If the deposit accepting company is a non-banking finance company the rate of interestpayable on deposits shall be in conformity withthe guidelines/ directions issued by ReserveBank for such companies. In other cases therate of interest payable on deposits shall notexceed the ceiling rate prescribed from time totime under the Companies (Acceptance ofDeposit) Rules, 2014.

v) The amount of deposit shall be received bydebit to NRO account only, provided that theamount of the deposit shall not represent inwardremittances or transfer of funds from NRE/FCNR (B) accounts into the NRO account.

vi) The proprietorship concern/ firm/ companyaccepting the deposit should comply with theprovisions of any other law, rules, regulationsor orders made by Government or any othercompetent authority, as are applicable to it inregard to acceptance of deposits.

vii) The proprietorship concern, firm or companyaccepting the deposit shall not utilise the amountof deposits for relending (not applicable to aNon-Banking Finance Company) or forundertaking agricultural/ plantation activities orreal estate business or for investing in any otherconcern or firm or company engaged in orproposing to engage in agricultural/ plantationactivities or real estate business.

viii)The amount of deposits accepted shall not beallowed to be repatriated outside India.

Further an Indian company is also allowed to acceptdeposits by issue of Commercial Paper to a non-resident Indian or a person of Indian origin or aforeign portfolio investor registered with theSecurities and Exchange Board of India subject tothe following conditions:

a) the issue is in due compliance with the Non-Banking Companies (Acceptance of Depositsthrough Commercial Paper) Directions, 1989issued by the Reserve Bank as also any otherlaw, rule, directions, orders issued by the

Government or any other regulatory authority,in regard to acceptance of deposits by issue ofCommercial Paper;

b) payment for issue of Commercial Paper isreceived by the issuing company by inwardremittance from outside India through bankingchannels or out of funds held in a depositaccount maintained by a Non-Resident Indianor a Person of Indian Origin in accordance withthe Regulations made by Reserve Bank in thatregard;

c) the amount invested in Commercial Paper shallnot be eligible for repatriation outside India;and

d) the Commercial Paper shall not be transferable.

Clarity to be sought:

On one side, the deposits (both secured &unsecured) are considered as a borrowed funds asper its definition, and are accepted by a companywithin the overall financial limit specified in theresolution under section 180(1) (c) read with sub-section (2) of the said section, on another side, whyanother resolution exclusively for depositacceptance is required is not clear.

Conclusion:

This article has tried to specifically focus on the“invite, accept and renew deposits” by the Companyunder the Companies Act, 2013 and other relatedstatutory obligations, from its members and publicsubject to the conditions laid down in section 73(2)of the Act as well from overseas with amendments.With a particular concern to the corporate sector,professionals and the stakeholders to establish adecent clarity in regard to provisions of the saidsection.

The in depth explanation in this article will give anopportunity to the professionals to discuss the issuesfurther for better understanding and compliance oflaw.

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Meaning of the Expression of Land:

The expression Land includes benefits arising outof the land and things attached to the earth orpermanently fastened to anything attached to theearth – a portion of the building cannot surviveindependent of the building and the buildingwithout the land – The building ultimately formspart of the land and things attached to the earth andpermanently fastened to anything attached to theearth and the benefits to arise out of the land –Further, where part of building, that too a multistoreyed building is being acquired, the land neednot be acquired more so when the owner of buildingis not the owner of the land and his entire interestin part of building can be acquired.

State of Maharashtra Vs. Reliance IndustriesLtd. (2017) 10 SCC 713

Exemption u/s. 10A – Treatment ofbrought forward loss of other unit –exemption u/s. 10A is to be allowedwithout setting off the business loss ofthe other unit against the profit of theeligible unit

Principal commissioner of Income Tax Vs.Rangsons Electronics (P) Ltd. (2017) 160 DTRSC 290

Non-resident – Applicability of Sec.44BBvis-à-vis mobilization charges

At the same time s. 4,5 and 9 which deal withcharging section, total income and income of non-resident which arises or deem to arise in India cannotbe side tracked. These are the provisions whichbring a particular income within the net of incometax. Therefore, it is imperative that a particularincome is covered by the charging provisionscontained in s.5. Indian IT Act, admittedly, followsa territorial system of taxation. As per this system

Glimpses of SupremeCourt Rulings

Adv. Samir N. [email protected].

26 only that income of a non-resident is taxable in Indiawhich is attributable to operations within the Indianterritory. Therefore, in the first instance it is to beseen whether a particular income arises or accruesor deem to arise or accrue within India. In order toseek this answer, the principles contained in S.9have to be applied only when it becomes an incometaxable in India as per S.9 the question ofcomputation of the said income would arise.Sec.9(1)(i) provides that income is to be deemed tohave accrued or arising in India if the income isaccruing directly through any business connectionin India or from any property in India or from anyasset or source of income in India or any capitalasset situation in India referred as business income.Explanation 1(a) to S. 9(1) (i) provides an exclusionin the case of operations which are not carried outin India. The explanation provides that the incomeof the business deemed under this clause to accrueor arise in India shall be only that part of the incomeas is reasonably attributable to the operations carriedout in India. Thus, business income earned by non-resident is chargeable to tax in India only to theextent reasonably attributable to the operationscarried out in India.

SEDCO Forex International Inc. Vs. CIT(2017)299 CTR (SC)

Appeal (SC) maintainability – Rule ofconsistency

Adjudication of the questions raised by the revenuein the appeal before the Supreme Court cannot berefused merely on the basis that the revenue hasaccepted the accounting practice adopted by theassessee in the past or has accepted the decisionsof the High Court in favour of the assessee on thesame issue.

CIT Vs. Modipon Ltd (2017)299 CTR (SC) 306

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Question of law v/s. Question of factCIT v/s. K.R.N. Prabhakaran (HUF)(2017 (Mad)) 393 ITR 175

Issue :

When does a question of Fact become a questionof Law?

Held :

A question of fact becomes a question of law if thefinding is either without any evidence or materialor if the finding is contrary to the evidence or isperverse or there is no direct nexus between theconclusion of fact and the primary fact upon whichthat conclusion is based. But it is not possible toturn a mere question of fact in to a question of lawby asking whether as a matter of law the authoritycame to the correct conclusion on a matter of fact.

Note :Also See.

CIT v/s. ISC Investments and Finance (P) Ltd

(2017) 393 ITR 195 (Mad)

Sec. 2(15) : Charitable Trust : Differencebetween Registration and ExemptionDIT (Exemption) v/s. North IndiaAssociation (2017) 393 ITR 206 (Bom)

Issue :

What is the difference between Registration andExemption in the case of a Public Charitable Trust?

Held :

The mere fact that in one particular year, the assesseehad income receipts in excess of Rs. 10 lakhs or suchother limit as provided in the proviso to section 2(15)of the Act, by itself would not warrant cancellationof th e registration under section 12AA(3) and thatthere was a difference between registration andexemption. Section 13(8) which was introduced witheffect from April 1, 2009 by the Finance Act, 2012pro

CA. C. R. [email protected]

vided that where the receipts were hit by the

proviso to section 2(15), the benefit of exemption toits income for the previous year relevant to theassessment year in question would not be available.Thus income was brought to tax to secure theRevenue’s interest, but, it did not necessarily resultin automatic cancellation of registration. Circular No.21 of 2016 issued by the Central Board of DirectTaxes directed the authorities not to cancel theregistration of a charitable institution just because theproviso to section 2(15) came into play as the receiptswere in excess of the specified limits therein, referringto section 13(8) to support the view of noncancellation. The circular mentioned that, if in anyparticular year, the specified cut off was exceeded,the tax exemption would be denied to the institutionin that year and cancellation of the registration wouldnot be mandatory unless such cancellation becamenecessary on the ground or grounds prescribed underth e 1961 Act. However, the issue of the trust notbeing genuine could not be concluded by merelygiving a finding in one year that the income earnedfrom activities of trade, business or commerce werein excess of the limit specified in the proviso tosection 2(15). If that happened on a continuous orregular basis, it could justify further probe or inquirybefore concluding that the trust was not genuine. Noquestion of law arose.

Method of Accounting consistentlyfollowed by assessee : To be accepted :CIT v/s Vidarbha Tobacco Products (P)Ltd. (2017) 393 ITR 218 (Bom)

Issue :

Can department change the method of accountingconsistently followed by assessee for a particularassessment year?

Held :

Tribunal had found that the assessee did not followthe first in and first out method of valuation only forth

From the Courts

CA. Jayesh C. [email protected]

e relevant assessment year but was following that

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system of valuation from year to year and in thepreceding years that system of valuation wasaccepted. Even in the subsequent year the samemethod of accounting was accepted by the Revenue.The Tribunal recorded a finding of fact on the basisof the material on record that no fault could be foundwith the method of valuation, by applying the“average price principle”. The Tribunal found thatin so me years, by adopting the method of averageprice principle, even the assessee would have beenadversely affected. The Tribunal found that duringthe last years where the said method of accountinghad affected the assessee, the assessee did not changethe method of valuation and even the Revenue didnot point out the fact to the assessee. The Tribunalrightly held that merely because the change of themethod would help the Revenue in a particular year,the Assessing Officer was not at liberty to changethe method of valuation that was followed by theassessee for a considerably long period. The findingsof fact recorded by the Tribunal do not give rise toany substantial question of law.

Sec. 14A and ‘satisfaction’ of AssessingOfficerPunjab Tractors Ltd. v/s. CIT (2017)393 ITR 223 (P &H)

Issue :

How the Assessing Officer should discharge hisonus to invoke provisions of Sec. 14A /Rule 8D?

Held :

Section 14A of the Income Tax Act, 1961, specifiesthe circumstances in which the Assessing Officeris entitled to determine the amount of expenditureincurred in relation to exempt income in accordancewith such method as may be prescribed. The methodprescribed is in rule 8D of the Income Tax Rules,1962 which was introduced with effect from theassessment year 2008-09. The conditions specifiedin sub – sections (2) and (3) of section 14A mustexist in order to entitle the Assessing Officer toinvoke rule 8D. This is clear from the language ofthese sub sections. Under sub sections (2) and (3)of section 14A, an Assessing Officer can resort torule 8D only if he is not satisfied with thecorrectness of the assessee’s claim in respect of the

From the Courts

expenditure in relation to the income which doesnot form part of the total income under the Act or ifhe is not satisfied with the correctness of theassessee’s claim that no expenditure has beenincurred by him in relation to such income.

Switch over of Method of AccountingMunjal Sales Corporation v/s. CIT(2017) 393 ITR 248 (P & H)

Issue :

How the switching over of method of Accountingis to be dealt with ?

Held :

The assessee has the option to adopt the method ofaccounting of his choice. He can switch over fromon e system to another. This is however subject toth Ine come Tax Officer’s power under the provisoto 1) section 145( of the Income Tax act, 1961, toprevent the assessee from doing so. Under thepr ev e oviso, en wher the accounts are correct andcomplete to the satisfaction of the Income tax Officerbut the method employed is such that in the opinionof the Income tax Officer, the income cannot properlybe deduced therefrom, the computation is to be madeupon such basis and in such manner as the IncomeT Ofax ficer may determine. The proviso, does notplace a bar upon the assessee’s switching over fromone system to the other. While considering whetheran assessee ought to be permitted to switch over fromone accounting system to another, the source ofincome is not relevant and at least not always relevant.It certainly is not the only relevant consideration. Thesource may be the same but the nature of theremuneration, the terms and conditions for the receiptof the remuneration/income may and often is entirelydifferent. It would depend upon the terms andconditions of the agreement between the parties. Itis not possible to enumerate exhaustively cases wherea switch over of accounting systems in such cases ispermissible. The word “regularly” in section 145(1)indicates that having chosen a particular system ofaccounting, an assessee cannot switch over to anothersystem unilaterally. A switch over in the middle of afinancial year ought to be permitted by the authoritiesonly in exceptional cases where it poses no difficultywhatsoever in computing income and the switch over

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is justified. The burden to establish it must resthe ee avily upon the assess who desires the switchover in the middle of the financial year.

Re-opening : RequirementMunjal Showa Ltd v/s. Dy CIT (2016)382 ITR 555 (Delhi)

Issue

What are the requirements for a valid reopening ofa case?

Held

Once a discretion is vested with a certain authority,he alone should exercise that discretion vested underthe statute and if he acts in accordance with “thedirection or in compliance with some higherauthority’s instruction” it would be a case of failureto exercise discretion altogether. The AssessingOfficer must apply his mind and record reasonsbefore reopening an assessment.

The reasons for reopening the assessment have tobe confined to those set out in the order. Theycannot be improved upon by filing subsequentaffidavits. The assumption of jurisdiction cannotsought to be justified by supplying reasonsextraneous to the recorded reasons.

Stock given to bank v/s. Stock as perBooksCIT v/s. Patel Proteins (P) Ltd. (2017)393 ITR 274 (Guj)

Issue :

Whether addition to income can be made when thestatement of stock given to the bank was to procurehigher loan as against stock as per Books ofAccount?

Held :

Having heard learned advocates appearing on behalfof the parties and the question posed for considerationbefore us reproduced hereinabove and consideringthe decisions of this court, the question which is raisedin the present appeal is required to be answered infavour of the assessee. We are not giving furtherelaborate reasons for the same as in the case of RiddhiSteel and Tubes (supra) it is held by this court that

only on account of inflated statements furnished tothe banking authorities for the purpose of availingof larger credit facilities, no addition can be made ifthere appears to be a difference between the stocksh own in the books of account and the statementfurnished to the banking authorities. Accordingly, thequestion is answered in the affirmative, i.e. againstthe appellant Revenue and in favour of the assessee.We hold that the tribunal was right in law in deletingthe addition made on account of difference in stockstatement as furnished before the bank as comparedto shown in books of account for availing highercredit facility.

Considering the ratio laid down in the abovedecision and in the facts of the present case we areof the view that the issues raised in the above taxappeals need to be answered in favour of theassessee and against the Department.

Search case : Seizure of interest bearingassets not released even after assessment.: Department to pay interest.Chander Prakash Jain v/s. CIT (2017)393 ITR 302 (All)

Issue :

Effect of retention of interest bearing assets afterassessment is completed.

Held :

The retention of the seized assets beyond the dateof assessment was unlawful and they should havebeen returned to the assessee after assessment wascompleted. There was no explanation from theDepartment why the Kisan Vikas Patras, IndiraVikas Patras and Fixed deposit receipts wereretained by the Department even after theassessment proceedings had been completed in theyear 1996 and why they were neither encashednor renewed. The money invested in the form ofKisan Vikas Patras and Indira Vikas Patras by theassessee continued to be money available with theUnion of India all along and was being utilized bythe Government for its own purposes as they hadnever been encashed. Because of non – extensionof the period of their validity by the Department,

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contd. on page no. 481


DCIT vs. M/s. Bengal Beverages Pvt.Ltd. [2017] 167 ITD 393 (ITA No. 1218/Kol/2015) (Kolkata)Assessment Year: 2010-11 Order dated:6 Octoberth , 2017

Basic Facts

The assessee-company was engaged in the businessof manufacture of soft drinks, generation ofelectricity through windmill and manufacture of petbottles for packing of beverages. The assesseeclaimed additional depreciation on Visicooler. Theassessing officer observed that these Visicooler werekept at the distributors‘ premises and not at the factorypremises of the assessee company. The assesseesubmitted before the AO that Visicoolersare requiredto be installed at the delivery point to deliver thepr e at me oduct to th ultim e consu r in chilled form,therefore, these are part of assessee‘s plant. However,the AO rejected the assessee‘s contention and heldthat assessee is not carrying out manufacturingac ontivity the product of the retailer at retailer‘spremises and merely chilling of aerated water cannotbe te rmed as manufacturing activity and even thatchilling job is the activity of the retailer and not ofthe assessee. Aggrieved by the order of the AO, theassessee filed an appeal before the CIT(A) whodeleted the addition made by AO. Aggrieved, therevenue preferred an appeal before the ITAT.

Issue

Whether additional depreciation will be allowedon ‘Visicooler’ installed by manufacturer of colddrink, at distributor’s or retailer’s premises soas to ensure that cold drink is served chilled toultimate consumer?

HeldThe Hon’ble ITAT held that benefit of additionaldepreciation is available to an assessee engaged inthe business of manufacture of article or thing uponthe actual cost of plant & machinery. The conditions

laid down in Section 32(1)(iia) are that if theassessee is engaged in manufacture of article orthing then it is entitled to additional depreciationon entire additions to plant & machinery providedthe items of addition does not fall under any of theexceptions provided in clauses (A) to (D) of theproviso. In the present case the assessee is engagedin the business of manufacture of cold drinks whichhas not been disputed by the AO. Also, the“visicooler” is a “plant & machinery” which fallswithin the category of “plant & machinery” aslaiddown in the I.T. Rules, 1962 & does not fall withinthe exceptions provided in clauses (A) to (D) ofthe proviso to Section 32(1)(iia) of the Act. Further,the ITAT held that the assessee is situated at a longdistance and the product has to be sold at longdistance. So, the assessee, in order to sell its finalproduct to the customers in various parts ofthe stateis required to give the soft drink in cold state forwhich the assessee has purchased ‘Visicooler’.Thus, the ITAT held that assessee is eligible foradditional depreciation on the same and resultantly,dismissed the revenue’s appeal.

Claris Lifesciences Ltd. vs. DCIT[2017]167 ITD 1 (ITA No. 498/AHD/2011)(Ahmedabad)Assessment Year: 2008-09 Order dated:26 , 2017th September

Basic Facts

The assessee is a public company. For the relevantyear, the assessee filed return of income but did notpay self-assessment tax u/s. 140A of the Act.Subsequently, the assessee filed revised return andpaid self-assessment tax thereon. The AO imposeda penalty u/s. 221(1)on account of non-payment ofself-assessment tax liability under section 140A atthe time of filing original return of income.Aggrieved, assessee carried the matter in appealbefore the CIT(A) but CIT(A) upheld the penaltyorder

Tribunal News

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

. The assessee appealed before the Tribunal.

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Before the Tribunal, the assessee relied upon adecision of another division bench, in the case ofACIT Vs Shri Shakti Credits Limited [(2014) 66SOT 0175 (Lucknow).

Issue

Whether an assessee is liable to penalty undersection 221(1) of the Act in a case in which thethough the assessee has not paid the self-assessment tax under section 140A, while filingthe return of income, but revises the income, byfiling revised return of income, and pays the taxon the revised return of income at the time offiling the revised return of income?

Held

The Hon’ble ITAT held that the default triggeringthe penal liability under section 221(1) is the defaultin making payment of tax, and that the default inpayment of tax is with reference to the filing of thereturn. Clearly, therefore, the assessee committed adefault in not paying the admitted tax liability whenit filed the original income tax return, withoutpayment of admitted tax liability, on 30 September2008. Further, the ITAT held that payment ofadmitted tax liability, while filing revised return ofincome under section 139(5), does not affect thelapse committed at the time of filing the originalreturn of income, even though claims made in suchoriginal income tax return stand supplanted by theclaims made in the revised income tax return. Thus,the ITAT held that the assessee is, in principle,covered by the scope of the penalty under section221(1) in a case in which though the assessee hasnot paid the admitted tax liability under section140A, while filing the original return of income,the assessee subsequently pays the tax on the revisedreturn of income, at the time of filing the revisedreturn of income. Resultantly, the ITAT held againstthe assessee.

DHL AIR Limited vs. DCIT[2017] 167ITD 258 (ITA No. 1438/Mum/2017)(Mumbai)Assessment Year: 2012-13 Order dated:4 Octoberth , 2017

Basic Facts

The assessee-company is a tax resident of UK.Theassessee took an aircraft under dry lease agreementfrom DHL Aviation, Netherlands B.V, and in turn,leased out the same under wet lease agreement toan Indian company named M/s. Blue Dart AviationLimited (BDAL). During the year underconsideration, the assessee claimed expenses onaccount of maintenance of aircraft and engine,repairs and maintenance of aircraft andreimbursement of travelling and accommodationcharges. The AO took a view that the assesseeshould have deducted tax at source from the saidpayments. Since the assessee has failed todeducttax at source, the AO took the view that the abovesaid expenditure are liable to be disallowed undersection 40(a)(i) of the Act for the failure to deducttax at source. The assessee submitted that forcarrying out the repairs of all aircrafts operated bythe assessee, it had entered into an agreement withM/s. European Air TransportLeipzig Gmbh, (EAT)Germany for providing maintenance, repairs andoverhaul services. Also the payment made to EATwas for providing repairs service and hence thesame constitute business profits in the hands of EAT.Since, EAT does not have permanent establishmentin India, payment received by it is not taxable inIndia. The DRP did not agree with the contentionsof the assessee and upheld the order of the AO.Aggrieved, the assessee preferred an appeal beforethe ITAT.

Issue

Whether payment made by assessee to its AEfor annual maintenance contract would fallunder the category of fees for technical servicesand accordingly be liable to deduct TDS undersection 194J?

Held

The Hon’ble ITAT held that the assessee hadincurred the said expenditure in pursuance ofmaintenance contract between the assessee andM/s EAT, Germany. The ITAT relying on the caseof Kandla Port Trust held that the payment madeforannual maintenance contracts would not fallunder the category of fee fortechnical services

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within the meaning of provisions of sec. 194J ofthe Act. Also, in the case of DDRC SRL Diagnostic(P) Ltd., the coordinate bench has noticed thatCBDT has expressed the view in Circular No.715that routine, normal maintenance contracts whichincludes supply of spares will be covered by sec.194C of the Act. Further the revenue could notproduce any material to show that the clarificationsissued by the CBDT would not apply to the factsavailable in the case before it. Accordingly,thebench held that the provisions of sec. 194C shallapply to the payment made towards maintenancecontracts. Also, it was observed that the paymentgiven by the assessee would constitute businessreceipts in the hands of M/s. EAT, the same is nottaxable in India, since it does not have PE in India.It is held that assessee is not required to deduct taxat source u/s 195 of the Act, as no part of the amountpaid to M/s. EAT is chargeable in India in the handsof M/s. EAT.

Chanasma Nagrik Sahakari Bank Ltd.v/s. ACIT 167 ITD 151 (ITA No. 1334/AHD/2014) (Ahmedabad)Assessment Year: 2010-11 Order dated:4 September, 2017th

Basic Facts

The assessee is a Cooperative Bank registeredunder Gujarat Cooperative Society Act carrying onthe banking business under the supervision andcontrol of Reserve Bank of India. During theassessment proceedings, AO observed that assesseehas claimed urban development expenses whichwere incurred towards statue of Shri Sardar Patelin the town to be installed on the circle. The samewas claimed as Urban Development Expenses.Theassessee submitted that thesaid expenditure wasincurred towards larger corporate responsibilitytowards the residents of town where the assessee-bank is situated. The AO concluded that the saidexpenses cannot be said to be incurred wholly andexclusively for the purpose of its business andtherefore is not a permissible business expenditure.On appeal, CIT(A) upheld the order of AO on theground that said expense is nowhere related to thebusiness of banking and accordingly declined any

relief.Aggrieved, the assessee carried the matterbefore the Tribunal.

Issue

Whether expenditure incurred to install a statueon circle of town to enhance brand value ofassessee’s business was an allowableexpenditure?

Held

ITAT upheld the contention made by the assesseethat the expenses incurred are revenue in nature andno enduring benefit can be stated to be derived bythe assessee. Incurrence of such expenses will addto the visibility of the assessee-bank amongst itsstakeholders. The expenditure incurred can berationally said to have been incurred for thepromotion of the assessee’s ongoing business andis an allowable business expenditure. Thus, so longas the expenditure has been incurred on the groundsof commercial expediency and in order to directlyor indirectly facilitate the carry of the business, thefact that there was no compelling necessity to incurthe iture on expend which deduction is claimed isan irrelevant consideration. Therefore, there is aconsiderable merit in the claim of the assessee andthe same is allowed.

Koley Construction V/s. ITO 167 ITD217(ITA No. 943/Kol/2017) (Kolkata)Assessment Year: 2012-13. Order dated:25th August,2017

Basic Facts

The assessee is a partnership firm engaged in thebusiness of executing construction contracts. Duringthe assessment proceedings, AO noticed that theassessee paid a sum as labour charges withoutdeducting tax at source under section 194C. Hencethe same was disallowable and could not be claimedas expense. On appeal before CIT(A), by invokingprovisions of section 40(a)(ia) read with section201(1), assessee submitted that if the person towhom the payments are made has taken suchincome into account in furnishing a return of incomeunder section 139 and has furnished the certificateto the accountant in Form 26A giving effect to theabove, then such assessee could not be an assessee

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in default and hence no disallowance should beattracted. However, CIT(A) held that failure toproduce necessary documents and details was fatal.Thus, the assessee was not entitled to the benefit ofsecond proviso of section 40(a)(ia). CIT(A)conferred a right on AO to further enquire to verifythe correctness of Form 26A. Aggrieved, assesseepreferred an appeal before ITAT.

Issue

Whether disallowance of labour charges can bemade where the assessee has paid such sumwithout deducting TDS, although it has beencertified by a Chartered Accountant in Form26A that such sum has been accounted by therecipient while computing its gross receipts?

Held

ITAT held that Form 26A clearly specifies that thesum was a part of gross receipts of the recipient inthe return of income filed. Also, the remand reportof the AO was very vague as he failed to examinethe recipient. Thus, Form 26A has to be acceptedas correct, conclusive proof in the matter ofapplicability of proviso 201(1) and second provisoto section 40(a)(ia). Disallowance sustained by theCIT(A) was directed to be deleted.

DCIT vs. United States PharmacopeiaIndia (P.) Ltd. [2017] 87 taxmann.com176 (ITA No. 1693/Hyd/2016) (CO No.5/Hyd/2017)(Hyderabad)Assessment Year: 2011-12 Order dated:27th October, 2017

Basic Facts

The assessee USP India was engaged in researchand analytical testing of pharmacopeia and otherrelated processes. During the year underconsideration, an employee SS of USP LLC wastransferred to the rolls of assessee-company USPIndia as a whole time Director. SS had oversightresponsibility for scientific business andinfrastructure operations of certain USP Indiaaffiliates (USP China and USP Brazil) while, hewas employed in USP LLC. SS continuedoversight responsibility of these affiliates from USP

India. USP India recharged the apportioned salaryand other direct expenses of SS incurred by USPIndia to respective USP affiliates on a cost-to-costbasis.The TPO held that 10 per cent markup shouldbe applied as these expenses incurred by theassessee and subsequently reimbursed by AEs wereto be added to the operating revenues as well as theoperating cost for the purpose of aggregation oftransactions and determining arm’s length priceunder TNMM. Aggrieved by the order of the AO,the assessee filed an appeal before CIT(A) whoupheld the order of TPO/ AO by observing that thereceipt of reimbursement had not been routedthrough books of account. Aggrieved, the assesseefiled cross-objections against the revenue’s appeal.

Issue

Whether mark-up should be applied on therecharged apportioned salary and other directexpenses of employee SS incurred by USP Indiaon the behalf of his affiliates?

Held

The Hon’ble ITAT held that, the CIT(A)’sobservations that receipt of reimbursement has notbeen routed through books of accounts requiresverification and for that limited purpose remittedback to AO. It is held that if it is found that thetransaction is not routed through the books than inthat case action of the TPO may be sustained.

Subject to above, ITAT held that it is the normalpractice in multinational companies to utilize theexpertise of the various executives in the groupcompanies. In the given case, SS was employee inUSP India and his expertise in the management ofconstruction etc. were utilized by the other sisterconcerns and certain cost were charged to them.Since there are no comparable cases in the market,and also it is the business decision of the assesseeto share the employee cost with other sister concernson cost to cost basis. Accordingly, the addition ofmarkup should be deleted, subject to the verificationby the AO.

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In this issue we are giving full text of theAhmedabad ITAT decision in the case of DevangNarendrabhai Vadodariya pronounced recently. Inthis decision, the issue was whether when the stampduty valuation of immovable property is higher thanthe stated sales consideration and when the assesseehas objected to adoption of such valuation forcomputing capita gain, whether it is mandatory forA.O. to refer the valuation to the DVO in spite ofthe fact that assessee may not have made a specificrequest for such reference to DVO. The Tribunalheld that in such cases, A.O. is required to refer thevaluation to DVO before computing the capital gain.

We hope the readers would find the same useful.———————————————————

In the Income Tax Appellate TribunalAhmedabad “B” Bench, Ahmedabad

Coram : Pramod Kumar AM andS S Godara JM

S P No.150/ahd/2017(Arising out of ITA No.2706/Ahd/2017)

And

ITA No.2706/Ahd/2017Assessment Year :2012-13

Devang Narendrabhai ....Appellant/ ApplicantVadodariya2,Rajiv Society, Juna Nari Kendra Road,Surendranagar - 363001[PAN : AANPV 7057 R]

Vs.

The Asst. Commissioner .............Respondentof income - taxSurendranagar circle, Surendranagar-363001

Appearances by :

PF Jain for the Appellant/applicantVK Singh for the Respondent

Date of concluding the hearing : 05.01.2018Date of pronouncing the order : 05.01.2018

CA. Sanjay R. [email protected]

Unreported Judgements

Order

Per Pramod Kumar, AM :

1. As this stay petition was being heard, the benchwas of the view that the related appeal itselfcan be disposed of at this stage. When thisproposition was put to the learnedrepresentatives, they agreed that the appeal fordisposal. The stay petition is, accordingly,dismissed as infructuous.

2. aThis appeal is directed against le rned CIT(A)’sorder dated 13th october 2017. in the matter ofassessment under section 143(3) r.w.s 147 ofthe income -tax Act 1961, for the assessmentyear 2012-13.

3. Grievances raisedby the assessee,in substance,are twofold -(a) first, reopening learnedCIT(A)’s upholding the addition ofRs.73,47,517/- on account of short term capitalgains.

4. Learned counsel for the assessee did not pressthe grievance, on the reopening issue, and thesame is, accordingly, dissmissed as not pressed.

5. As regards addition of Rs.73,47,517/- onaccount of short term capital gains, the relevantmatirial facts are like this. During the cource ofreassessment proceedings, it was noticed thatthe jantri value (i.e. stamp duty valution) is muchhigher than the stated sale consideration.Accordingly, the assessing officer recomputedthe short term capital gains by adopting jantrivalue as deemed sale consideration undersection 50C. it was on this basis that theassessing officer made the impugned additionof 73,47,517/- to the short term capital gainsdisclosed by the assessee. Aggrieved, assesseecarried the matter in appeal before the CIT(A)but without any success. The assessee is notsatisfied and is in further appeal before us.


6. Learned counsel has pointed out that eventhough the assessee has objected to the Assessingofficer’s adoption of jantri value as deemed saleconsideration under section 50(C), he did notrefer the valuation of the said property, or offerto do so, to the Departmental Valuation officerunder section 50C(2). it is pointed out the presentlegal position is that even when assessee did notmake a specific request for DVO reference, theAssessing officer must offer to do so. He reliesupon a coordinate bench decision of thisTribunal, in the case of Raj Kumari AgarwalVs. DCIT, [(2014) 150 ITD 597], in support ofthis propositon. Learned DepartmentalRepresentative was gracious enough to state that,in su ch a situation, he was no objection to thematter being remitted to the Departmentalvaluation officer. Learned counsel for theassessee fairly accepts this suggestion.

7. The plea of the learned counsel is indeed welltaken. Whether the assessee makes a specificrequest for reference to the DVO or not, whenassessee disputes the valuation as per stampduty authority, the Assessing officer must givean option to the assessee to follow the courseprovided by the low. A coordinate bench ofthis Tribunal, in the case of Raj KumariAgarwal (supra), has observed as follow:-

“W ine f d here is a case in which the assesseehas specifically objected to the adoption of stampduty valuation rate. The mere fact that theappellant has not challenged the stamp dutyvaluation cannot be put against the assessee. Theauthority for the this proposition is contained in,Hon’ble jurisdictional High court’s judgment,in the case of CIT Vs Chandra Narain Chaudhuri([2013] 38taxmann.com 275 (Allahabad),wh r erein Thei Lordships have observed that,“The question as to whether the assessee filedany objections before the stamp valuationAuthority to dispute the valuation, or filed appealor revision or made reference before anyauthority, court or the High Court under subsection (2) (b) of section 50 C of the Act is notof any relevance in ths case, as the AO himselfobserved that the assessee did not dispute the

stamp valuation before the stamp valuationAuthority. There may be several reasons for thepurchaser not to file such objection. A purchasermay not go into litigation, and pay stamp duty,as fixed by the stamp valuation Authority , whichmay be over and above the fair market value ofthe property, as on the date of transfer, thoughthe amount so determined has not been actuallyreceived by owner of the property”. The positionas to whether reference should be made to theDVO, even when there is no specific plea tothat effect by the assessee, is now well set out inHon’ble calcutta High Court’s judgment in theof sunil kumar agarwal CIT (GA No 3686/2013IN itat nO 221/2013; Judgment dated 13thMarth 2014), wherein Their Lordships have,inter alia, observed as follows:-

“...we are of the opinion that the valuationby the departmental valuation officer,contemplated under section 50C, is requiredto avoid miscarriage of justice. Thelegislature did not intend that the capital gainshould be fixed merely on the basis of thevaluation to be made by the District subRegistrar for the purpose of stamp duty. Thelegislature has taken care to provide adequatemachinery to give a fair treatment to thecitizen/taxpayer. There is no reason why themachinery provided by the legislature shouldno be an th bent used d e efit thereof shouldbe en refused. Ev in a case where no suchprayer is made by the learned advocaterepresenting the assessee, who may not havebeen properly instructed in low, the assessingofficer, discharging a quasi judicial function,has the bounden duty to act fairly and to givea fair treatment by giving him an option tofollow the course provided by law”.

7. As there is no binding judicial precedentcontrary to what has been held by Hon’blecalcutta High Court, as above, the esteemedviews of their Lordships, even though froma non juridictional High Court, bind us aswell.

8. In the light of the above legal position, theplea of the assessee, as set out in the ground



of appeal, is indeed well taken. Theprevalling legal position is now like this.Once the assessee claims that the actualmarket value of the land or building is lessthan stamp duty valuation adopted by theauthorities, it is incumbent upon theAssessing officer to refer the valuation ofsaid land or building to the departmentalvaluation officer. In the present case, theAssessing officer has not done so. in viewof this factual position, and in the light ofthe discussions above, we deem it fit andproper to remit the matter to the file of theAssessing officer for adjudication de novoafter making a reference to the DVO.While so deciding the matter afresh, theAssessing officer will decide the matter inaccordance with the law, by way of aspeaking order and after giving a reasonable


opportunity of hearing to the assessee. wedirect so. “

8. Respectfully following the views so expressedby the coordinate bench, we remit the matterto the file of the Assessing officer for the limitedpurpose of enabling a reference to theDepartmental Valuation officer, and thusassessee’s availing the option under section50C(2). The matter thus stands restored to thedile of the Assessing officer in the termsindicated above. As the matter is remitted tothe file of the Assessing officer for freshadjudication, as above, other issues on meritsneed no adjudication at this stage.

9. r In the result, the appeal is allowed fo statisticalpurposes in the terms indicated above.Pronounced in the open court today on 5th dayJanuary, 2018

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for the period the investments were in the controlof the Department, although illegally, after theassessment proceedings were finalized. The actionof the Department had resulted in uncalled for lossof interest on the investments to the assessee for nofault of his. The Department was liable to pay theinterest which the investments would have earned,on the face value of the seized investmentdocuments, under the provisions of the Income TaxAct, 1961 had the investments been revalidated orrenewed or had been encashed by the Department.The Assistant Commissioner was directed torecompute the interest.

Reopening beyond four years :ConditionsNavkar Share and Stock Brokers (P)Ltd. v/s. Asst. CIT (2017) 393 ITR 362(Guj)

Issue :What are the conditions to be fulfilled for reopeningof an assessment beyond four years?

Held :There did not appear to be any failure on the partof the assessee in disclosing true and correct facts

contd. from page 474 From the Courts

and therefore, the condition stipulated under section147 of the Income Tax Act, 1961, to reopen theassessment beyond the period of limitation of fouryears was not satisfied. There was no allegation inthe reasons recorded by the Assessing Officer thatthere was any non – disclosure on the part of theassessee, which had resulted in escapement ofincome. In its objection against the reasons recordedby the Assessing Officer, the assessee had submittedthat since August, 2004, it did not have anytransaction with the Ahmedabad Stock Exchange,more particularly during the assessment year inquestion. There was nothing on record to show thatthe Assessing Officer on facts had formed onopinion that, during the assessment year in question,the assessee had transactions with the AhmedabadStock Exchange and therefore, bye law 218 waseither attracted or applicable. The notice andreassessment proceedings were invalid.

Note : Also See :

Micro Inks P. Ltd. v/s. Asst. CIT

(2017) 393 ITR 366 (Guj)

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agents acting on their behalf for margins [Asst.CIT v BharCellular Ltd (2007) 294 ITR (AT)283 (Kol). See also Bharati Airtel. DCIT (2013)40 taxmann.com 46 (Cochin) (Trib)]

It is important to refer to the decision of CalcuttaHigh Court in the case of Hutchison Telecom EastLtd. V. Commissioner of Income Tax in ITR No.375/566 the lordships of Delhi High Court as under.

“Held, dismissing the appeal, that the terms andconditions left no doubt that the relationship betweenthe service provider and the assessee from theagreement was that of an agent and principal. Theservice provider had been employed to act on behalfof the assessee for the purpose of feeding the retailersand through them to sell the services to the consumers.The dealings and transaction between the assesseeand the service provider were not on principal toprincipal basis. The assessee was a personresponsible for paying commission and, therefore,the provisions of section 194H were attracted.

Bharti Cellular Ltd. v. Asst. CIT [2013] ITR 507(Cal) “

View in favour of the proposition :

The provisions of section 194H of the Income TaxAct, 1961 is applicable either for commission orbrokerage paid. Commission or brokerage has beendefined in clause (i) of Explanation to section 194Has reproduced hereunder:

“ Commission or brokerage” includes any paymentsre ab received or receiv le, di ctly or indirectly, by aperson acting on behalf of another person for servicesrendered (not being professional service) or for anyservices in the course of buying or selling of goodsor in relation to any transaction relating to any asset,valuable article or thing, not being securities.

From the above definition, it is crystal clear thatnone of the parties to whom discount is given isr

ControversiesCA. Kaushik D. Shah

[email protected].

elated to any service rendered (not being

Whether discount allowed can be subjected toTDS?

Issue:

The assessee has paid discount to dealers anddistributor n respect s i of sale of its products. TheA.O. is of the view that such discount is in the natureof commission, hence, TDS has to be madeotherwise discount can be disallowed u/s 40a(ia)for non-deduction of TDS.

Proposition:

The discount paid to the dealers and distributors isnot commission or brokerage and hence it can notbe disallowed under section 40a(ia).

View against the Proposition:

Transaction between the assessee, a cellularoperator, and the prepaid associates (PMAs)appointed by it whereby SIM cards/rechargecoupons are ultimately sold to the subscribersthrough the latter does not amount to ‘sale of goods’and, therefore, the discount offered by the assesseeto the distributors on payments made by the latterfor the SIM cards/recharge coupons which areeventually sold to the subscribers at the listed priceis commission and is subject to TDS under section194H [CIT v Idea Cellular Ltd (2010) 35 DTR 219(Del). Also see VodafoneEssar Cellular Lid v CIT(2010) 35 DTR (Coch)(Trib) 393].

The assessee company sold SIM and prepaid cardsto its distributors/ franchisees at a fixed rate belowmarket price for onward sale to its ultimatecustomers. The difference was held as commissionand not discounts as contended by the assessee andliable to TDS under section 194H since:

(i) all rights, title, ownership and property rightsin such cards would always rest with theassessee; and

(ii) The agreement between the assessee and thefranchisee revealed that they were commission


Controversies

professional service) or for any services in thecourse of buying or selling of goods or in relationto any transaction relating to any asset, valuablearticle or thing, not being securities. In fact, thediscount is given on performance (Quantitydiscount) or for early payments (Cash Discount)and hence it is not procurement of order i.e. presales services whereas discount is paid in theperformance of sales i.e. post sales.

Thus, section 194H provides for deduction of Taxat source (T.D.S) on brokerage & commissionpayment.

De se,alers, in our ca are independent persons andnot our agent as they are free to sell goods on theirown profit margins and normal buying & selling goeson de hors any incentive schemes. We are very clearthat the TARGET INCENTIVES PAID BY US ISONLY A MOTIVATOR AND IT CANNOT BETERMED AS A COMMISSION so as to fall withina purview of section 194H. Accordingly, provisionof section 194H could not be applied.

The appellant relies on the decisions followed:

1) Tube Investments of India Ltd. Vs. Acit –223 CTR 99

TDS – Under section 194H – Commission orBrokerage Vis-à-vis trade incentives to dealers- Tribunal has remitted the matter to the AO toexamine whether the trade incentives paid byassessee (Manufacturer) to the dealersamounted to commission or discount in orderto ascertain whether it is subject to TDS u/s194H or not- order of the tribunal can not beassailed simply on the basis of one of itsobservation that the price at which the dealerswere selling the goods would determine therelationship between the parties – AO isdirected to examine the issue namely, whetherthe trade incentive was a discount.

2) Foster’s India P.Ltd. vs. ITO, ITAT.117 TTJ346

TDS- u/s 194H- Distributors Incentives, earlypayment discount and bond expenses- do notconstitute commission so as to attract TDS u/s194H- there is principal-agent relationship

between assessee and its distributors- conditionimposed by the assessee on the distributors asregards the manner of storage and marketing ofits product in order to protect its reputation wouldnot make the distributor and agent of theassessee- property and risk in the goods pass tothe distributors as soon as the goods are invoicedto him and this is the moment when sale takesplace- free issue of goods on sponsorship andpromotion are sale promotion costs of assessee-early payment discount is nothing but cashdiscount for timely payment and does notconstitute commission by any stretch of logic.

3) ACIT vs. Idea Cellular Ltd. (Hyd.) 125 ITD110

“Whether expression ‘commission or brokerage’as contained in Clause (i) of Explanation tosection 194H, is not so wide that it would includeany payment receivable directly or indirectly,for services in course of buying or selling goods;hence discount allowed on transaction resultingin outright purchases cannot be treated asbrokerage or commission.”

4) Ahmedabad Stamp Vendors Association vs.Union OrIndia (257 ITR 202)

Deduction of tax at source- Commission orBrokerage-meaning of commission orbrokerage- element of agency essential-difference between agency and sale-stampvendors- purchase of stamp papers at discountrestriction on sale and provision in GujaratStamps Supply and Sales Rules, 1987, forsurrender of Stamp papers to governmentprovision would not render Stamp vendorsagents- action amounts to sale- Discount onsale of Stamp paper does not attract section194H- IT ACT, 1961,sec. 194H

5) Bhopal Sugar Industries Ltd. Vs. STO AIR1997 SC 1275

Where in it was held that a reduction in sellingprice offered by way of incentive or discountcannot be regarded as commission or brokeragenor can it be regarded as income liable to tax aspart of the sale transaction of goods sold.


6) Government Milk scheme vs. ACIT TDS.98ITD 306.

Section 194H of the IT Act, 1961- Deductionof tax at source- Commission or Brokerage, etc.A.Y:2003-04-Assessee, a GovernmentEst hablishment, used to procure milk througvarious sanghs and federation and after properprocessing, milk was sold In open marketthrough various milk centers or milk booths(Kiosks)- assessee paid 90 paisa per liter to saidmilk centers/milk (kiosks) towards transport costcontainer charges and chilling charges etc.-However, assessee had given nomenclature ofabove mentioned expenditure as commission -AO held that the relationship of principal andagent between the assessee and milk center andkiosks and therefore, assessee was required todeduct TDS u/s 194H on commission so paid-whether since goods either produced ordisbursed at every stage of transaction was onactual payment basis, transition was purely onPRINCIPAL TO PRINCIPAL basis and therewas no existence of agency- Held, yes, whetherpayment in question was within expression“commission or brokerage” as prescribed u/s194H-HELD NO- Whether therefore, assesseewas not liable for deduction of tax at source u/s194H and liability created on the assessee u/s201(1) and section 201(1A) was to be deleted.HELD, YES

7) ITL Tours and Travels (P) Ltd. Vs. ITO(2011) 44 SOT 277 (Mum.) (Trib)“The transaction in question were nottransactions between principal and agent butthose transactions were between principal andprincipal. In order to bring services ortransactions within expression “Commission”and “Brokerage” under section 194H, elementof agency must be present. When the discountallowed / given by the assessee to theintermediaries was also allowed to passengerdirectly who booked the tickets with theassessee and the assessee was recording thetransaction in its books of account on netamoun voice, then it t of the in was not a caseof commission or brokerage paid or payable

by the assessee to the intermediaries, hence,the provisions of section 194H were notapplicable therefore no disallowance can bemade under section 40a(ia).”

8) S. 194H: Deduction of Tax at Source -Commission-BrokerageAgents of Airline companies are permitted tosell tickets at any rate between fixed minimumcommercial price and Published price.Difference between commercial price andpublished price neither commission norbrokerage tax need not be deducted undersection 194H.

CIT VS. QATAR Airways (2011) 332 ITR253 (Bom.)(High Court)

9) Section 194 H is not attracted in respect ofprincipal- to- principal transactions: In ITO VMo Da ce Ltdther iry Food pro ssing (2010)401 SOT 9 (Del) the assessee entered intoagreement with its concessionaires (vendors)forselling milk and milk products. The goods weresold to Vendors at a price less than MRP onprincipal-to principal basis. No commission waspa ceid separately ex pt the reduction in pricefrom the MRP. The tribunal accordingly heldthat the transaction was not that of principal andCommission agent and thus the provisions ofsection 194H were not attracted.

10) National Panasonic India (P) Ltd. Vs. Dy.CIT ) 94 (2005 TTJ (Del.) 889Where in it was held that concession by wayof discount in price for sales promotion offerscannot be liable for deduction of tax at sourceus 194H.

11) S.D. Pharmacy (P) Ltd. Vs. Dy. CIT (2009)31 SOT 386 (Coch-Trib)

Your appellant further reliance the latestdecision of Hon’ble Delhi High Court in thecase of CIT Vs.JAI DRINKS PVT.LTD.(198 TAXMAN 271)The facts are identical, i.e. the relation betweenthe assessee and that of the dealer is Principalto Principal and not at all principal toCommission agent.

Controversies


In view of the above it is submitted that theentire approach of the Assessing Officer istotally misconceived and incorrect on fact aswell as on settled legal proposition. Needlessto say that though principle of Res Judicatadoes not apply in Income tax proceedings andeach year is a separate year for assessment.However, these facts have been examined bythe Assessing Office in earlier years and nodisallowance on this ground has ever beenmade, which also may please be noted. Theappellant most respectfully submits that theaddition of Rs.2,38,46,000/- may please bedirected to be deleted.

Summation:I am of the opinion that discount paid to dealersand distributors shall not be disallowed u/s 40a(ia).The summary is as follows:

Element of Agency: The element of agency has tobe there, in case of all services or transactions,contemplated by the Explanation (i) appended tosection 19AH. There is an essential distinctionbetween a contract of sale and a contract on behalfof agency (by which the agent is authorized to sellor lf ip buy on beha of the princ al). The essence ofthe contract of sale, is the transfer of title to the goodsfor a price paid or promised to be paid. The transfereein such case, is liable to the transferor as a debtor forthe price to be paid and not as an agent for theproceeds of the sale. The essence of agency to sell,is the delivery of the goods to a person who is to sellthem, not as his own property but as the property ofthe principal who continues to be the owner of thegoods, and will, therefore, be liable to account forthe sale proceeds, As per the dictionary meaning theterm ‘agency’ means, ‘a fiduciary relationship createdby express or implied contract or by law, in whichone party (agent) may act on behalf of another party(principal) and bind that other party by words oractions’ and ‘agent is defined in section 182 of theContract Act, 1872, as a person employed to do anyact for another, or to represent another in dealing withthird persons’ü0Ajmer Zila Dugdh Utpadak SanghLtd. v. T[2009) 34 SOT 216 (Jp). If a car dealerpurchase cars form the manufacturer by paying priceless discount, he would be the purchaser and not the

ag of gent the company, but in the course of sellincars, he may enter into a contract of maintenanceduring the warranty period, with the customer(purchaser of the car) on behalf of the company.However, such service rendered by the dealer in thecourse car does not make the activity of selling caritself an act of agent of the manufacturer when thedealings between the company and the dealer in thematter of sale of cars are on ‘principal to principal’basis. This is just an illustration to clarify that a servicein the course of selling of goods has to be somethingmore than the act of buying or selling of goods.

The principal controversy is whether in a given casesale is on principal to principal basis involving thecontract of sale or it is under a contract of agency.A brief reference is required to be made to theprinciples laid down by the Supreme Court in thecase of Bhopal Sugar Industries Ltd. v. STO [1977]3 SCC 147, wherein the Apex Court reviewed allthe relevant previous decisions on the subject.

Principal to Principal: TDS u/s. 194H is notapplicable TDS u/s. 194H held as not liable

1. In the case of Ahmedabad Stamp VendorsAssociation vs. Union of India (2002) 124T (Guj.), axman628 it was held that when thelicensed stamp vendors take delivery of stamppapers on t paymen of full price less discountand they sell such stamp papers to retailcustomers, such buying from the Governmentand selling to the customers cannot be calledthe service in the course of buying or selling ofgoods. There is no contract of Agency betweenthe Government and the vendors and hencethese vendors are not the agents of theGovernment. Therefore, the discount given tothe vendors does not amount to commission orbrokerage liable to TDS.

2. Also in the case of CIT vs. Samaj [2001] 77ITD 358 (Cuttack), it was held that thetransactionbetween the assessee, publishingnewspaper and it sales agents is on principal toprincipal basis. There is no element of Agency.Therefore, question of affecting TDS ondiscount given to newspaper agents and

Controversies



Concept of ‘Permanent Establishment’ getsmuch needed clarity from Hon’ble SupremeCourt

Formula One World Championship Ltd. v. CIT[2017] 80 taxmann.com 347 (SC)

22. It is an undisputed fact that Article 5 of DTAAbetween India and the United Kingdomfollows the Organisation for EconomicCooperation and Development’s (OECD)Model of Double Taxation Convention. Thereare various commentaries on Double TaxationConventions. Celebrated among those are: “AManual on the OECD Model Tax Conventionon Income and on Capital” by Philip BakerQ.C., and Klaus Vogel on “Double TaxationConventions”. OECD has also given its‘condensed version’ on “Model TaxConvention on Income and on Capital”. Whatconstitutes PE under various circumstances hasalso been the subject matter of judicial verdictsin India as well as in other countries. For betterunderstanding of what may constitute a PE, itwould be imperative to refer to thesecommentaries and judicial decisions. Thisdiscussion would disclose the principlesenunciated to determine the existence of a PE,application whereof to the given facts wouldfacilitate in answering the surging debate.

23. Philip Baker explains that the concept of PEis important for several Articles of theConventions; the concept, or its cognate, alsoappears in the domestic law of some countries.According to him, the concept marks thedividing line for businesses between merelytrading with a country and trading in thatcountry; if an enterprise has a PE, its presencein a country is sufficiently substantial that it istrading in the country. He has quoted thefollowing passage from the judgment of the

Advocate Tushar [email protected]

Judicial Analysis

Andhra Pradesh High Court, authored byJustice (Retd.) Jagannadha Rao (as HisLordship’s then was, later Judge of this Court)in CIT v. Visakhapatnam Port Trust [1983] 144ITR 146/15 Taxman 72 (AP):

“The words ‘permanent establishment’postulate the existence of a substantial elementof an enduring or permanent nature of aforeign enterprise in another country which canbe attributed to a fixed place of business inthat country. It should be of such a nature thatit would amount to a virtual projection of theforeign enterprise of one country into the soilof another country.”

24. Emphasising that as a creature of internationaltax law, the concept of PE has a particularlystrong claim to a uniform internationalmeaning, Philip Baker discerns two types ofPEs contemplated under Article 5 of OECDModel. First, an establishment which is partof the same enterprise under commonownership and control – an office, branch, etc.,to which he gives his own description as an‘associated permanent establishment’. Thesecond type is an agent, though legally separatefrom the enterprise, nevertheless who isdependent on the enterprise to the point offorming a PE. Such PE is given thenomenclature of ‘unassociated permanentestablishment’ by Baker. He, however, pointedout that there is a possibility of a third type ofPE, i.e. a construction or installation site maybe regarded as PE under certain circumstances.In the first type of PE, i.e. associatedpermanent establishments, primaryrequirement is that there must be a fixed placeof business through which the business of anenterprise is wholly or partly carried on. Itentails two requirements which need to befulfilled: (a) there must be a business of an


enterprise of a Contracting State (FOWC inthe instant case); and (b) PE must be a fixedplace of business, i.e. a place which is at thedisposal of the enterprise. It is universallyaccepted that for ascertaining whether there isa fixed place or not, PE must have threecharacteristics: stability, productivity anddependence. Further, fixed place of businessconnotes existence of a physical location whichis at the disposal of the enterprise throughwhich the business is carried on.

25. Some of the examples of fixed place ofbusiness given by Baker are the following: Theplace of business must be fixed and permanent.Thus, a shed which had been rented forthirteen years for storing and preparing hideswas held to constitute a PE [TransvaalAssociated Hide & Skin Merchants (Pty.) Ltd.v. Collector Tax Botswana [1967] 29 SATC97]. Similarly, a writer’s study has been heldto constitute a PE [Georges Simenon v.Commissioner of Interval Revenue [1965] 44TC (US) 20]. A stand at a trade fair, occupiedregularly for three weeks a year, through whichthe enterprise obtained contracts for asignificant part of its annual sales, has also beenheld to constitute a PE [Josepn Fowler v. M.N.R[1990] 90 DTC 1834]. A temporary restaurantoperated in a mirror tent at a Dutch flower showfor a period of seven months was held tocons 1titute a PE . An office, workshop andstoreroom for the maintenance of aircraft,which were leased out by the enterprise, hasbeen 2held to constitute a PE .

26. On the other hand, possession of a mailingaddress in a state – without an office, telephonelisting or bank account – has been held not toconstitute a PE [Commissioner of InternalRevenue v. Consolidated Premium Iron Ores[1959] 265 F 2d 320]. The mere supply ofskilled labour to work in a country did not giverise to a PE of the company supplying thelabour [Tekniskil (Sendirian) Berhal v. CIT[1996] 88 Taxman 439/222 ITR 551 (AAR -Delhi)]. A drilling rig which, although

anchored while in operation, was moved to anew site every few months, has been held notto 3 constitute a PE . Similarly, a remotelyoperated vessel which was used to inspect andrepair submarine pipelines was held not toconstitute a PE because a moving vessel is nota fixed place of business [Dy. CIT v. SubseaOffshore Ltd. [1998] 66 ITD 296 (Mum.)].

27. The principal test, in order to ascertain as towhether an establishment has a fixed place ofbusiness or not, is that such physically locatedpremises have to be ‘at the disposal’ of theenterprise. For this purpose, it is not necessarythat the premises are owned or even rented bythe enterprise. It will be sufficient if thepremises are put at the disposal of theenterprise. However, merely giving access tosuch a place to the enterprise for the purposesof the project would not suffice. The placewould be treated as ‘at the disposal’ of theenterprise when the enterprise has right to usethe said place and has control thereupon.

28. Some of the illustrative cases decided by courtsof different jurisdictions given by Baker in hiscommentary are contained in the followingpassages from that book:

(i) In the Canadian case of William Dudneyv.R [1999] 99 DTC 147, the taxpayer wasa resident of the United States who wascontracted to supply training to employeesof a Canadian company. For the purposesof the training contract, the taxpayer wasgiven various offices at the premises ofthe Canadian company, which he wasonly allowed to enter at normal officehours. He was allowed to use the client'stelephone only on client's business. Hespent 300 days in one tax year and 40 inthe subsequent year at the premises. TheTax Court of Canada and the FederalCourt of Appeal confirmed that he hadno fixed base – which was treated ashaving the same meaning as PE – at thepremises since he had no right to use the

Judicial Analysis


Judicial Analysis

premises as the base for the operation ofhis own business.

(ii) In a case generally referred to as HotelManager4, the Bundesfinanzhof held thata UK hotel management company had aPE in Germany when it entered into a 20year contract with a limited partnershipwhich owned a hotel. The agreementrequired the UK company to supply ageneral manager: the general manager'soffice constituted the PE (and not theentire hotel) since the UK company hada secured right to use this office for thepurposes of the agreement.

(iii) A Swiss company was held not to have aPE when it contracted with a Germancompany to produce salad dressings inthe name of and in accordance with therecipe of the Swiss company. Noemployees of the Swiss company werepresent at the production facility tosupervise production 5. TheBundestinanzh of has also held that ascene painter who was commissioned tocarry out a work in France for six weeks,and given special rooms for the purpose,did not have a fixed base at thosepremises.

(iv) The Administrative Court of Appeal ofParis has held that a German travel agencydid not have a PE in France6. A travelagency in Paris had made an officeavailable to the German company fromtime to time, and the manager of theGerman company had a flat in Paris; theCourt held that the German company hadno PE at its disposal in France.

(v) The Brussels Court of Appeal has heldthat a German resident engaged in thetransportation of vehicles had a PE inBelgium7. The taxpayer had an office 3mby 6m at his disposal on the premises ofhis principal supplier in Belgium, togetherwith telephone and telex, where thetaxpayer

29. According to Philip Baker, the aforesaid

and four of his staff worked.

illustrations confirm that the fixed place ofbusiness need not be owned or leased by theforeign enterprise, provided that is at thedisposal of the enterprise in the sense of havingsome right to use the premises for the purposesof its business and not solely for the purposesof the project undertaken on behalf of theowner of the premises.

30. Interpreting the OECD Article 5 pertaining toPE, Klaus Vogel has remarked that insofar asthe term 'business' is concerned, it is broad,vague and of little relevance for the PEdefinition. According to him, the crucialelement is the term 'place'. Importance of theterm 'place' is explained by him in thefollowing manner:

"In ction with conjun the attribute 'fixed', therequirement of a place reflects the strong linkbetween the land and the taxing powers of theState. This territorial link serves as the basisnot only for the distributive rules which aretied to the existence of PE but also for aconsiderable number of other distributive rulesand, above all, for the assignment of a personto either Contracting State on the basis ofresidence (Article 1, read in conjunction withArticle 4 OECD and UN MC)."

31. We would also like to extract below thedefinition to the expression 'place' by Vogel,which is as under:

"A place is a certain amount of space withinthe soil or on the soil. This understanding ofplace as a three-dimensional zone rather thana single point on the earth can be derived fromthe French Version ('installation fixe') as wellas the term 'establishment'. As a rule, this zoneis based on a certain area in, on, or above thesurface of the earth. Rooms or technicalequipment above the soil may quality as a PEonly if they are fixed on the soil. Thisrequirement, however, stems from the term'fixed' rather than the term 'place', given that aplace (or space) does not necessarily consistof a piece of land. On the contrary, the term


Judicial Analysis

'establishment' makes clear that it is not the soilas such which is the PE but that the PE isconstituted by a tangible facility as distinctfrom the soil. This is particularly evident fromthe French version of Article 5(1) OECD MCwhich uses the term 'installation' instead of'place'.

The term 'place' is used to define the term'establishment'. Therefore, 'place' includes alltangible assets used for carrying on thebusiness, but one such tangible asset can besufficient. The characterization of such assetsunder private law as real property rather thanpersonal property (in common law countries)or immovable rather than movable property (incivil law countries) is not authoritative. It israther the context (including, above all, theterms /'fixe'),'fixed' as well as the object andpurpose of Article 5 OECD and UN MC itself,in the light of which the term 'place' needs tobe interpreted. This approach, which followsfrom the general rules on treaty interpretation,gives a certain leeway for including movableproperty in the understanding of 'place' and,therefore, the assume a PE once such propertyhas been 'fixed' to the soil.

For example, a work bench in a caravan,restaurants on permanently anchored riverboats, steady oil rigs, or a transformator orgenerator on board a former railway wagonqualify as places (and may also be 'fixed').

In contrast, purely intangible property cannotqualify in any case. In particular, rights such aparticipations in a corporation, claims, bundlesof claims (like bank accounts), any other typeof intangible property (patents, software,trademarks etc.) or intangible economic assets(a regular clientele or the goodwill of anenterprise) do not in themselves constitute aPE. They can only form part of PE constitutedotherwise. Likewise, an internet website (beinga combination of software and other electronicdata) does not constitute tangible property and,therefore, does not constitute a PE.

Neither does the mere incorporation of acompany in a Contracting State in itselfconstitute a PE of the company in that State.Where a company has its seat, according to itsby-la n, in ws and/or registratio State A whilethe POEM is situated in State B, this companywill usually be liable to tax on the basis of itsworldwide income in both Contracting Statesunder their respective domestic tax law. Underthe A-B treaty, however, the company will beregarded as a resident of State B only (Article4(3) OECD and UN MC). In the absence ofboth actual facilities and a dependent agent inState A, income of this company will be taxableonly in State B under the 1st sentence of Article7(1) OECD and UN MC.

There is no minimum size of the piece of land.Where the qualifying business activities consist(in full or in part) of human activities by thetaxpayer, his employees or representatives, themere space needed for the physical presenceof these individuals is not sufficient (if it weresufficient, Article 5(5) OECD MC and Article5(5)(a) UN MC and the notion of agent PEswere superfluous). This can be illustrated bythe example of a salesman who regularly visitsa major customer to take orders, and conductsmeetings in the purchasing director's office.The OECD MC Comm. has convincinglydenied the existence of a PE, based on theimplicit understanding that the relevantgeographical unit is not just the chair wherethe salesman sits, but the entire office of thecustomer, and the office is not at the disposalof the enterprise for which the salesman isworking."

32. Taking cue from the word 'through' in theArticle, Vogel has also emphasised that theplace of business qualifies only if the place is'at the disposal' of the enterprise. According tohim, the enterprise will not be able to use theplace of business as an instrument for carryingon its business unless it controls the place ofbusiness to a considerable extent. He hastensto add that there are no absolute standards for


Judicial Analysis

the modalities and intensity of control. Rather,the standards depend on the type of businessactivity at issue. According to him, 'disposal'is the power (or a certain fraction thereof) touse the place of business directly. Some of theinstances given by Vogel in this behalf, ofrelative standards of control, are as under:

"The degree of control depends on the type ofbusiness activity that the taxpayer carries on.It is therefore not necessary that the taxpayeris able to exclude others from entering or usingthe POB.

The painter example in the OECD MC Comm.(no. 4.5 OECD MC Comm. on Article 5)(however questionable it might be with regardto the functional integration test) suggests thatthe type and extent of control need not exceedthe level of what is required for the specifictype of activity which is determined by theconcrete business.

By contrast, in the case of a self-employedengineer who had free access to his customer'spremises to perform the services required byhis contract, the Canadian Federal Court ofAppeal ruled that the engineer had no controlbecause he had access only during thecustomer's regular office hours and was notentitled to carry on businesses of his own onthe premises.

Similarly, a Special Bench of Delhi's IncomeTax Appellate Tribunal denied the existenceof a PE in the case of Ericsson. The Tribunalheld that it was not sufficient that Ericsson'semployees had access to the premises of Indianmobile phone providers to deliver thehardware, software and know-how requiredfor operating a network. By contrast, in thecase of a competing enterprise, the Bench didassume an Indian PE because the employeesof that enterprise (unlike Ericsson's) hadexercised other businesses of their employer.

The OECD view can hardly be reconciled withthe two court cases. All three examples doindeed shed some light onto the method how

the relative standards for the control thresholdshould be designed. While the OECD MCComm. suggests that it is sufficient to requirenot more than the type and extent of controlnecessary for the specific business activitywhich the taxpayer wants to exercise in thesource State, the Canadian and Indiandecisions advocate for stricter standards for thecontrol threshold.

The OECD MC shows a paramount tendency(though no strict rule) that PEs should betreated like subsidiaries (cf. Article 24(3)OECD and UN MC), and that facilities of asubsidiary would rarely been unusable outsidethe office hours of one of its customers (i.e. athird person), the view of the two courts is stillmore convincing.

Along these lines, a POB will usually existonly where the taxpayer is free to use the POB:

- at any time of his own choice;

- for work relating to more than one customer;and

- for his internal administrative andbureaucratic work.

In all, the taxpayer will usually be regarded ascontrolling the POB only where he can employit at his discretion. This does not imply thatthe standards of the control test should not beflexible and adaptive. Generally, the lessinvasive the activities are, and the more theyallow a parallel use of the same POB by otherpersons, the lower are the requirements underthe control test. There are, however, a numberof traditional PEs which by their nature requirean exclusive use of the POB by only onetaxpayer and/or his personnel. A smallworkshop (cf. Article 5(2)(e) OECD and UNMC) of 10 or 12 square meters can hardly beused by more than one person. The same holdstrue for a room where the taxpayer runs a noisymachine."

33. OECD commentary on Model Tax Conventionmentions that a general definition of the term


Judicial Analysis

'PE' brings out its essential characteristics, i.e.a distinct "situs", a "fixed place of business".This definition, therefore, contains thefollowing conditions:

- the existence of a "place of business", i.e. afacility such as premises or, in certaininstances, machinery or equipment.

- this place of business must be "fixed", i.e.it must be established at a distinct placewith a certain degree of permanence;

- the carrying on of the business of theenterprise through this fixed place ofbusiness. This means usually that personswho, in one way or another, are dependenton the enterprise (personnel) conduct thebusiness of the enterprise in the State inwhich the fixed place is situated.

34. The term "place of business" is explained ascovering any premises, facilities or installationsused for carrying on the business of theenterprise whether or not they are usedexclusively for that purpose. It is clarified thata place of business may also exist where nopremises are available or required for carryingon the business of the enterprise and it simplyhas a certain amount of space at its disposal.Further, it is immaterial whether the premises,facilities or installations are owned or rentedby or are otherwise at the disposal of theenterprise. A certain amount of space at thedisposal of the enterprise which is used forbusiness activities is sufficient to constitute aplace of business. No formal legal right to usethat place is required. Thus, where an enterpriseillegally occupies a certain location where itcarries on its business, that would alsoconstitute a PE. Some of the examples wherepremises are treated at the disposal of theenterprise and, therefore, constitute PE are: aplace of business may thus be constituted by apitch in a market place, or by a certainpermanently used area in a customs depot (e.g.for the storage of dutiable goods). Again theplace of business may be situated in thebusiness facilities of another enterprise. This

may be the case for instance where the foreignenterprise has at its constant disposal certainpremises or a part thereof owned by the otherenterprise. At the same time, it is also clarifiedthat the mere presence of an enterprise at aparticular location does not necessarily meanthat the location is at the disposal of thatenterprise.

35. The OECD commentary gives as many as fourexamples where location will not be treated atthe disposal of the enterprise. These are:

(a) The first example is that of a salesman whoregularly a major customer to take visits orders and meets the purchasing directorin his office to do so. In that case, thecustomer's premises are not at the disposalof the enterprise for which the salesmanis working and therefore do not constitutea fixed place of business through whichthe business of that enterprise is carriedon (depending on the circumstances,however, paragraph 5 could apply to deema permanent establishment to exist).

(b) Second example is that of an employee ofa company who, for a long period of time,is allowed to use an office in theheadqu of another company (e.g. arters anewly acquired subsidiary) in order toensure that the latter company complieswith its obligations under contractsconcluded with the former company. Inthat case, the employee is carrying onactivities related to the business of theformer company and the office that is athis disposal at the headquarters of theother company will constitute a permanentestablishment of his employer, providedthat the office is at his disposal for asufficiently long period of time so as toconstitute a "fixed place of business" (seeparagraphs 6 to 6.3) and that the activitiesthat are performed there go beyond theactivities referred to in paragraph 4 of theArticle.


Judicial Analysis

(c) The third example is that of a roadtransportation enterprise which would usea delivery dock at a customer's warehouseevery day for a number of years for thepurpose of delivering goods purchased bythat customer. In that case, the presenceof the road transportation enterprise at thedelivery dock would be so limited that thatenterprise could not consider that place asbeing at its disposal so as to constitute apermanent establishment of that enterprise.

(d) Fourth example is that of a painter, who,for two years, spends three days a weekin the large office building of its mainclient. In that case, the presence of thepainter in that office building where he isperforming the most important functionsof his business (i.e. painting) constitute apermanent establishment of that painter.

36. It also states that the words 'through which'must be given a wide meaning so as to applyto any situation where business activities arecarried on at a particular location which is atthe disposal of the enterprise for that purpose.For this reason, an enterprise engaged in pavinga road will be considered to be carrying on itsbusiness 'through' the location where thisactivity takes place.

xxx…

65. We have pondered over the aforesaidsubmissions of the learned counsel for theparties with all seriousness and sincerity theydeserve. We have also minutely gone throughthe material placed on record. We have keptin mind the governing law that has alreadybeen stated in detail. We are also conscious ofthe approach that is needed to examine thesekinds of issues, as discussed in the judgmentsreferred to by Mr. Dave. Likewise, we havealso microscopically examined the judgmentof the High Court which is under challenge.

66. As per Article 5 of the DTAA, the PE has tobe a fixed place of business 'through' whichbusiness of an enterprise is wholly or partly

carried on. Some examples of fixed place aregiven in Article 5(2), by way of an inclusion.Article 5(3), on the other hand, excludescertain places which would not be treated asPE, i.e. what is mentioned in clauses (a) to (f)as the 'negative list'. A combined reading ofsub-articles (1), (2) and (3) of Article 5 wouldclearly show that only certain forms ofestablishment are excluded as mentioned inArticle 5(3), which would not be PEs.Otherwise, sub-article (2) uses the word'include' which means that not only the placesspecified therein are to be treated as PEs, thelist of such PEs is not exhaustive. In order tobring any other establishment which is notspecifically mentioned, the requirements laiddown in sub-article (1) are to be satisfied. Twincondition be satisfied are: (i)s which need to existence of a fixed place of business; and (b)through that place business of an enterprise iswholly or partly carried out.

67. We are of the firm opinion, and it cannot bedenied, that Buddh International Circuit is afixed place. From this circuit different races,including the Grand Prix is conducted, whichis undoubtedly an economic/business activity.The core question is as to whether this wasput at the disposal of FOWC? Whether thiswas a fixed place of business of FOWC is thenext question. We would like to start ourdiscussion on a crucial parameter viz. themanner in which commercial rights, which areheld by FOWC and its affiliates, have beenexploited in the instant case. For this purposeentire arrangement between FOWC and itsassociates on the one hand and Jaypee on theother hand, is to be kept in mind. Variousagreements cannot be looked into by isolatingthem from each other. Their wholesomereading would bring out the real transactionbetween the parties. Such an approach isessentially required to find out as to who ishaving real and dominant control over theEvent, thereby providing an answer to thequestion as to whether Buddh InternationalCircuit was at the disposal of FOWC and


whether it carried out any business therefromor not. There is an inalienable relevance ofwitnessing the wholesome arrangement inorder to have complete picture of therelationship between FOWC and Jaypee. Thatwould enable us to capture the real essence ofFOWC's role.

xxx…

69. We are in agreement with the aforesaid analysiswhich correctly captures the substance of therelevant clauses of the agreement.

xxx…

71. A stand at a trade fair, occupied regularly forthree weeks a year, through which an enterpriseobtained contracts for a significant part of itsannual sales, was held to constitute a PE8.Likewise, a temporary restaurant operated ina mirror tent at a Dutch flower show for aperiod of seven months was held to constitutea PE9.

72. The High Court has also referred to some ofthe judgments which are of relevance. Wewould like to take note of those judgments aswe had agreed with the conclusions of theHigh Court on this issue:

In Universal Furniture Ind. AB v. Governmentof Norway Case No. 99-00421, dated 19-12-1999, a Swedish company sold furnitureabroad that was assembled in Sweden. It hiredan individual tax resident of Norway to lookafter its sales in Norway, including sales to aSwedish company, which used to compensatehim for use of a phone and other facilities.Later, the company discontinued suchpayments and increased his salary. TheNorwegian tax authorities said that theSwedish company had its place of business inNorway. The Norwegian court agreed,holding that the salesman's house amountedto a place of business: it was sufficient that theSwedish Company had a place at its disposal,i.e the Norwegian individual's home, whichcould be regarded as 'fixed'.

In Joseph Fowler v.Her Majesty the Queen1990 (2) CTC 2351, the issue was whether aUnited States tax resident individual who usedto visit and sell his wares in a camper trailer, infairs, for a number of years had a fixed placeof business in Canada. The fairs used to beonce a year, approximately for three weekseach. The court observed that the nature of theindividual's business was such that he heldsales in similar fares, for duration of two orthree weeks, in two other locales in the UnitedStates. The court held that conceptually, theplace was one of business, notwithstanding theshort duration, because it amounted to a placeof management or a regard tobranch havingpeculiarities of the business.

xxx…

76. We are of the opinion that the test laid downby the Andhra Pradesh High Court inVisakhapatnam Port Trust case fully standssatisfied. Not only the Buddh InternationalCircuit is a fixed place where the commercial/economic activity of conducting F-1Championship was carried out, one couldclearly discern that it was a virtual projectionof the foreign enterprise, namely, Formula-1(i.e. FOWC) on the soil of this country. It isalready noted above that as per Philip Baker10,a PE must have three characteristics: stability,productivity and dependence. Allcharacteristics are present in this case. Fixedplace of business in the form of physicallocation, i.e. Buddh International Circuit, wasat the disposal of FOWC through which itconducted business. Aesthetics of law andtaxation jurisprudence leave no doubt in ourmind that taxable event has taken place in Indiaand non-resident FOWC is liable to pay tax inIndia on the income it has earned on this soil.

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Judicial Analysis


1. Executive Summary

On 21 November 2017, the Organisation forEconomic Co-operation and

Development (OECD) approved the contentsof the 2017 Update to the OECD Model TaxConvention (MTC) and Commentary (theOECD Model). Like the previous updates, the2017 Update contains the positions of OECDand non-OECD member countries, includingthose of India, on the OECD MTC and itsCommentary.

India’s positions to the 2017 Update are mainlyon Permanent Establishment (PE), MutualAgreement Procedure (MAP) and on certainother miscellaneous provisions such as the tie-breaker rule for residence of non-individuals,and tax treaty eligibility for transparent entities,among others.

In this article, we have summarized India’s keypositions on the PE provisions in the 2017Update.

2. Detailed Discussion

2.1 Deemed PE due to “significant economicpresence”

The OECD’s Base Erosion and Profit Shifting(BEPS) Action 1 Final Report, issued inOctober 2015, examining the tax challengesof the digital economy identifies, among others,a new nexus test in the form of “significanteconomic presence” as an additional option fordetermination of taxable presencein a state. Thisis, ho verwe , not a specific recommendationinthe Final Report and the OECD’s work onAction 1 is still inprogress, with the finaloutcome expected in 2020.

CA. Dhinal A. [email protected]

India’s positions onPermanent Establishmentin OECD’s 2017 Updateto Model Tax Conventionand

CA. Sagar [email protected]

Further, as per the 2014 Model Commentary, awebsite which is a combination of software andelectronic data, does not create a PE since theenterprise does not have a physical presence ata location that can constitute a “place ofbusiness.” On this, India reserved a positionthat a website can create a PE in certaincircumstances or by virtue ofhosting a websiteon a server at a particular location.

India has indicated the following positions inthe 2017 Update:

• The right to deem a PE if the foreignenterprise has significant economicpresence in India, as discussed inBEPSAction 1.

• A website may constitute a PE where itleads to significant economic presence ofthe foreign enterprise in India.

• Depending on facts, a foreign enterprisecan be considered to have acquired a placeof business through a website on anyequipment, if opening the website on thatequipment includes downloading ofautomated software, such as cookies,which use that equipment to collect datafrom that equipment, process it in anymanner or share it with the enterprise.

2.2 Positions on BEPS amended Article 5(5) and5(6) –Agency PE

Non-inclusion of the term “routinely” inDependent Agent PE (DAPE) clause

The 2017 Update expands the scope of DAPEto cover a person who habitually plays theprincipal role in the conclusion of contracts that


are routinely concluded without materialmodification by the enterprise.

India has reserved a right on non-inclusion ofthe term”routinely.” In other words, Agency PEcan be created evenif contracts are concludedwithout material modification by the enterpriseon a non-routine basis.

· Person working exclusively for a foreignenterprise cannot be considered asindependent, irrespective of its closerelationship with the enterprise

The 2017 Commentary provides that if a personacts exclusively or almost exclusively on behalfof one or more enterprises to which it is closelyrelated, that person shall not be considered tobe an independent agent.

India has reserved a right on non-inclusion ofthe term “to which it is closely related.” Thus,according to India, if aperson acts exclusivelyor almost exclusively on behalf of one or moreenterprises, such person may not qualify as anindependent agent, irrespective of whether suchperson is closely related to the enterprise or not.

· Fragmentation cannot be ignored, evenindependent of anti-fragmentation rule

In the 2017 Update, a new anti-fragmentationrule has been introduced, which seeks to denythe PE exemption of preparatory/auxiliaryactivities if specific conditions are satisfied. TheCommentary clarifies that unless theantifragmentation rule is applicable, thepreparatory/auxiliary activity condition is of norelevance in a case where an enterprisemaintains several fixed places of business towhich other listed PE exemption clauses applysince, in such cases, each place of business hasto be viewed separatelyand in isolation fordetermining whether a PE exists.

India does not agree with the aboveinterpretation. According to India, even whenthe anti-fragmentation provision does not apply,an enterprise cannot fragment a cohesive

India’s positions on Permanent Establishment in OECD’s2017 Update to Model Tax Convention and Commentary

operating business into several small operationsin order to argue that each is merely engagedin a preparatory or auxiliary activity.

· Low-risk distributor may create PE

The 2017 Commentary states that a buy-selldistributor (irrespective of whether it is anassociated enterprise or not) may not beconsidered as a DAPE since it is neither actingon behalf of a non resident enterprise nor is itselling goods that are owned by such enterprise.The goods that are sold to the customers areowned by the distributor itself. This conclusionwould apply distributor a even if the acted as “low-risk distributor.”

India does not agree with the aboveinterpretation because it considers thatdistribution of goods owned by an enterprise(by an associated or related enterprise) maycreate PE, particularly in a case where the risksare not borne by such distributor.

2.3 Fixed place PE

· Disposal test

The 2017 Commentary provides that where anenterprise does not have a right to be present ata location and does not use that location itself,that location cannot be considered as being atthe disposal of the enterprise. Further, withregard to home office as PE, the 2017Commentary introduces an example of a cross-frontier worker who performs most of his workfrom his home situated in one state rather thanfrom the office made available to him in theother state, insuch case his home should not beconsidered as being at the disposal of theenterprise.

India does not agree to the above commentary.According to India:

a) Even where an enterprise does not have aright to be present at a location and doesnot use that location itself, such locationcan be considered as being at the disposal


of the enterprise in certain circumstances.No specific circumstance has beenexplained or illustrated in this regard.

b) With respect to the example of home office,India is of the view that employee’s homecan be considered as at the disposal of theenterprise.

· On permanence test and short duration PE

According to the OECD, a PE is deemed toexist only if there is certain degree ofpermanence in the source country. In generalpractice, this is satisfied if the place of businessis maintained for a period of six months. Anexception to this condition is a case wherebusiness activities are carried on exclusively ina country. In such case, even if the businessexists for a shorter duration, due to the natureof the business activity, its connection with thatcountry is stronger. This exception is illustratedin the following two circumstances:

1) An individual, resident in State R, contractswith the producer of a documentary toprovide catering services at the remotevillage in State S where such documentaryis proposed to be shot during a four-monthperiod. The individual will provide suchservices from his parents’home which islocated in the village. In such case, theCommentary states that the timerequirement for a PE is met since therestaurant is operated during the wholeexistence of that particular business.

2) However, a company, resident of State R,operating various catering facilities in StateR, may also operate a cafeteria in State Sduring a four-month production of adocumentary. In that case, the company’sbusiness, which is permanently carried onin State R, is only temporarily carried onin State S. Hence, it could not beconsidered that the time requirement for aPE is met.

India disagrees with the OECD’s view inscenario 2. According to India, operation ofcatering facilities in scenario 2 also meets thetime requirement for constituting a PE.

· Repair work on project subsequent tocompletion of construction work to be addedto original construction period

The 2017 Update states that a building site orconstruction or installation project constitutesa PE only if it lasts more than 12 months. It isclarified that work undertaken on a site afterthe construction work, pursuant to a guaranteethat requires an enterprise to make repairs,would normally not be included in the originalconstruction period.

India does not agree with such interpretation.According to India, any work undertaken on asite shortly after the construction work has beencompleted, including repair works undertakenpursuant to a guarantee, may be taken intoaccount as part of the original constructionperiod.

· Collection of information on risks notpreparatory or auxiliary, in the case of aninsurance company

According to the OECD, if a fixed place ofbusiness is used merely for collectinginformation for an enterprise, such place maynot be treated as PE, provided such activity ofinformation collection qualifies as preparatoryor auxiliary for the enterprise. To illustrate this,if an insurance company sets up an office solelyfor the collection of information, such asstatistics or for understanding risks in aparticular market, such collection of informationwill be a preparatory activity.

India does not agree with the aboveinterpretation. Collection of data for the purposeof determination or quantification of risk by anenterprise in the business of managing risks,such as insurance, is not an activity ofpreparatory or auxiliary character.



· Treatment of Value Added Tax (VAT)/ Goodsand Services Tax (GST) relevant fordetermining PE status

The 2017 Commentary states that treatmentunder VAT/ GST is irrelevant for the purposesof the interpretation and application of thedefinition of PE. Hence, when evaluating PEstatus, one should not draw any inference fromthe treatment of a foreign enterprise (includingregistration) for VAT/GST purposes.

India does not agree with the above. Accordingto India, treatment under VAT/GST can be arelevant factor for determining PE status.

3. Implications

Tax treaties generally provide that the businessprofits of a foreign enterprise are taxable in aState only to the extent that the enterprise hasin that State a PE to which the profits areattributable. The definition of PE, and itsinterpretation, is therefore crucial in determiningwhether a non-resident enterprise must payincome tax in another State. Traditionally, Indiahas sought to have greater source country

taxation while allocating taxing rights under atax treaty by seeking to have a broader definitionof PE as compared to the OECD standard.Consistent with this objective, the positionsstated by India in the 2017 Update reflect abroader application of some of the PE rules.

India’s positions serve as a guide to taxpayerson the likely approach of the Indian taxadministration during audits, and also as a broadoutline of India’s tax treaty policy to countriesseeking to negotiate a tax treaty with India.However, these positions are unilateral actionsand may not be legally binding on taxpayersor on Courts while interpreting a tax treaty.Also, a preponderant judicial view in India hasbeen that India’s positions on the OECD MTCmay be relevant, if at all, only while interpretingtax treaties which will be entered into by Indiaafter making these positions.

Multinational enterprises should evaluate howthese positions may impact their PE riskassessment in India and the potential for taxcontroversy if these positions are proposed bythe Indian tax authority during PE audits.

❉ ❉ ❉

charges/commission retained by advertisingagents under section194H does not arise. Suchcommission paid is in nature of trade discount.

3. In the case of Foster’s India (P) Ltd. vs. ITO(2008) 10 DTR (Pune) 402. The Hon’bl eTribunal held that the distributor’s incentive,early payment discount and bond expenses donot constitute commission so as to attract TDSu/s. 194H as there is no principal to agentrelationship between the assessee and thedistributors.

Huge commission given to distributors and dealersin the form of incentives and discount is notcommission: Where in order to boost its sale, theassessee had offered huge commission to itsdistributors and dealers in the form of incentivesand discounts by using different names viz. (a)trade

contd. from page 486 Controversies

discount, (b) regional sales promotion, (c) Keydealer incentive, (d) fast-track bonus, (e)tradescheme, (f) sales promotions, (e) sales ] promotion(price buffer), (h) special discount(institutionalsales) and (i) market alterations, it was held thatthese payment were nothing more than incentivesto drive dealers to achieve certain targets and thesame cold not be treated as commission for purposesof section 194H so as to require tax deduction atsource by assessee while making such payments.[National Panasonic India Pvt. Ltd. v. Dy. CIT(2005) 3 SOT16 (Del)].

The incentive given to the dealers for achieving thetarget sale is deductible u/s. 37 of the Income TaxAct, 1961.

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CA. Savan [email protected]

Investment by Foreign PortfolioInvestors (FPI) in Government Securities

Medium Term Framework – Review

Circular is in terms of Schedule 5 to the ForeignExchange Management (Transfer or Issue ofSecurity by a Person Resident outside India)Regulations, 2000 notified vide Notification No.FEMA.20/2000-RB dated May 3, 2000, asamended from time to time.

Revision of Limits for the next quarter Jan - Mar2018

The limits for investment by FPIs for the quarterJanuary – March 2018 is increased by INR 64billion in Central Government Securities (CentralG-Secs) and INR 58 billion in State DevelopmentLoans (SDLs). The revised limits are allocated asper the modified framework prescribed in the RBI/2017-18/12 A.P.(Dir Series) Circular No.1 datedJuly 3, 2017, and given as under.

FEMA Updates

16

Limits for FPI investment in Government Securities(¹ Billion)

Central Government Securities State Development Loans Aggregate

General Long Term Total General Long Term Total

Existing limits 1,897 603 2,500 300 93 393 2,893

Revised limits 1,913 651 2,564 315 136 451 3,015

The revised limits will be effective from January 01, 2018.

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. 14, December12, 2017

For Full Text refer to https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11186

Statement on Developmental andRegulatory Policies

Rationalisation of Merchant Discount Rate

In recent times, debit card transactions at ‘Point ofSales’ have shown significant growth. With a viewto giving further fillip to acceptance of debit cardpayments for purchase of goods and services acrossa wider network of merchants, it has been decidedto rationalise the framework for Merchant Discount

Rate (MDR) applicable on debit card transactionsbased on the category of merchants. A differentiatedMDR for asset-light acceptance infrastructure anda cap on absolute amount of MDR per transactionwill also be prescribed. The revised MDR aims atachieving the twin objectives of increased usage ofdebit cards and ensuring sustainability of thebusiness for the entities involved. The revisedinstructions for MDR on debit card transactions willbe issued today.

Allowing Overseas Branches/Subsidiaries of IndianBanks to Refinance ECBs

Currently Indian corporates are permitted torefinance their existing External CommercialBorrowings (ECBs) at a lower all-in-cost. Theoverseas branches/subsidiaries of Indian banks are,however, not permitted to extend such refinance.

17



CA. Ashwin H. [email protected]

GST Impact on Buying / Selling Used VehiclesLet us discuss in this article the Impact of GST onBuying / Selling a Used Vehicle. Since thetransactions happen in different ways, broadly asbelow, we shall discuss the impact of GSTaccordingly.

(a) Individual Sells to Individual (C2C)

(b) Individual Sells to Un-registered Dealer(C2C)

(c) Individual Sells to Registered Dealer (C2B)

(d) Registered Dealer Sells to Any Buyer (B2B/ B2C)

(e) Leasing of Vehicle

(f) Exchange of Old Vehicle with New

(a) Individual Sells to Individual (C2C):

As per Section 2(105) read with section 7 ofCGST Act, even though the sale of old or usedvehicle by an individual is for a consideration,it cannot be said to be in the course orfurtherance of his business (as selling oldvehicles is not the business of the saidindividual), and hence does not qualify to be asupply per se. Therefore, sale by an individualto another individual is not a supply and noGST is applicable.Section 2 (105) definessupplier as a person supplying the goods orservices. Section 7 provid upply is aes that a stransaction, for a consideration by a person inthe course or furtherance of business.

(b) Individual Sells to Un-registered Dealer(C2C):

This type of Transaction is similar one in theprevious case, except that the buyer is in thecourse or furtherance of business. Individualselling to un-registered second hand vehicle

GST Updates

dealer is not a supply and therefore no GSTis applicable. Though the unregistered buyerfurther makes resale of such vehicles is in thecourse or furtherance of business, GST is notpayable as he is un-registered.

(c) Individual Sells to Registered Second HandDealer (C2B):

Individual (unregistered) selling to Registered,attracts payment of GST on Reverse ChargeMechanism under Sec 9(4) of CGST Act.section mandates that tax on supply of taxablegoods (vehicle in this case) by an unregisteredsupplier (an individual in this case) to aregistered person (the Second Hand VehicleDealer in this case) will be paid by theregistered person (the Dealer in this case)under reverse charge mechanism.

This provision, however, has to be read inconjunction with section 2(105) read withsection 7 of the said Act. Section 2 (105)defines supplier as a person supplying thegoods or services. Section 7 provides that asupply is a transaction, for a considerationby a person in the course or furtherance ofbusiness.

Even though the sale of old vehicle by anindividual is for a consideration, it cannotbe said to be in the course or furtheranceof his business (as selling old vehicle is notthe business of the said individual), andhence does not qualify to be a supply perse.

Accordingly the sale of old vehicle by anindividual to a registered dealer will not attractthe provisions of section 9(4) and the dealerwill not be liable to pay tax under reverse chargemechanism on such purchases.


(d) Registered Dealer Sells to Any Buyer (B2B/ B2C):

If the supplier is a registered person of motorvehicle and such supplier had purchased theMotor Vehicle prior to July 1, 2017 andhas not availed input tax credit of centralexcise duty, Value Added Tax or any othertaxes paid on such vehicles, then such vehicleswhen sold will attract GST of 65% of theapplicable GST) rate, includingcompensation cess.

These rates would apply for a period ofthree years with effect from 1 July 2017 I.e.apply up to th30 June 2020.

(e) GST on Leasing of Vehicle:

Vehicle leasing is the leasing (or the use of) amotor vehicle for a fixed period of time at anagreed amount of money for the lease. It iscommonly offered by dealers as an alternativeto vehicle purchase but is widely used bybusinesses as a method of acquiring (or havingthe use of) vehicles for business, without theusually needed cash outlay. The key difference

GST Updates

in a lease is that after the primary term (usually2, 3 or 4 years) the vehicle has to either bereturned to the leasing company or purchasedfor the residual value.

Leasing of vehicles purchased prior to1st stJuly and supplied on lease before 1July,2017will attract a tax equivalent to 65%of the current applicable goods and servicestax (GST) rate for a period of 3 years.

(f) Exchange of Old Vehicle with New:

Interestingly, sale of old and new cars isinextricably linked. It is estimated that about27-28 percent of new car sales accrue throughexchange of old models. So if new car salesare pegged at about 3 million, we could belooking at about 8,40,000 used cars beingexchanged for new ones at pre-owned outlets.

In case of exchange offers, the GST will bepaid on the Transaction Value of the NewVehicle. For instance, if the new car costs Rs12 lacs and exchange value of the old car isRs. 4 lacs, the customer will pay Rs 8 lacs butGST will be paid on Rs 12 lacs.

Latest Notifications

Sr No Issued Under Notification No. Essence of Notification

1 (CGST) Notification No. 67/2017– Seeks to extend the time limit for filing FORMCentral Tax dated 21/12/2017 GST ITC-01 till the 31st day of January, 2018.

2 (CGST) NotificationNo. 68/2017– Seeks to extend the time limit for filing FORMCentral Tax dated 21/12/2017 GSTR-5 till the 31st day of January, 2018.

3 (CGST) NotificationNo. 69/2017– Seeks to extend the time limit for filing FORMCentral Tax dated 21/12/2017 GSTR-5A till the 31st day of January, 2018.

4 (CGST) NotificationNo. 70/2017– Seeks to further amend CGST Rules, 2017Central Tax dated 21/12/2017 (Thirteenth Amendment).

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CA. Bihari B. [email protected].

Important Judgments:

Reliance Industries Ltd. in respect of 4%reduction in Tax Credit u/s. 11(3)(B)(iii):

The readers are aware of that in case ofReliance Industries Ltd. the Hon. GVAT Tribunalas well as Gujarat High Court has decided andapproved that there will be no further deduction ofInput Tax Credit @ 4% in case of fuel used inmanufacturing or trading goods which has been sentto out of Gujarat State Branch.

The Hon. Supreme Court has reversed thejudgment of the Hon. Gujarat High Court anddecided that in case of use of fuel for manufacturingof goods, as well as trading goods dispatched tobranch at out of State of Gujarat. The effect of thisjudgment is very high so far reduction has not beenmade by the dealer as well as the same is approvedby the Department in assessment proceedings andtherefore the review petition has been filed byReliance Industries Ltd. The hearing is awaited. Thisis an important judgment and therefore gist of thejudgment is given hereunder.

[1] Reasons given by the Hon. High Court intaking the aforesaid view can be captured fromthe following discussion contained in theimpugned judgment.

“It is not in dispute that in the present case, thetaxable goods purchased by the respondentassessee satisfy the description of sub-clause(ii) and (iii) of section 11(3)(b). Despite this,in our view, the Tribunal came to a correctconclusion that denial of tax credit by4 per centas provided in clause (b) would have to bedone only once. We say so far several reasons.Firstly, clause (b) of section 11(3) pertains toreduction of tax credit otherwise availableunder section 11. Such reduction is to beapplied if the goods satisfy the descriptions

GST & VATJudgments / Updates

contained in sub clause (i) to (iii) thereof. Afterclause (i) the Legislature has used the word“or”. We are conscious that at the end of clause(ii) and beginning of clause (iii), the Legislaturehas not once again used the word “or” but hasalso not added the expression “and”. Plainreading of the said provisions thus makes itclear that the reduction of tax credit had to beapplied to any case which satisfies thedescription contained in sub-clauses (i) to (iii)not every time such description is satisfied.Further, reduction of amount of tax at the rateof 4 per cent is to be done for the taxable goodswhich fall in any of the three categoriescontained in sub-clauses (i) to (iii) and notevery time a particular class of goods specifiedfall in more than one categories”.

[2] On addition, the High Court has also observedthat the legislative intent of section11(3)(b) canbe gathered from proviso thereto whichprovides that where the rate of tax of taxablegoods is less than 4%, then the amount of taxcredit in respect of such dealer shall be reducedby the amount of tax calculated at the rate oftax set out in the Schedule of such goods,meaning thereby, if the tax credit available toa dealer is less than 4%, the reduction shouldbe limited to such credit and no more. Fromthis, the High Court has observed that theLegislature envisaged that in no case reductionof tax credit under section 11(3)(b) wouldaccede 4%.

[3] It was argued by Mr. Venugopal and Mr.Bagaria that the approach of the High Courtwas clearly erroneous as liberal interpretationof section 11(3)(b), when read in the contextof the entire scheme of tax credit and otherprovisions, would clearly show that it wasintended to reduce the amount of tax credit by4% in an eventuality when case was covered


by sub-clause (ii) and again at the rate of 4%when the matter was covered by sub-clause(iii). It was argued that in tax matters, whetherthe language of the statute is plain and clear,effect thereto has to be given and equity doesnot play any role in these cases. It was furtherargued that as per the provisions of the Vat Act,Vat was payable on the purchase of furnaceoil, natural gas and light diesel oil as well.However, the Legislature intended to give taxcredit in respect of these items when suchitems are used as raw material/inputs for thepurpo Atse of manufacturing other products. the same time, it is the prerogative of the lawmakers to decide how and under whatcircumstances such tax credit would beadmissible and to what extent. But for such aprovision, the assessee did not have any rightto claim the tax credit and thus the question ofdouble deduction does not arise at all. It wasalso argued that sub-clause (ii) as well as sub-clause (iii) are attracted in differentcircumstances and, therefore, the reductionstipulated therein could not be treated as doubletaxation. The learned counsel proceeded toargue that in so far as sub-clause (ii) isconcerned, it would be attracted on satisfyingthe twin conditions, namely – (a) when taxablegoods are used as raw material in themanufactu or in re the packing of goods; and(b) these goods are dispatched outside the Statein the course of branch transfer or consignmentor to the agent of the manufacturer outside theState. On the other hand, sub-clause (iii) wasattracted in those cases where fuel is used forthe manufacture of goods. It is possible, in agiven case, that both sub-clauses (ii) and (iii)become applicable (as it has happened in theinstant case). However, in such cases theLegislature clearly intended that reduction atthe rate of 4% has to be applied in each of thecircumstances. Number of judgments werecited on interpretation of tax statutes as wellas the manner in which punctuation marks areto be interpreted.

[4] It is clear that the material used even in thepacking of goods is treated as raw material and,therefore, this definition is to be treated as termof art. This definition also clarifies that fuelsused in the manufacture of goods would betreated as raw material with the only exceptionof those fuels which are used which are usedfor the purpose of generation of electricity.

[5] Keeping in mind the aforesaid aspects, weadvert to section 11(3)(b). It is a non-obstanteclause as it starts with the word‘notwithstanding’. Another aspect which is tobe necessarily kept in mind is that it is the‘amount of tax credit’ which a dealer wouldbe entitled to claim under clause (a) that is tobe reduced at the rate of 4% and this reductionis to be effected in three eventualities providedunder sub-clauses (i) (ii) and (iii). Insofar assub-clause (i) is concerned, it pertains to tradingactivity and there is no question of any overlapbetween sub-clause (ii) on the One hand andsub-clauses (ii) & (iii) on the other. Further,insofar as sub-clauses (i) and (ii) areconcerne ame d, s are disjunctive as the word‘or’ is inserted between these two classes.However, when we come to clauses (ii) and(iii), where there is a possibility of overlap (asit has happened in the instant case as well),there is no word ‘or’ used between clauses (ii)and (iii). Sub-clause (ii) finishes with thepunctuation mark full stop and then sub-clause(iii) starts. This depicts the intention of theLegislature, namely, reduction is not confinedto one of the aforesaid two sub-clauses and itcan occur under both these provisions. It isrightly pointed out by the appellant State thatthese are event based sub-clauses and twoevents are totally different. Sub-clause (ii) isattracted in those cases where taxable goodsare used as raw material (which may notnecessarily be fuel but all raw materials areincluded) and also the other condition whichis to be fulfilled is that these goods aredispatched outside the State in the course ofbranch transfer etc. Therefore, even if thetaxable goods are used as raw material in the

GST & VAT Judgments / Updates


manufactu in packing of goods but re or theyare consumed or sold within the State, Sub-clause (ii) would not apply. On the other hand,sub-clause (iii) is preferable to any fuels whichare used for manufacture of goods. It is, thus atotally separate category and the moment fuelis used in the manufacture of goods, this sub-clause gets attracted and it would be immaterialwhether the goods are sold within the State oroutside the State.

[6] The aforesaid discussion leads us to theconclusion that it is a mega tax credit schemewhich is provided under the Vat Act meant forall kinds of manufactured goods. The materialin question, namely, furnace oil, natural gasand light diesel oil are admittedly subject toVat under the Vat Act. The Legislature,however, has incorporated the provision, in theform of Section 11, to give tax credit in respectof such goods which are used as inputs/rawmaterial for manufacturing other goods.Rationale behind the same is simple. When thefinished product, after manufacture, is sold, Vatwould be again payable thereon. This Vat ispayable on the price at which such goods aresold, costing whereof is done keeping in viewthe expenses involved in the manufacture ofsuch goods plus the profits which themanufacturer intends to earn. Insofar as costingis concerned, element of expenses incurred on

raw material would be included. In this manner,when the final product is sold and the Vat paid,component of raw material would be includedagain. Keeping in view this objective, theLegislature has intended to give tax credit tosome extent. However, how much tax creditis to be given and under what circumstances,is the domain of the Legislature and the courtsare not to tinker with the same.

[7] The upshot of the aforesaid discussion wouldbe to hold that reduction of 4% would beapplied whenever a case gets covered by sub-clause (ii) and again when sub-clause (iii) isattracted.

[8] This, however, would be subject to onelimitation. In those cases when VAT paid onsuch raw material is 4%, as in the case offurnace oil, reduction cannot be more thanthat. After all, Section 11 deals with givingcredit in respect of tax that is paid.

[9] Therefore, if some reduction is to be made fromthe said credit, it cannot be more than the creditgiven. Thus, so far as furnace oil is concerned,tax credit shall be reduced by 4%. On the otherhand, tax credit given in case of natural gasand light diesel oil (other fuels), it shall bereduced by 4% under sub-clause (ii) and 4%under sub-clause (iii) of clause (b) of sub-section (3) of Section 11.

❉ ❉ ❉

GST & VAT Judgments / Updates


CA. Naveen [email protected]

Corporate Law Update

MCA Updates:

1. MCA circular for relaxation of additionalfees and extension of last date of filing ofform CRA-4 under the Companies Act,2013:

The MCA has extended the due date of filingof Form CRA-4 for Financial Year starting onor after April 1, 2016, without any additionalfees till December 31, 2017.

[General Circular No. 15/2017 dated04.12.2017]

2. MCA notified the Companies (CostRecords & Audit) Amendment Rules, 2017:

The MCA has notified the followingamendments in the Companies (Cost Recordsand Audit) Rules, 2014 by way of Companies(Cost Records & Audit) Amendment Rules,2017:

1. In Rule 2, after clause (f), the followingclause has been inserted and shall bedeemed to have been inserted with effectfrom the April 1, 2016:

(fa) “Indian Accounting Standards” meansIndian Accounting Standards as referredto in Companies (Indian AccountingStandards) Rules, 2015.

2. In the Annexure to the Companies (CostRecords and Audit) Rules, 2014, FormCM-1 and Form CRA-3, has beensubstituted and shall be deemed to havebeen substituted with effect from the April1, 2016.

The Ministry has also clarified viaExplanatory Memorandum that no personis being adversely affected by givingretrospective effect to this notification. Theproposed amendments have been made on

account of amendments made in theCompanies (Indian AccountingStandards) Rules, 2015.

For detailed notification, please refer thefollowing link:

http://www.mca.gov.in/Ministry/pdf/CompaniesCostrecordsAuditRule_08122017.pdf

[F. No. 1/40/2013-CL-V dated 07.12.2017]

3. Companies (Cost Records And Audit)Second Amendment Rules, 2017:

1. By way of Companies (Cost Records andAudit) Second Amendment Rules, 2017,following changes have been made in theCompanies (cost records and audit) Rules,2014 (hereinafter referred to-as theprincipal rules;,

i) in rule 2, for clause (aa) the followingclause shall be substituted and shall bedeemed to have been substituted witheffect from the 1st day of July’ 2017'namely:-

(aa) Customs Tariff Act Heading”means the heading as referred to in theAdditional Notes in the First Scheduleto the Customs Tariff Act, 1975 (51 of1975)’

i i) in rule 3, for the words “Central ExciseTariff Act Heading”, occurring at boththe places, the words “Customs TariffAct Heading” shall be substituted andshall be deemed to have beensub ststituted with effect from the 1 dayof July, 2017.

iii) In the principal rules, in the Annexure,in Form CRA-2, Form CRA-3 andForm.CRA 4, for the words *CETA


Heading”, wherever it occurs, thewords “CTA Heading” shall besubstituted and shall be deemed tohave been substituted with effect fromthe 01 , 2017.st day of July

[F. No. 1/40/2013-CL-V dated 20/12/2017]

4. Condonation of Delay Scheme, 2018:

With a view to give an opportunity for the non-compliant, defaulting companies to rectify thedefault in filing an annual return or a financialstatement for a continuous period of threeyears, the MCA has launched theCondonation of Delay Scheme, 2018(“CODS-2018”) with effect from 01.01.2018and shall remain in force up to 31.03.2018.

· This scheme is applicable to all defaultingcompanies (other than the companies whichhave been stuck off/ whose names havebeen removed from the register ofcompanies under section 248(5) of the Act).A defaulting company is permitted to fileits overdue documents which were due forfiling till 30.06.2017 in accordance with theprovisions of this Scheme.

· The DINs of the concerned disqualifieddirectors de-activated at present, shall betemporarily activated during the validity ofthe scheme to enable them to file the overduedocuments.

· The defaulting Companies shall be able tofile the following forms:

i. Form Number 20B/MGT-7- Form forfiling company having share capital.

ii. Form 21A/MGT-7- Particulars ofAnnual return for the company nothaving share capital.

iii. Form 23AC, 23ACA, 23AC-XBRL,23ACA-XBRL, AOC-4, AOC-4(CFS), AOC (XBRL) and AOC-4(non-XBRL) - Forms for filingBalance Sheet/Financial Statement andprofit and loss account.

iv. Form 66 - Form for submission ofCompliance Certificate with theregistrar.

v. Form 23B/ADT-1- Form for intimationfor Appointment of Auditors.

· The defaulting company after filingdocuments under this scheme shall seekcondonation of delay by filing form e-CODS attached to this scheme online onthe MCA21 portal. The fee for filingapplication e-form CODS is Rs. 30,000/-(Rs. Thirty Thousand only).

· In the event of defaulting companies whosenames have been removed from the registerof companies under section 248 of the Actand which have filed applications for revivalunder section 252 of the Act up to the dateof this scheme, the Director’s DIN shall bere-activated only NCLT order of revivalsubject to the company having filing of alloverdue documents.

[General Circular No.16/2017 dated29.12.2017]

5. The Central Government notifies TheCompanies (Amendment) Act, 2017:

The Central Government notified theCompanies (Amendment) Act, 2017(Amendm on rdent Act) 3 January, 2018. Theprovisions of this Amendment Act shall comeinto force on the date or dates as the CentralGovernment may appoint by notification(s) inthe Official Gazette.

· A few provisions in the Amendment Acthave important bearing on the working ofthe Insolvency and Bankruptcy Code, 2016(Code).

· Section 53 of the Companies Act, 2013prohibited issuance of shares at a discount.The Amendment Act now allowscompanies to issue shares at a discount toits creditors when its debt is converted intoshares in pursuance of any statutoryresolution plan such as resolution plan underthe Code or debt restructuring scheme.



· Section 197 of the Companies Act, 2013required approval of the company in ageneral meeting for payment of managerialremuneration in excess of 11 percent of thenet profits. The Amendment Act nowrequires that where a company has defaultedin payment of dues to any bank or publicfinancial institution or non-convertibledebenture holders or any other securedcreditor, the prior approval of the bank orpublic financial institution concerned or thenon-convertible debenture holders or othersecured creditor, as the case may be, forsuch payment of managerial remunerationshall be obtained by the company beforeobtaining the approval in the generalmeeting.

· Section 247 of the Companies Act, 2013prohibited a registered valuer fromundertaking valuation of any assets in whichhe has a direct or indirect interest orbecomes so interested at any time duringor after the valuation of assets. TheAmendment Act now prohibits a registeredvaluer from undertaking valuation of anyasset in which he has direct or indirectinterest or becomes so interested at any timeduring three years prior to his appointmentas valuer or three years after valuation ofassets was conducted by him.

The Companies (Amendment) Act, 2017 isavailable www.ibbi.gov.in andwww.mca.gov.in.

6. MCA to re-engineer the process of namereservation, incorporation of companies &allotment of DIN:

Name MCA is designing a Front OfficeReservation service (replacing INC-1 eform with

Web-Form) for Name Reservation andChange of Name for companiescapturing only absolutely essentialinformation from the applicants.Thesaid service is likely to be rolled outon January 26, 2018. INC-1 is no moreavailable for filing from January 6,2018. However, resubmission of INC-

1 is allowed till 23:59 hours of January11, 2018.

Incorpora- It has been advised that in cases wheretion of names have been reserved using INC-Companies 1 they may use SPICe for incorporation

immediately, latest by January 17,2018. It is requested that SPICe shouldbe filed with due care as it will beallowed only one resubmission whichhas to be completed latest by January25 SPIC be , 2018. e shall mandated forincorporation of companies w.e.f.January 26, 2018, necessary changesshall be incorporated for ProducerCompanies in this form. Further INC-7form kely con is li to be dis tinued w.e.f.January 10, 2018 and to mandateSPICe (with necessary provision forincorporating Producer Companies) asthe only form for incorporation ofcompanies w.e.f. January 26, 2018.

DIR-3 DIN allotment shall be done only at(Applica- the time of their appointment astion for Directors (If they do not possess a DIN)allotment in companies. DIR-3 (Application forof DIN) Director Identification Number) would

be applicable for the allotment of DINto individuals in respect of existingcompanies only and shall be filed bythe existing company in which theproposed Director is to be appointed.Further, DINs to the proposed firstDirectors in respect of new companieswould be mandatorily required to beapplied for in SPICe forms (subject toa ceiling of 3 new DINs) only. DIR-3sh ed mitall be modifi per ting allotmentof up to 2 new DINs (since SPICeprovides for up to 3 new DINs) only inrespect of ‘Producer Companies’. Tofacilitate corresponding changes inLLP e-forms, due to deprecation ofDIR-3, allotment of new DINs forDesignated Partners/Partners of LLPsshall be temporarily suspended w.e.fJanuary 26, 2018 till March 31, 2018.

7. Guidelines for technical standards for coreservices by Insolvency and BankruptcyBoard of India:

The Insolvency and Bankruptcy Board of India(IBBI) has laid down the Technical Standardsfor the performance of Core Services for the



following matters under Regulation 13 of theIBBI (Information Utilities) Regulations, 2017:

I. Standard terms of service;

II. Registration of users;

II d I. Unique identifier for each recor and eachuser;

IV. Submission of information;

V. Identification and verification of persons;

VI. Authentication of information;

VII.Verification of information;

VIII. Data integrity;

IX. Consent framework for providing accessto information to third parties;

X. Security of the system;

XI. Security of information;

XII.Risk management framework;

XIII. Preservation of information; and

XIV.Purging of information.

An information utility shall comply with theapplicable Technical Standards, whileproviding services.

For detailed guidelines please visit atwww.mca.gov.in and www.ibbi.gov.in.

[Press Release dated 13.12.2017]

8. Amendments to the Insolvency andBankruptcy Board of India (InsolvencyResolution Process for Corporate Persons)Regulations, 2016 and the Insolvency andBankruptcy Board of India (Fast TrackInsolvency Resolution Process forCorporate Persons) Regulations, 2017 byInsolvency and Bankruptcy Board of India:

According to the regulations, a resolution planneeds to identify specific sources of funds tobe used for paying the liquidation value due todissenting creditors. For this purpose, the‘dissenting financial creditor’, according toamended regulations, means a financial creditor

who voted against the resolution plan orabstained from voting for the resolution plan,approved by the committee of creditors.

As per the amendments, it is not necessary todisclose ‘liquidation value’ in the informationmemoran After dum. the receipt of resolutionplan(s) in accordance with the Insolvency andBankruptcy Code, 2016 (Code) and theregulations, the resolution professional shallprovide the liquidation value to every memberof the committee of creditors after obtaining anundertaking from the member to the effect thatsuch member shall maintain confidentiality ofthe liquidation value and shall not use suchvalue to cause an undue gain or undue loss toitself or any other person. Also, the interimresolution professional or the resolutionprofessional, as the case may be, shall maintainconfidentiality of the liquidation value.

According to the amendments, a resolutionapplicant shall submit the resolution plan(s) tothe resolution professional within the time givenin the invitation for the resolution plans inaccordance with the provisions of the Code.This will enable the committee of creditors toclose a resolution process as early as possiblesubject to provisions in the Code and theregulations.

The amendments are available atwww.mca.gov.in and www.ibbi.gov.in.

[Press Release dated 01.01.2018]

❉ ❉ ❉


CA. Pamil H. [email protected]

From Published Accounts

Transition to IND AS

MCA has notified Companies (Indian AccountingStandards) Rules, 2015 which shall come into effectfrom 1 April 2015. The said rules require adoptionfor Indian Accounting Standards (Ind AS):-

1. From FY 15-16: Any company can voluntaryadopt Indian Accounting Standards fromFinancial year 15-16 with comparatives to begiven for the period ending on 31 March2015 or thereafter.

2. From FY 16-17 : Following companies tomandatorily adopt Ind AS from FY 16-17onwards with comparatives for periodending 31 March 2016 or thereafter:-

Companies with net worth of Rs 500 croresor more and whose equity or debt securitiesare either listed or in the process of listing inany Indian stock exchange.

Companies other than above and whose networth is Rs 500 crores or more.

Holding, subsidiary, joint venture and associateof above companies.

3. From FY 17-18 : Following companies tomandatorily adopt Ind AS from FY 17-18onwards with comparatives for periodending 31 March 2017 or thereafter:-

Companies with net worth less than Rs 500crores and whose equity or debt securities areeither listed or in the process of listing in anyIndian stock exchange.

Companies other than above and whose networth is Rs 250 crores or more but less thanRs 500 crores.

Holding, subsidiary, joint venture and associateof above companies.

Considering the wide applicability of rules infuture to many companies, in this column, Itried to report on how transition to IND AScan be done and how reporting should bemade.

Visa Steel Ltd

45. First Time Adoption of IND AS

Transition to IND AS

These are the Groups first consolidatedfinancial statements prepared in accordancewith Ind AS.

The according policies set out in Note 1 havebeen applied in preparing the financialstatements for the year ended 31 March 2017,the comparative information presented in thesefinancial statements for the year ended 31March 2016 and in the preparation of anopening Ind AS balance sheet at 1 April 2015(the group’s date of transition). In preparingits opening Ind AS balance sheet, the Grouphas adjusted the amounts reported previouslyin financial statements prepared in accordancewith the accounting andards notified under stCompanies (Accounting standards)Rules,2006 (as amended) and other relevantprovision of the Act (previous GAAP or IndianGAAP). An explanation of how the transitionfrom previous GAAP to Ind AS has affectedthe group’s financial position, financialperformance and cash flows is set out in thefollowing tables and notes.

A. Exemption and exceptions availed:

Set out below are the applicable Ind AS 101optional exemptions and mandatory exceptionsapplied in the transition from previous GAAPto Ind AS.

A.1 Ind AS optional exemptions



A1.1 Business combinations

Ind AS 101 provides the option to apply IndAS 103 prospectively from the transition dateor from a specific date prior to the transitiondate. This provides relief from full retrospectiveapplication that would require restatement ofall business combinations prior to the transitiondate.

The Group elected to apply Ind AS 103prospectively to business combinationsoccurring after its transition date. Businesscombinations occurring prior to the transitiondate have not been restated.

A.1.2 Deemed cost

Ind AS 101 permits a first-time adopted to electto continue with the carrying value for all ofits property, plant and equipment as recognisedin the financial statements as at the date oftransition to Ind AS, measured as per theprevious GAAP and use that as its deemedcost as at the date of transition after makingnecessary adjustments for de-commissioningliabilities, if any. This exemption can also beused for intangible Assets covered by IND AS38 Intangible Assets.

Accordingly, the Groups has elected tomeasure all of its property, plant and equipmentand intangible assets at their previous GAAPcarrying value.

A.1.3 Leases

Appendix C to Ind AS 17 requires an entity toassess whether a contract or arrangementcontains a lease. In accordance with Ind AS17, this assessment should be carried out atthe inception of the contract or arrangement.Ind AS 101 provides an option to make thisassessment on the basis of facts andcircumstances existing at the date of transitionto Ind AS, except where the effect is expectedto be not material.

The Group has elected to apply this exemptionfor

A.2 Ind AS mandatory exceptions

such contracts/arrangements.

A.2.1 Estimates

An entity’s estimates in accordance with IndAs at the date of transition to Ind AS shall beconsistent with estimates made for the samedate in accordance with previous GAAP (afteradjustments to reflect any difference inaccounting policies), unless there is objectiveevidence that those estimates were in error.

Ind AS estimates as at 1st April 2015 areconsistent with the estimates as at the same datemade in conformity with previous GAAP. Thegroup estimates for made following items inaccordance with Ind AS at the date of transitionas these were not required under previousGAAP:-Impairment of financial assets basedon expected credit loss model.

A.2.2 De-recognition of financial assets andliabilities

Ind AS 101 requires a first-time adopter toapply the de-recognition provisions of Ind AS109 prospectively for transactions occurringon or after the date of transition to Ind AS.However, Ind AS 101 allows a first-timeadopter to apply the de-recognitionrequirements in Ind AS 109 retrospectivelyfrom a date of the entity’s choosing, providedthat the information needed to apply Ind AS109 to financial assets and financial liabilitiesderecognised as a result of past transactionswas obtained at the time of initially accountingfor those transactions.

The Group has elected to apply the de-recognition provisions of Ind AS 109prospectively from the date of transition to IndAS.

Note 1: Trade receivables

As per Ind AS 109, the Group is required to applyexpected credit loss model for recognising theallowance for doubtful debts. As a result, theallowance for doubtful debts increased byRs.157.67 st st Million as at 31 March 2016 (1 April,2015:Rs.71.42 Million). Consequently, the total


e stquity as at 31 March, 2016 decreased byR sts.157.67 million (1 April, 2015 : Rs.71.42mi stllion) and loss for the year ended 31 March 2016increased by Rs.86.25 Million.

Note 2: Excise duty

Under the previous GAAP, revenue from sale ofproducts was presented exclusive of excise duty.Under Ind AS, revenue from sale of goods ispresented inclusive of excise duty. The excise dutypaid is presented on the face of the statement ofprofit and loss as part of expenses. This change hasresulted in an increase in total revenue and totalexpenses for the year ended 31 March 2016 by871.39 Million. There is no impact on the totalequity as at 31 March 2016 and loss for the yearended on that date.

Note 3: Security deposit

Under the previous GAAP, interest free leasesecurity deposits (that are refundable in cash oncompletion of the lease term) are recorded at theirtransaction value. Under Ind AS, all financial assetsare required to be recognised at fair value.Accordingly, the Group has fair valued thesesecurity deposits under Ind AS.

Difference between the fair value and transactionvalue of the security deposit has been recognisedas Security Deposit considered as Advance Rentpaid. Consequent to this change, the amount ofsecurity deposits decreased by 95.57 million as at31 st March 2016(1 April, 2015 115.93 Million). Thesecurity deposit considered as advance rent paidincreased by 77.77 Million as at 31 March,2016(1 April st 2015 :96.84 Million) Total equitydecreased by st19.09 Million as on 1 April, 2015.T sthe loss for the year ended 31 March, 2016increased by Rs.9.77 Million dueto amortisation ofthe prepaid rent of 22.91 Million which is partiallyoff-set by the notional interest income of Rs.32.68Million recognised on security deposits.

Note 4: Remeasurements of post-employmentbenefit obligations

Under Ind AS, remeasurements i.e. actuarial gainsand losses and the return on plan assets, excluding

amounts included in the net interest expense on thenet defined benefit liability are recognised in othercomprehensive income instead of profit or loss.Under the previous GAAP, these remeasurementswere forming part of the profit or loss for the year.As a result of this change, the loss for the year ended31 March 2016 Increased by Rs.2.11 Million. Thereis no impact of this adjustment on the total equityas at 31stMarch, 2016.

Note 5: Borrowings-Transaction cost

Ind AS 109 requires transaction costs incurredtowards origination of borrowings to be adjustedfrom the carrying amount of borrowings on initialrecognition. These costs are recognised in the profitor loss over the tenure of the borrowing as part ofthe interest expense by applying the effectiveinterest rate method.

Under previous GAAP, these transaction costs werecharged to profit or loss as and when incurred.Accordingly, borrowings as at 31 March 2016 havebeen reduced by Rs.13.49 Million (1 April 2017:7.27 Million) with a corresponding adjustment toretained earnings. The total equity increased by anequivalent amount. The loss for the year ended 31March 2016 has increased by Rs.6.22 Million as aresult of the additional interest expense.

Note 6: Borrowings-Step up interest rate

Ind AS 109 requires step up interest rate to beadjusted from the carrying amount of borrowingson initial recognition. These costs are recognisedin the profit or loss over the tenure of the borrowingas part of the interest expense by applying theeffective interest rate method.

Under previous GAAP, these transaction costs werecharged to profit or loss based on interest rateapplicable for that period. Accordingly, Interestaccrued as at 31 March 2016 has increased byRs.257.48 Million (1 April 2015: 185.77 Million)with a corresponding adjustment to retainedearnings. The total equity decreased by anequivalent amount. The loss for the year ended 31March 2016 has increased by Rs.71.71 Million asa result of the additional interest expense.



Note 7: Depreciation on capital spares

Ind AS 16 requires items of capital spares (i.e. spareparts, service equipment etc. that meet the definitionof property, plant and equipment) are to be classifiedaccordingly plant and equipment and to bedepreciated accordingly. As a result capital sparesof Rs.14.96 Million as at 31 March 2016(1 April2015:Rs.11.11 Million) were reclassified frominventory to property plant and equipment. Theprofit for the year and total equity as at 31 March2016 decreased by Rs.0.53 Million due todepreciation on such capital spares classified asproperty plant and equipment.

Note 8: Derivative instruments

Ind AS 109 requires all the derivative financialinstruments to be recorded at fair value. This fairvalue is generally determined on mark to marketbasis. Under previous GAAP, only losses on thesederivative financial instruments were recognized inthe books of account and gains (if any) wereignored. Upon recognition of such mark to marketg st ains as at 31 March 2016 total equity hasdecreased by Rs.1.05 Million (1 April 2015 :Rs.1.73 Million) with a increase in profit by Rs.0.68Million stfor the year ended 31 March 2016.

Note 9: Bill discounting

Ind AS 109 requires entity to derecognize a financialasset when, and only when the contractual rightsto the cash flows from the financial asset expire, orit transfers the financial asset as and the transferqualifies for derecognition. Para B2 of Ind AS 101states that except as permitted, a first-time adoptershall apply the ition requirements in IndderecognAS 109 prospectively for transactions occurring onor after the date of transition to Ind AS. As a result,trade receivables increased by 363.24 Million as at31st March 2016 with a corresponding impact oncurrent borrowings. Accordingly, the saidadjustment has no impact on either equity or lossfor st the year ended 31 March 2016. However, thisreclassification has impacted the cash flows fromOperatin

Note 10: Deferred Tax Asset-MAT credit

g and financing activities.

entitlement

Ind AS 12 requires the carry forward of unused taxcredits to be classified as deferred tax asset.Accordingly an amount of Rs.274.70 million havebeen reclassified to Deferred Tax Asset from otherloans and advances as on 1 April 2015. This hasno impact on total equity.

Note 11: Retained earningsstRetained earnings as at 1 April, 2015 has been

adjusted consequent to the above Ind AS transitionadjustments, where applicable.

Note 12: Other comprehensive income

Under Ind AS, all items of income and expenserecognised in a period should be included in profitor loss for the period, unless a standard requires orpermits otherwise. Items of income and expensethat are not recognised in profit or loss but are shownin the statement of profit and loss as OtherComprehensive Income includes remeasurementsof defined benefits plans, foreign exchangedifferences arising on translation of foreignoperations etc. the concept of other comprehensiveincome did not exist under previous GAAP.

Note 13: Equity pick up accounting forinvestment in joint venture

Under Ind AS, investments in joint ventures are tobe accounted using equity method. Hence theinvestment in joint ventures have been consolidatedusing equity pick up accounting and total equitydecreased stby 0.11 Million as at 31 March 2016(1April 2015 : Rs.0.19 Million) with a increase inprofit stby Rs.0.08 Million for the year ended 31March 2016.

❉ ❉ ❉



CA.

From the Government

Kunal A. [email protected]

Income Tax

1. Circular relating to deduction of tax atsource- Income –Tax Deduction fromSalaries u/s 192 of the Income-Tax Act,1961 during the financial year 2017-18

The present circular contains the rates ofdeduction of income-tax from the payment ofincome chargeable under the head “Salaries”during the financial year 2017-18 and explainscertain related provisions of the Act andIncome-tax Rules, 1962 (hereinafter the Rules).The relevant Acts, Rules, Forms andNotifications are available at the website of theIncome Tax Department-www.incometaxindia.gov.in.

(For detailed text refer Circular no. 29/2017,dated 05/12/2017)

2) CBDT extends date for linking of Aadhaarwith PAN

Under the provisions of recently introducedsection 139AA of the Income-tax Act, 1961(the Act), with effect from 01.07.2017, alltaxpayers having Aadhaar Number orEnrolment Number are required to link thesame with Permanent Account Number (PAN).In view of the difficulties faced by some of thetaxpayers in the process, the date for linking ofAadhaar with PAN was initially extended till31st August, 2017 which was further extendedupto 31st December, 2017. It has come tonotice that some of the taxpayers have not yetcompleted the linking of PAN with Aadhaar.Therefore, to facilitate the process of linking, ithas been decided to further extend the time forlinking of Aadhaar with PAN till 31.03.2018.

th[Press Release dated 08 December, 2017]❉ ❉ ❉

contd. from page 499 FEMA Updates

In order to provide a level playing field, it has beendecided, in consultation with the Government, topermit the overseas branches/subsidiaries of Indianbanks to refinance ECBs of AAA rated corporatesas well as Navratna and Maharatna PSUs, byraising fresh ECBs. In this regard, the revisedguidelines will be issued within a week.

Report of the Working Group on Hedging ofCommodity Price Risk by Residents -Implementation

The report of the Working Group on Hedging ofCommodity Price Risk by Residents (Chairman:Shri Chandan Sinha) was placed on the ReserveBank’s website for public comments on November16, 2017. The major recommendations of the Group

include the creation of a ‘Positive List’ ofcommodities that can be hedged, and enablinginventory hedging, price fix hedging as well ashedging of the currency risk resulting from overseascommodity derivatives. The Reserve Bank shallexamine the Group’s recommendations and thepublic feedback. A circular with revised directionswill be issued by January 15, 2018.

Press release 2017-2018/1543dated December06, 2017

For full text refer: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=42477

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Forthcoming ProgrammesDate/Day Time Programmes Speaker Venue

23/01/2018 5:00 p.m. to Returns CA. Vaibhav Shah H. K. ConferenceTuesday 7:00 p.m. Roo em, H. K. Colleg

Ashr , am Road Ahmedabad

25/01/2018 5:00 p.m. to Place of Supply and ITC – Issues CA. Brijesh Thakar H. K. ConferenceThursday 7:00 p.m. Roo em, H. K. Colleg


29.01.2018 5.00 p.m.to Over itview of IBC and s CA. Ketul R. Patel H. K. Conference Room,Monday 7.00 p.m. challenges for professionals H. eK. Colleg


30/01/2018 5:00 p.m. to Contemporary Issues in GST Eminent Faculty* H. K. ConferenceTuesday 7:00 p.m. Roo em, H. K. Colleg

Ashr ,

Association News

CA. Maulik S. DesaiHon. Secretary

am Road Ahmedabad

CA. Riken J. PatelHon. Secretary

Glimpses of Past Events

A Fridendly Cricket Match Between President XI and Secretary XI

Members and CAA Team at Cricket Match between CAA andBaroda Branch of ICAI at Baroda


A Program on GST with Tally

Half Day Seminar on Tax Planning through HUF & FamilyArrangement by Dr. Girish Ahuja and Succession Planning,Inbound & Outbound Investments & Liberalized Remittance

Scheme by CA Rashmin Sanghvi on 10th January,

Talk on E-way Bill at GST Lecture Series by CASunnay

A Lecture Meeting on Companies Amendment A Lecture Meeting on Trust by CA Ajit C Shah

Jariwala from Surat

Bill, 2013 by CS Mahesh C Gupta


Across

1. ______ is a perfume you cannot pour on otherswithout getting a few drops on yourself.

2. A beneficial CBDT circular has to be applied_________ while an oppressive circular has tobe applied prospectively.

3. The FRDI Bill, 2017 deals with insolvency andbankru

Down4. UPS, rack, switch and buttery forming part of

ptcy in _______ sector companies.

the computer system are eligible fordepreciation at _______ rate.

5. Merely because a search is conducted in thepremises of the assessee, would not entitle theRevenue to initiate the process of___________, for which there is a separateprocedure prescribed in the statute.

6.

ACAJ Crossword Contest # 44

th thCAA celebrated its 67 _________ day on 15December, 2017.

Notes:1. The Crossword puzzle is based on previous

issue 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 30/01/2018.

5. The decision of Journal Committee shall be finaland bin

ACAJ Crossword Contest # 43 - Solution

ding.

Across1. March 2. Principles3. Industrial

Down4. Amalgamation 5. Jobwork6.

Winners of ACAJ Crossword Contest # 43

1.

Tangible

❉ ❉ ❉

CA. Saurabh Shah

2. CA. Shirish Bhatt

6

5

1

4

2

3

Shri Vijaybhai Rupani Hon. Chief st Mini er,

G aratuj

“Role of GIDC in Gujarat’s and India’s economic growth is pivotal and decisive. Apart from facilitation National

and International iconic manufacturing units, GIDC must be credited for its fast-track development of industrial

estates and MSME Units. GIDC’s constant focus on prov oriding w ld class infrastructure facilities comes for

its visionary outlook for the future.”

GIDC Vision “To make GIDC an effective, vibrant and timely provider of

qu ty ali industrial infrastructure with easy, quick and transparent delivery mechanism at competitive pricing and

without losing sight of its social responsibilities.”

Set up under the Gujarat Industrial Development Act. 1962 as a Statutory

Board

Nodal agency of the Government of Gujarat for providing Industrial backbone stof the ate

Iden ifit es and develops locati s on suited for Industrial purposes

GI C D has an inventory of 202 Estates comprising

of over 63,000 Units across the State

GI CD offers developed indus rial t zone/estates ,

approv eled & w l developed chemical estate, spee andy l d aggregation, clear land titles, cluster

bene ts, fi flexible payment op ions, ast w te disposal

system & up-gradation of industrial estates

1 Identif cati ion & Aggregation of land 3 Allotment of

Indus rial t Plots

2 Development of Core & Support Infrastructure

20 tates 2 GIDC Es across Gujarat

G arat stria Dev ent uj Indu l elopm Corporation (GIDC) (A Government of Gujarat Undertaking) 2nd Floor, k Bloc No.4 Udy Bhav Sector og an, 11 G ndhi a nagar 382 017 G arat, diauj In Phone 91 9 506: + 7 232 36/37 Fa 91 9 507x: + 7 232 05 [email protected] www.gidc.gov.in

Dev loped duse In trial Plots Wa plyter Sup Pow Suppler y Corridor for amenities-ga tele pelines, com, pi etc. Efflue collent ction con ey tmev ance, trea nt & disposal

Skil Upl -gradation Centers Env mentairon l Cons ation ervIniti esativ -green spa rks, .ce, pa etc Spa for ic ce publamenities-ba , nkshos chopitals, s ol, poli n, .ce statio etc Hous Plotsing Comm paceercial s s

Core Infras r cturet u Support Infrastructure

Development of MSME Industrial Park

Development of Women Industrial Park

Development of Multi-Storeyed Sheds

Training & Skill up-gradation programs

Key Initiat ives Education

Hea Calth re Women & Child

Development

Skil elopmentl Dev

GI C’D s Inclusive Development

Participative Policy for development of New Industrial Estate

AHMEDABAD CHARTERED ACCOUNTANTS · 2018. 1. 24. · Ahmedabad Chartered Accountants Journal...

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