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3CASC BULLETIN, FEBRUARY 2017

EDITORIAL

Your CASC celebrated its 38th Annual dayon 5th Jan 2017. Hon'ble Justice Smt. AnithaSumanth, graced the occasion and acceptedour felicitations on her elevation asthe Judge of Madras High Court.Three of our members Shri K Ravi,Shri M P Vijayakumar-Central CouncilMember of ICAI and Shri Vaitheeswaranfelicitated her. In the special meetingto commemorate the occasion,Shri P Rajendra Kumar, Past CentralCouncil Member of ICAI gave an overviewof developments that have engulfed thewestern world in the indirect tax sphereand what is in store in Indian context.

The CBDT issued the guiding principles fordetermination of place of effectivemanagement of a company (POEM). It's awelcome step that companies with aturnover of less than Rs. 50 crore have beenout of the ambit of POEM. With so manytechnocrats non-resident Indians returninghome and still continue to operate theirsmall business that they established whilestaying overseas, this POEM provisionswould have led to a lot of litigation thattoo with over enthusiastic income taxdepartment. This exemption limit will easetheir nerves and facilitate the return ofsmall technocrat businessman to India. Buttime alone will tell us with the POEM easedthe way of doing business in India orhardened it. If the past experience is aguide, this will be one more tool in thearsenal of the department to litigate, harassand will aid further corruption.

The ICAI has announced an exposure drafton new code of ethics, based on IESBA(International Ethical Standards Board forAccountants, an arm of IFAC) and themembers were requested to give theircomments to the draft code within a week'stime. On a serious topic concerningmembers at large, ICAI should have hadwider consultation and should haveprovided more time for members to react.In fact it should have held consultationmeeting right across the country toascertain the views of the members ratherthan trying to cut, copy, paste a westernregulation without even bothering aboutits applicability in Indian context.

The Union Budget has ushered anexpectation of feel good factors due to theimpact of demonetization and that too thiswill be the first budget with customaryrailway budget merged into it. Thechallenges of the finance minister areproviding access to credit to the smalltraders who are the backbone of ourcountry. Banks are flush with funds withdemonetized deposits but credit creationshould not also result in inflation. The FMhas an onerous task of balancing the fiscaldeficit, inflation, credit creation and accessof funds to the common man. Let us seewhat is store on 1st Feb 2017.

For and on behalf of Editorial Board

Editor

RANDOM THOUGHTS


DISCLAIMER :

The contents of this Monthly Bulletin are solely for informational purpose. Itneither constitutes professional advice nor a formal recommendation. Whiledue care has been taken in assimilating the write-ups of all the authors. Neitherthe respective authors nor the Chartered Accountants Study Circle acceptsany liabilities for any loss or damage of any kind. No part of this MonthlyBulletin should be distributed or copied (except for personal, non-commercialuse) without express written permission of Chartered Accountants Study Circle.

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The soft copy of this bulletin will be hosted on the website shortly.

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RECENT DECISIONS - SERVICE TAX

CA. VIJAY ANAND

1. Collection Of Charges ForMaintenance Of Street Light AndRepair & Maintenance Of Road –Liable Under ManagementMaintenance And Repair Service

In Chhattisgarh State Indl. Dev. Corpn.Ltd. V. C.C.E & S.T., Raipur, 2016 (44)S.T.R.642 (Tri.-Del.), the appellantwasengaged in rendering Repair andMaintenanceService, but had not taken theregistration under Finance Act, 1994. Whileauditing ofbooks of accounts of one of therecipients ofservice provided by theappellant, it came to notice that theappellant had charged andcollectedconsideration for the said service. It hadcharged the amount towardsthe”Maintenance Charges” and “StreetLight Charges” from many such recipients.Theadjudicating authority confirmed thedemand under Repair andMaintenanceService, against which an appeal was filedbefore the Tribunal which observed asunder:-

1. The appellant was leasing Governmentof India land and also collectingcharges for maintenance of street lightand repair & maintenance of road fromthe entrepreneur / allottees of landand, hence, such charges cannot beoutside the ambit of service tax merelybecause the same has been statutorilyprescribed.

2. C.B.E. & C. Circular No.89/7/2006-S.T., dated 18-12-2006 has clarified thatservice tax is not to be charged onactivities performed by sovereign orpublic authorities under the provisionsof Law. In the nature of statutoryapplication when the fee collected forsuch activities is in the nature ofadvisory/statutory levy and isdeposited into the Governmenttreasury whereas in the instant case, theappellant is a corporate entity andoutside the purview of sovereign/public authority.

3. Notification No.23/2016-ST dated 13-04-2016 which exempts certain servicesprovided by Government of India orlocal authority exhibits that unlessthere in an exemption notification,taxable services rendered by theGovernment or local authorities areliable to Service Tax.


4. Such charges cannot fall under“Commercial or IndustrialConstruction Service” (CICS) forreason that the activities areconsequently covered under“Management Maintenance or RepairService” (MMR). Hence, the liability topay tax under MMR has to besustained.

5. With regard to the allegation of willfulmisstatement of facts on account ofnon-disclosure of the facts to thedepartment, mere non-payment ofduty is not equivalent to collusion orwillful misstatement or suppression offacts, relying the decision of UniworthTextiles Ltd Vs. CCE, Raipur[2013(288) E.L.T. 161(S.C.)].

6. In CCE Vs. Chemphar DrugsLiniments 1989 (40) E.L.T.276 (S.C.),the Supreme Court held that somethingpositive other than mere inaction orfailure on the part of the assessee orconscious or deliberate withholding ofinformation when assessee knewotherwise, is required before theassessee is saddled with the liability ofthe extended period.

Hence, the Tribunal rejected the assessee’sappeal but reduced the period of demandto the normal period.

2. Municipality granting writtenpermission for a fee cannot be termed

to be a service provided by AMC tomake the act a taxable service – not tofall under ‘sale of space or time foradvertisement

In Selvel Media Services Private Limitedv. Municipal Corporation of City ofAhmedabad, 2016(45) S.T.R.166 (Guj.), thepetitioner is carrying onbusiness as anAdvertising Agent. Respondent No. 1 isAhmedabad Municipal Corporation (“theAMC”). AMC is required to grant writtenpermission for erecting,fixing, exhibiting orretaining any sky-sign or advertisement ofthe kind prescribed by Rulesupon anyland, building, wall, hoarding or structurefor which the petitioners have been payingsuch fees regularly. AMC demanded thepetitioner to pay service tax on the licensefee charges for 2006-07 on theadvertisingboards put up on private properties forwhich the petitioners deposited certainamounts from time to time. On a writpetition, the high court observed as under:-

1. The petition raises two issues which canbe formulated in the following terms

a. Firstly, whether AMC is rendering anyservice which can be termed to be“taxable service” within the meaningof the said term as defined in Section65(105)(zzzm) of the Service Tax Act?

b. Secondly, if AMC is liable to payservice tax on the footing that AMC isrendering taxable service, whether


AMC is entitled to recover the samefrom the petitioner, and if so, underwhich provision?

2. The undisputed facts are that AMC hasgranted writtenpermission to thepetitioner to erect certain hoardings onprivate premises for which AMC hascharged and collected certain fees. U/s 386 of the Bombay ProvincialMunicipal Corporation Act, 1949 (theBPMC Act), AMC is entitled to chargea fee at the prescribed rate for grantingthe written permission and not for alicense, notwithstanding the fact that acommon application form may beprescribed for both.

3. A plain reading of Sections 244 and 245of the BPMC Act makes it clear thatthesaid provisions are for the purposesof regulating and controlling theerection, etc., of sky signs and/orbillboards, hoardings, etc., to ensurethat the structure so erected does notposeas a public hazard either by virtueof projection/ abutment on a publicroad/street, or by wayof obstructingvision, or any such similar hazard tothe public at large. Hence, grantingofwritten permission, after ensuringthat the structure so erected complieswith the relevantbye-laws and/or thebuilding regulations in force from time-to-time, is a part and parcel offunctionof a Municipal Corporation in the formof a duty to the public to ensure a better

Municipal Government of the city andcannot be termed to be a servicerendered to thepetitioner so as to becovered by the meaning of thedefinition of “taxable service”envisaged by Section 65(105) (zzzm).

4. Section 65(105) (zzzm) defines a“taxable service” to mean any serviceprovided to any person, by any otherperson in relation to sale of space foradvertisement. Explanation 1thereunder specifies what the phrase“sale of space for advertisement”includes. Sub-clause (i) stipulatesproviding space for display,advertising, etc., on billboards, publicplaces, buildings, etc. What is primarilyrequired for a service to become ataxable service for the purposes of levyof service tax is a service beingprovided to any person, by any otherperson in relation to sale of space foradvertisement, namely, providingspace for display.

5. The questionis whether AMC isproviding any service to any person inrelation to sale of space foradvertisement by providing space fordisplay in the facts of the case. Theproperty on which the structure iserected in the form of billboard orhoarding is not owned by AMC. AMCis only granting written permissionafter ensuring compliance with the


requisite regulatory requirements for afee. AMC is not rendering any serviceto the petitioner. The regulatoryfunction of AMC could be termed tobe a public service for ensuring safetyof public at large or providing a hazard-free environment within the local limitsof AMC. However, the serviceenvisaged by Section 65(105)(zzzm) isnot of this nature and therefore, thereis no question of AMC being chargedservice tax in relation to the feescollected for granting writtenpermission.

6. The property being owned by a privateperson, as distinguished from AMC, apublic body, the act of granting writtenpermission cannot be treated to be asale of space for advertisement that is,providing space for display. Once it isfound that AMC is not rendering anytaxable service to the petitioner, it is notpossible to uphold the action of AMCin calling upon the petitioner to makepayment of service tax.

7. The provision nowhere envisages AMCbeing entitled to charge and collectservice tax on the fees charged andcollected by AMC for granting writtenpermission. AMC cannot act as anagent for the purpose of recovery ofservice tax, even if one assumes that theservice provided by the petitioner tothe client of the petitioner might be ataxable service.

8. In absence of any authority in law byway of any statutory provisionempowering AMC to collect servicetax, the demand raised by AMC andthe amount collected by AMC arewithout authority of law and cannot beupheld.AMC is not in any mannerproviding space for displayascontemplated in section 65(105)(zzzm).If the structure is erected by thepetitioner on a premise privatelyowned, it cannot be stated that AMChas provided space for display.

9. The act of AMC ingranting writtenpermission for a fee cannot be termedto be a service provided by AMC tomake the act a taxable service for thepurposes of Service Taxprovisions.AMC haserred in law indemanding service tax from petitionerin the facts of the case and recoveringthe same without authority of law.

Hence, the Ahmedabad MunicipalCorporation was directed not to take anysteps for the purposes of effecting coerciverecovery of service tax.

3. Legal Duty Of The Appellant ToDisclose All Facts And DevelopmentsThereof Till The Disposal Of TheCase To The Appellate Authority –Any Order Obtained Through Non-Disclosure Liable To Be Set Aside.


In Dewsoft Overseas (P) Ltd. Vs. CST,New Delhi, 2016 (45) S.T.R.321 (Tri.-Del.),the assessee’s appeal to the Tribunal wasrejected on merits, consequent to which theassessee filed a further appeal before theSupreme Court which stayed the recoveryof penalty, subject to the appellantsdepositing theservice tax along withinterest within a period of twomonths.Prior to the filing of appeal beforethe Supreme Court, the appellant hadalsomoved an application for rectificationof mistake (ROM) before the Tribunal interms of Section 35C(2) of the CentralExcise Act, 1944 on the ground that theTribunal disposed of the appealonly onmerits and did not consider the plea oflimitation raised before it in the appealmemoas also during the course of hearingand in the written synopsis filed at the timeof hearing and that the non-considerationof limitation issue amounted to mistake onthe partof the Tribunal, thus requiringrectification. The fact of filing of ROMbefore the Tribunal wasalso disclosedbefore the Hon’ble Supreme Court in thememo of appeal filed before theHon’bleApex Court.

During hearing the ROM petition, theTribunal observed that admittedly thelimitationissue, the bench agreed to themistake on record and proceeded to allowthe petition. Thereafter the revenuewas filed a Miscellaneous Petition prayingfor recalling of the said orderaggrievedinasmuch as the final order dated

29-10-2015 passed by the Tribunal onmeritswas already appealed against by theappellant before the Hon’ble SupremeCourt andwas pending consideration fordisposal, subject to the appellant’sdepositing the tax amountalong withinterest and the disposal of the ROMapplication was not justified. The Tribunalobserved as under:-

1. The ld. Advocate was under legal dutyto bring to the notice of the Bench, atthe time of disposal of ROMapplication, the above factualdevelopments irrespective of the fact asto whether the Tribunal in that casewould have decided or not decided theROM application. Notwithstanding thefact that the filing of an appeal beforethe Hon’ble Supreme Court in terms ofSection 35L of the Act and filing of aseparate ROM application before theTribunal does not amount to “forumshopping” or amounts to “merger”,there was non-disclosure of theproceedings pending before theSupreme Courtat the time of disposalof the ROM application. It is well-settled principle that one who comesto the Court seeking justice must comewith clean hands.

2. The fraud vitiates everything and thefact of non-disclosure of the order ofthe Hon’ble Supreme Court has theeffect of making the ROM order dated


2-8-2016 void abinitio. The Hon’bleSupreme Court decision in the case ofMeghmala & Ors. v. G. NarasimhaReddy & Ors. (2010) 8 SCC 383 heldthat where the order is obtained bymaking misrepresentation or playingfraud upon the competent authority,such order cannot be sustained in theeyes of law. “Fraud avoids all judicialacts ecclesiastical or temporal”.Dishonesty cannot be permitted to bearthe fruit and benefit to the persons whoplayed fraud or mademisrepresentation and in suchcircumstances, the Court should notperpetuate the fraud.

3. Fraud is an intrinsic, collateral act, andfraud of an egregious nature wouldvitiate the most Fraud and deceptionis synonymous. Suppression ofmaterial document has been held to beas amounting to a fraud on the Court.By applying the ratio of the abovedecision, it has to be held that thematerial fact of pendency of appealbefore the Supreme Court and thedirections of the Supreme Court todeposit tax amount along with interestwas suppressed from the Court, thesame would constitute fraud and theorder obtained by concealing the saidfact, cannot be allowed to be continued.

4. In view of the fact that the bench wasnot appraised of the said order of theSupreme Court which abuses the due

process of law and vitiates the veryorder so obtained, the order passed onROM application was recallednotwithstanding the fact that there wasno mistake in the order dated 2-8-2016passed by the Tribunal. In doing so,reliance was placed on the decision inIndian Bank v. Satyam Fibres (India)Pvt. Ltd. [(1996) 5 SCC 550] wherein itwas observed that since fraud affectsthe solemnity, regularity andorderliness of the proceedings of theCourt, it also amounts to an abuse ofthe process of the court and the courthas inherent power to set aside theorder obtained by practicing fraudupon the court and that where the courtis misled by a party or the court itselfcommits a mistake which prejudices aparty, the court has the inherent powerto recall its order.

Hence, the miscellaneous application filedby the revenue was allowed and the orderdated 2-8-2016 was recalled.

4. Collection of Incineration Chargestowards Sharing of Raw Materialsthrough Common Pipeline – not totantamount to storage andwarehousing service.

In Gujarat State Fertilizers & ChemicalsLtd. Vs. CCE, 2016(45) S.T.R.489 (S.C.),two public sector undertakings:

a. M/s. Gujarat State Fertilizers &Chemicals Ltd (GSFC) and


b. M/s. Gujarat Alkalies & ChemicalLtd.(GACL)

were receiving Hydro Cynic Acid (HCN)from M/s. Reliance Industries Limitedthrough common pipeline, which waspartially utilized in their factory formanufacturing of their final product andwas shared between them, sinceincineration process was also required tobe undertaken, the charges, which wereincurred on the said process, were alsoshared in the ratio of 50:50 for whichincineration charges were collected byGSFC from GACL.

The adjudicating authority confirmed thedemand under ‘storage and warehousingservice’ on such incineration charges,which was also sustained by theCommissioner (Appeals) and the Tribunal.On further appeal before the SupremeCourt, it was observed as under:-

1. HCN is one of the main raw materialHCN is received from M/s. RIL,Vadodara through pipeline directly bygravity from their plant. It is taken inan intermittent hold tank which issituated in GSFC-PUpremises. As peragreement, the quantity of HCN assoon as it is received is beingconsumedat 60:40 ratio by GSFC-PUand GACLSodiumCyanide Unit. The hold tank isthere to sustain continuous process ofboth the plants and to facilitate smoothoperation of the suction pumps and toavoid starvation of the pumps.

Starvation of pump is not allowed as itcauses damage to the pump anddisturbs the process. In case of anyproblem at consumers end, HCNsupply from M/s. RIL is stopped,remaining quantity in tank isimmediately consumed by either of theplants. The question of storing HCNdoesnot arises because it is notpermissible to store HCN on safetyground. The hold tank is duly washedand kept empty for further use.

2. Incineration charges are sharedbetween GSFC and GACL. Twoconditions are required to be satisfiedto fall under ‘storage and warehousing’services:-

a. The goods in question have to comewithin four corners of the definition of‘Storage and Warehousing’ containedin section 65(102) of the Finance Act,1994;

b. In order to attract service tax, there hasto be an element of service providedby one person to the other for whichcharges for providing such services arecollected.

3. HCN is received through pipeline andas soon as it is received, the same isconsumed in the ratio of 60:40 betweenGSFC and GACL. The holding tankwhich is described as ‘storage tank’ forconvenient purposes is there only tosustain the continuous process of boththe plants and to facilitate smooth


operation of suction pumps and toavoid any damage thereto. It is, thus,argued that nothing is stored in the saidso called storage tank and, therefore,this process would not qualify the term‘Storage’.

4. With reference to the question as towhether the arrangement betweenGSFC and GACL amounts to providingany services by GSFC to GACL and50% incineration expenses incurredwould constitute charges for providingsuch services, there is no dispute aboutthe manner in which HCN is receivedthrough pipeline from M/s. RelianceIndustries Ltd. by GSFC and GACLand then shared in the ratio of 60:40respectively. Since HCN is to bereceived through pipeline, it isabundantly clear that in order to savethe expenditure; both the partiesagreed that there should be a commonpipeline. Once HCN is receivedthrough the said common pipeline, itcomes first to GSFC’s premises andfrom there it is diverted in the ratio of60:40, meaning thereby that GSFCreceives 60% of the HCN whereasGACL receives 40% of the supply inaccordance with their respectiverequirement. To enable GACL toreceive this HCN through commonpipeline, arrangement/agreement wasentered into between these two parties.For this purpose, handling facilitieswere installed in the premises of GSFC.

It is undisputed that for installation ofthese facilities both the parties hadcontributed towards the investment.Since the said handling facilities are inthe premises of GSFC, incineration alsotakes place at the said premises.Handling facilities expenditure thereofis shared equally by both the parties.

5. Once these facts are accepted, thehandling portion and maintenanceincluding incineration facilities is in thenature of joint venture between two ofthem and the parties have simplyagreed to share the expenditure. Thepayment which is made by GACL toGSFC is the share of GACL which ispayable to GSFC. By no stretch ofimagination, it can be treated ascommon ‘service’ provided by GSFC toGACL for which it is charging GACL.

6. Hence, the second ingredient has notbeen established in the present case andthe question of service tax does notarise. Arising out of this, it is notnecessary to go into the question as towhether receiving of HCN through thesaid common pipeline in the tankwhich is setup by the GFSC and GACLamounts to ‘storage’ or not.

Consequently, the appeals were allowedand the impugned orders were set aside.

(The author is a Chennai based CharteredAccountant. He can be reached at reached [email protected])


CASC CHENNAI, MEMBERSHIP FEE

Corporate MembershipCorporate Annual Membership 3,000.00Corporate Life Membership (20 Years) 20,000.00

Individual MembershipAnnual Membership 750.00Life Membership 7,500.00

CASC - HALL RENTHALL RENT FOR 2 HOURS 1,000.00HALL RENT FOR 2-4 HOURS 1,500.00HALL RENT FOR FULL DAY 2,500.00LCD RENT FOR 2 HOURS 600.00LCD RENT FOR 2-4 HOURS 800.00LCD RENT FOR FULL DAY 1,200.00

The above amounts are EXCLUSIVE of Service Tax. Applicable Taxes will beadded.

CASC BULLETIN - ADVERTISEMENT TARIFF - PER MONTH

Full Page Back Cover 2,500.00Full Page Inside Cover 2,000.00Half Page Back Cover 1,500.00Half Page Inside Cover 1,250.00Full Page Inside 1,200.00Half Page Inside 750.00Strip Advertisement Inside 500.00

Minimum 6 months advertisement is required.If advertisement is 12 months or above, special discount of 15% is available

Your demand draft / cheque at par should be drawn in the name of“The Chartered Accountants Study Circle” payable at Chennai.

Kindly contact [email protected] for the updates.

Rs.


RECENT DECISIONS IN VAT / CST

Declaration forms:

On the date of the transaction, i.e., March10, 2015 the purchasing dealer did possessa valid central sales tax registration. Thename of the purchasing dealer as shownin the invoices, and the name and addressof the registered purchasing dealer asreflected in the C forms issued by theDepartment matched. The cancellation ofthe Central sales tax registration of thepurchasing dealer took place subsequentlyon August 4, 2015. Therefore, there was nomeans for the petitioner as the sellingdealer to suspect as of the date of sale orsoon thereafter that the payments made toit by real-time gross settlement was not bythe purchasing dealer but by some otherentity with the same name. It was notpossible, therefore, straightaway to inferany collusion between the petitioner andthe purchasing dealer or for that matter theother entity of the same name spoken ofby the Department. In any event, from thepoint of view of the petitioner, therequirement of section 8(1) of the Act stoodfully satisfied. The purchasing dealer hada valid Central sales tax registration on thedate of purchase of goods by thepurchasing dealer from the petitioner. TheC form issued by the Departmentconfirmed the Central sales tax registrationof the purchasing dealer under the Act.

CA. V.V. SAMPATHKUMAR

There being a valid Central sales taxregistration of the purchasing dealer on thedate of the transaction and the C formhaving been validly issued on the date itwas so issued, there could not have been aretrospective cancellation of the C form.[2016] 93 VST 326 (Delhi) JAINMANUFACTURING (INDIA) PVT LTD.V.COMMISSIONER OF VALUEADDED TAX AND ANOTHER

Input Tax Credit:

When the validity of reversal of inputcredits availed, by the buying dealers,consequent to the cancellation of theRegistration Certificates of the sellingdealers with retrospective effect wasquestioned the court held that apurchasing dealer is entitled by law to relyupon the certificate of registration of theselling dealer and to act upon it. Whatevermay be the effect of a retrospectivecancellation upon the selling dealer, it can


have no effect upon any person who hasacted upon the strength of registrationcertification when the registration wasvalid - whatever be the effect ofretrospective cancellation upon the sellingdealer, it can have no effect upon anyperson, who has acted upon the strengthof a registration certificate, when suchcertificate was alive. AC (CT),BROADWAY ASSESSMENT CIRCLE,CHENNAI Vs M/s BHAIRAV TRADINGCOMPANY [2016] (MAD) W A Nos. 946,947, 948, 949 of 2016 etc Dated: 01.09.2016

Natural Justice:

In the show-cause notice, the respondenthad not mentioned about the productionof way-bill, whereas in the final order,rejection was made on the ground thatcertain way-bills were not produced. Thereason given in the show-cause notice wasnot the same as those given in the finalorder and it was totally different. It wasagainst the principles of natural justice.Moreover, it was an admitted factthat what had not been asked in the show-cause notice could not be a ground forpassing a final order. [2016] 93 VST 152(Mad) PATEL WOOD WORKSV. ASSISTANT COMMISSIONER (CT)WORAIYUR ASSESSMENT CIRCLE,TIRUCHIRAPPALLI.

Pre-deposit:

The only reason why the dealer had beenassessed for payment of duty was that thecertificates of tax deduction at source werenot produced. The certificates wereavailable on record and if they revealed thecorrect position, the contention that the taxhad already been paid would be correctand if that be so, dismissal of appeal onaccount of failure to make pre-deposit ofamount and taxing the dealer for the taxalready paid, would be unjust. Theappellate authority was directed toexamine the appeal on the merits anddecide it in accordance with law keepingin view the prima facie material availableon record to indicate that tax had beendeducted on source, and the waiver of pre-deposit amount could be granted to thedealer. [2016] 93 VST 175 (MP) STITEXGLOBAL LTD.V.STATE OF M. P. ANDOTHERS

Arrears of tax:

The petitioner had purchased the propertyin question without notice of the chargeover the same from his vendor and thesame had also not been reflected in theencumbrance certificate issued by theRegistration Department. The petitionerwas a bona fide purchaser forconsideration without notice of the chargeover of the property. Unless a provisionwas made in any statute contrary to the


rule of section 100 of the Transfer ofProperty Act, a bona fide purchaser forconsideration without notice of the chargewas protected. Section 24(2) of the SalesTax Act did not provide anything contraryto section 100 of the Transfer of PropertyAct. Thus the petitioner could not beproceeded against insofar as the arrears ofsales tax of his vendor. Therefore, theproceedings of the respondent takenagainst the petitioner and on the propertywere liable to be quashed. [2016] 93 VST190 (Mad) SRI BAKGYAMENGINEERING CORPORATION V.DEPUTY COMMERCIAL TAXOFFICER, AVRAMPALAYAM CIRCLE,COIMBATORE

Input Tax Credit:

For the assessment year 2013-14, thepetitioner-dealer filed returns and adjustedthe tax dues from the input-tax creditavailable on the tax-paid purchases. Thesecond respondent passed the deemedassessment order by accepting the returnsunder section 22(2) of the TNVAT Act,2006. While the situations stood thus, thesecond respondent issued a notice allegingthat on verification of the Departmentwebsite, some of the selling dealers had notpaid tax and proposed to reverse the saidinput-tax credit and also to levy penaltyunder section 27(3) of the TNVAT Act. Thepetitioner filed its reply along with thecopies of the purchase bills tax invoices of

the dealers showing the collection of taxesfrom the petitioner and the copies of themonthly returns filed but it was rejectedand an assessment order was passedconfirming the proposals in the notice.Allowing the Writ petition filed in thisregard the Court held that a perusal of therecords would show that at the time ofpurchasing the goods, the petitioner hadpaid the tax to the seller. The reasonadduced by the respondent to reverse theinput-tax credit was unacceptable for thereason that when admittedly thepetitioner-firm had paid the tax, he couldnot be made liable for the failure on thepart of the sell to report the same to therespondent. Therefore the order reversingthe input tax credit adjusted by thepetitioner against the tax dues was to beset aside. [2016] 93 VST 202 (Mad) SRILAKSHMI TEXTILESV.COMMISSIONER OF COMMERCIALTAXES, EZHILAGAM, CHEPAUK,CHENNAI AND ANOTHER

Deemed sale value of the goods:

The case of the transfer of 50% unsold flats,the petitioner cannot enter into aconstruction agreement, as theconstruction is already over and what isbeing sold, is an immovable property andnot liable to tax . The factual issue is as tohow many number of flats have been sold,and what remained unsold on the date ofissuance of completion certificate, whether


the procedure adopted by the petitioner forthe purpose of availing the Input TaxCredit was justifiable, whether it confirmsto the procedure under Section 5 orwhether there is an infraction of Rule 8(5)etc - to adjudicate the factual issues, thepetitioner should first furnish adequateinformation. The mere statement that 50%of the flats remained unsold on the date ofissuance of the completion certificate maynot be sufficient. The initial burden of proofis on the petitioner and if he discharges theburden to the satisfaction of the AssessingOfficer, then only the burden of proofshifts. M/s.VBHC CHENNAI VALUEHOMES PRIVATE LTD Vs THE AC(CT), PADAPPAI [2016] (MAD)W.P.No.28067 to 28069 of 2015 dated12.09.2016

Interest:

Section 24(3) of the TNGST Act states aboutthe payment of interest when there isbelated payment of tax. When the questionwhether belated remittance of differentialtax would attract interest under section24(3) in the absence of provisionalassessment, it was held by the Court thatthe notice calling upon the petitioner to paythe differential rate of tax was only on theground that the petitioner did not remit10% tax but remitted only 4% tax. But thepetitioner did not admit the return andassessment was completed and he wasassessed to tax @ 10% after about seven

years after the relevant period and once theAssessing authority held that tax is liableto be paid @ 10%, the petitioner paid thedifferential tax of 6% immediately. In suchcircumstances, the provisions of Section 13would not be attracted to the facts of thepresent case. Thus applying the legalprinciples as enunciated by the Hon’bleSupreme Court in EID Parry, it is held thatthe demand for interest is not tenable andthe impugned order is quashed. THEDHARMAPURI DISTRICT CO-OPMILK PRODUCERS UNION LTD VsCTO, KRISHNAGIRI etc. [2016] (MAD)W.P.No.5929 of 2005 Dated: 03.08.2016

Appeal:

The admitted liability of an assessee whenhe avails an appeal remedy would be theliability which he admits in thememorandum of appeal whatever hisstand might be before the Assessing Officerand the petitioner was fully justified incontending that he is entitled to pay 25%of the tax on the disputed turnover whichhas been calculated by them excluding theturnover which is the subject matter ofchallenge in the earlier writ petitions filedby the petitioner. HINDUSTANUNILEVER LIMITED Vs THE DEPUTYCOMMISSIONER (CT)-II, LARGETAXPAYERS UNIT, CHENNAI [2016](MAD) WP 10183 of 2015 DATED:01.08.2016


Audit report, account maintenance: Muchimportance has been given to CharteredAccountant’s certificate under section 63Aof the Act. Therefore, there is a sanctityattached to such certificate and unless thedepartment is able to establish thatincorrect particulars were certified, thecertificate cannot be outrightly rejected.The Assessing Officer who is enjoined withthe statutory duty to complete theassessment, inadequacy or adequacy ofinformation gathered by the enforcementwing is of no consequence, when theAssessing Officer takes up the case forassessment to tax. The Assessing Officercannot be bowed down by the observationsof the enforcement wing and in severalcases that appears to be so and this maladyis on account of the fact that theenforcement officers are superior officersto the Assessing Officer. Stating so, the WritPetitions are allowed and the impugnedorders are set aside and the first respondentis directed to redo the assessment inaccordance with law. The Court furtherstated that it is true that the Rules stipulatethe manner in which the accounts have tobe maintained. However, it is not the caseof the first respondent that the dataavailable with the petitioner does notconfirm to the Rules. The petitioner’sjustification is that the accounts aremaintained in that particular format, whichis a specially designed software and this

helps them in monitoring the businessthroughout the country. The AssessingOfficer is a statutory authority who playsa very vital role in assessing dealers to tax.Therefore, the endeavour of the officershould be to ensure that not a rupee ofrevenue payable to the Government ismissed out in collection that is whyfinancial experts have said that anassessment proceedings is an outcome ofdialogue and deliberations. In certain casesto understand the nature of activity, doneby a dealer/assessee, the Assessing Officermust equip himself to the nuances of theparticular trade, so as to ensure that thedisclosure made by the Assessee in theirreturn is full and true – there is no reasonas to why the respondent should fight shyof visiting the place of business of thepetitioner or in the alternative, the entiredata in the format maintained by thepetitioner can be made available in theoffice of the first respondent with theinfrastructure being set up at the cost ofthe petitioner. HINDUSTAN UNILEVERLIMITED Vs THE DEPUTYCOMMISSIONER (CT)-II, LTU,CHENNAI and another W.P.Nos.28818 &28819 of 2014 Dated: 29.08.2016

(The author is a Chennai based CharteredAccountant. He can be reached [email protected])


RECENT DECISIONS - EXCISE AND CUSTOM LAWS

CA. B.DEBASIS NAYAK & CA. SRIHARI V.K.

CENTRAL EXCISE

1. Once the credit is legally takenand utilized on the dutiable finalproduct, it need not be reversed on thefinal product being exemptedsubsequently

In the case of Shree Krishna Paper MillsAnd Industries Ltd, the taxpayer isengaged in the manufacture of writingpaper and news print paper. They wereavailing CENVAT credit of duty paid oninputs, capital goods and input services.From 01/04/2008 they have startedavailing exemption under Notification No.4/2006-CE dated 01/3/2006 in respect ofwriting paper. News print paper which isalso manufactured by the appellant is liableto nil rate of duty as per tariff.

The Revenue questions the CENVAT crediton inputs and input services received onor after 01/04/2008, the credit of dutytaken on inputs lying in stock, inputscontained in WIP (Work in Progress) andinputs contained in finished goods as on01/04/2008 also the credit on inputs andinput services availed for the period priorto 01/04/2008, but lying in balance as on01/04/2008.

While the Tribunal disallowed the creditavailed after 01/04/2008, held that thereis no justification to demand reversal ofCENVAT credit already availed and alsolying in books of accounts of the taxpayer.

Once the credit is legally taken and utilizedon the dutiable final product, it need notbe reversed on the final product beingexempted subsequently. Credit on inputsand input services availed for the periodprior to 01/04/08 but lying in balance ason 01/04/08 will not lapse in view ofdecision in Ranbaxy Laboratories Ltd.There is no justification to demand reversalof CENVAT credit already availed andalso lying in books of accounts of theappellant.

2. CENVAT credit ‘taken or utilized’ inRule 14 of the CENVAT Credit Rules2004, to be read as ‘taken and utilized’,for the purpose of demand of interest,where there is sufficient credit in theCENVAT credit account.

In the case of CCE vs M/s LakshmiMachine Works Ltd [2011-TIOL-160-CESTAT-MAD] the appellant is amanufacturer of textile machinery andparts. They are availing CENVAT crediton inputs and capital goods used in themanufacture of excisable final products.


The assesse is making substantial exportsand also supplying to 100% EOUs, due towhich they have accumulated unutilizedcredit of more than Rs.20 Crores.

They had inadvertently taken excess creditfor a period of 5 months due to clericalerror and later detected the same andreversed the excess credit taken. There isno dispute on reversal of the credit wronglytaken by them. Show cause notice wasissued proposing recovery of interest.

The authorized representativesemphasized that there was a high balanceof CENVAT credit due to large scaleimports and supply to EOU and that theexcess credit taken was reversed by thecompany on its own. The appellant had notbeen the beneficiary of the excess creditavailed. The credit taken is utilized onlywhen debited towards duty on the finalproducts. Merely by taking a wrong creditinadvertently, there has been no monetarygain. The CENVAT credit ‘taken orutilized’ in Rule 14 of the CENVAT CreditRules 2004, to be read as ‘taken andutilized’ for the purpose of demand ofinterest, particularly so when the credittaken is on account of clerical error andwhen the assesse is having sufficientbalance in their CENVAT credit account.

3. The value of primary or secondarypacking done for transportation ofgoods (and not for marketing) is notincludible in the assessable value

In the case of International ConveyorsLimited the taxpayer was engaged in

supplying conveyor belt. Supply wasmade under a contract and, there is aspecific condition in the contract that thetaxpayer is under obligation to provide thepacking for safer transporting of the goodsi.e. conveyor belt. The packing asked bythe buyer is for the safe transportation ofthe goods and otherwise there is norequirement for the packing of conveyorbelt.

The Revenue contended that the packingprovided by the appellant, in the presentcase, is primary packing and deduction onaccount of primary packing is notpermissible.

The Tribunal observed that the conveyorbelt in normal course dos not require anypacking. However, in the supplies madeunder this contract there is a condition forpacking that too for safe transportation.This shows that these packing are notmeant for marketing of the goods but onlyfor safe transport of the goods. TheTribunal relied on the decision of theSupreme Court in the case of Ponds IndiaLtd that irrespective of the fact, whether itis primary or secondary packing but if it isdone for transportation of goods and notfor marketing of the goods the same is notincludable in the assessable value.

4. In case of export, port is the place ofremoval and CENVAT credit of CHAservice is eligible

The taxpayer in the case of KhannaIndustrial Pipes Private Limited availed


the CENVAT credit in respect of CHAservice received from the purpose ofexport of the goods. The Revenue raisedthe dispute that place of removal is thefactory gate therefore any services receivedbeyond the place of removal will not beeligible for the CENVAT Credit.

It was observed that the Tribunal invarious judgments held that in case ofexport, the port of export is treated as placeof removal. The CHA service is providedupto the port of export; hence the CHAservice is admissible as input service. TheTribunal relies on the Board Circularwherein it was clarified that the port ofexport is place of removal, therefore theCENVAT credit is admissible on the CHAservice. Further, the judgment in the caseof Ispat Industries Ltd directly applies inthe facts of the present case. In the saidjudgment also the port of export wasconsidered as place of removal.

5. Only CENVAT credit availed has tobe reversed on transfer of duty paidgoods, excise duty is not required tobe paid on Sale price.

In the case of Mercedes Benz India PrivateLimited the taxpayer availed CENVATCredit in respect of inputs such as partsand components of motor vehicle. Someof the parts were diverted to their spareparts division on payment of dutyequivalent to the CENVAT credit availedearlier. Revenue contended that the dutypayable on removal of inputs as suchshould be on the sale price of the spare

parts and not an amount equal to theCENVAT credit. The Court held that theassesse is not involved in the manufactureof such spare parts and components.Section 4 of the Central Excise Act, 1994does not apply as these are treated asbought out part and components.Therefore, the duty payable would be anamount equal to the CENVAT Credit.

6. Reversal of CENVAT credit of inputservices under Rule 6(3) done at theyear-end (instead on a monthly basis)attracts interest liability.

In the case of Hindustan Zinc Ltd vs CCE2017-TIOL-23-CESTAT-DEL, thetaxpayer was a manufacturer of Ore andconcentrates which were exempted undernotification No.4/2006-CE dated01.03.2006. The ores were used captivelyand cleared without payment of duty. Thetaxpayer reversed the credit on inputsattributable to the exempted final producton a monthly basis, however, for the inputservices, the proportionate credit wasreversed only in the month of March.

The Revenue authorities held that thetaxpayers have not followed theprocedures prescribed under Rule 6 andaccordingly liable to pay 5% of value ofexempted goods in accordance with Rule6(3) of CENVAT Credit Rules, 2004.

The Tribunal observed that the taxpayerreversed the credit attributable to theexempted clearances; as such thesubstantial compliance with reference to


Rule 6 has been recorded. However, thereis a delay in reversing the proportionatecredit. Therefore, there is no legaljustification to demand in terms ofprovision of Rule 6(3) of CENVAT CreditRules, 2004 and hence only interest liabilityarises in such situations.

CUSTOMS CASES

1. Re-imported sample does notconform to FSSAI standard cannot bereleased for home consumption andare liable for confiscation

In the case of M/S Girnar Food AndBeverages Pvt Ltd the taxpayer re-imported the Tea packs exported due torejection by buyer on quality issues. TheCustoms authorities confiscated the goodsand imposed redemption fine and penaltyon the ground that appellant failed to getmandatory clearance certificate fromHealth officers and the sample was‘unsafe’. The Tribunal considered theCommissioner’s findings that mandatoryclearance was not granted by Port Healthofficer as the re-imported sample does notconform to FSSAI standard and that thesample was ‘unsafe’ as it was not free fromextraneous matter-iron fillings and as such.The tea packs cannot be released for homeconsumption and are liable forconfiscation; therefore the order ofconfiscation passed is justified. While theredemption fine imposed was upheld butsince there is no mens rea which wasbrought on record on part of appellant,penalty imposed u/s. 112(a) of CustomsAct is set aside.

2. Brand name is not registered with theCustom IBR Rules, 2007 and not wellknown, therefore redemption finewas reduced

The taxpayer imported a consignment ofmobile phones and filed a Bill of Entry,declaring the import goods as unbrandedmobile phones. The Customs authoritiesfound that the goods which were declaredas unbranded mobile phones were foundwith the brand names of “Arise” and“Tiger” brands. Therefore, the values ofthe imported goods were enhanced and theimporter has paid Custom Duty at theenhanced value. Further, the adjudicatingauthority also took the view that theimporter has mis -declared the importgoods, and hence he ordered confiscationof the same under Section 111(m) of theCustoms Act.

The Tribunal observed that theenhancement of value has not beenchallenged by the appellant. The mobilephones brands names of “Arise” and“Tiger” are not well known in the Indianmarket. These brand names are not evenregistered with Custom IBR Rules, 2007.The taxpayer has also submitted that thesebrand names are not even registered inChina. Keeping in view, these facts, theTribunal took a leant view and reduce theredemption fine from 8 lakhs to 1 lakh andthe penalty from INR 2,12,623 to INR25,000.

(The authors are a Chennai based CharteredAccountants. They can be reached [email protected] and [email protected])


REDUCTION OF CAPITAL UNDER COMPANIES ACT, 2013

CS. S. DHANAPAL

Reduction in share capital implies areduction in the issued, subscribed andpaid up capital of the Company. Acompany may consider reducing its capitalin order to eliminate losses or to returnsurplus capital to its shareholders ordistribute assets to its shareholders andeven to assist a buy back or redemption ofshares. The need for reducing capital mayarise in various circumstances, like,accumulated business losses, depreciationin value of assets. As a result, the originalcapital may have either become lost or acompany may find that it has moreresources that it can profitably employ. Themost common reason for reduction ofcapital is to eliminate losses. A companymay also reduce its capital to extinguishthe liability of its shareholders to pay theunpaid share capital.

Buy back of shares and redemption ofpreference shares also lead to reduction ofshare capital but they are governed byspecific provisions of the Companies Act,2013 and more importantly, a buy back orredemption does not require approval ofthe Tribunal.

Provisions Relating To Reduction OfShare Capital Under Companies Act, 2013

Section 66 of the Companies Act, 2013permits the class of companies specifiedtherein to reduce their paid up share capitalin the manner, circumstances and byfollowing the procedure as specifiedtherein.

The National Company Law Tribunal isauthorised to receive applications forreduction of share capital under section 66and make suitable orders therein. UnderCompanies Act, 1956, as per Section 100,this power was exercised by jurisdictionalHigh Court, which has now beentransferred to the NCLT. Section 66 cameinto force w.e.f. 15.12.2016.

The procedural aspects of makingapplication to NCLT for reduction of sharecapital and the related matters arecontained in the National Company LawTribunal (Procedure for reduction of sharecapital of Company) Rules, 2016 whichwere notified by the Ministry of CorporateAffairs on 07.12.2016 to come into forcew.e.f 15.12.2016.

Companies eligible to make application forreduction of share capital:

The following companies can makeapplication for reduction of share capitalunder section 66 of the Companies Act,2013:


• Companies limited by shares, or

• Companies limited by guaranteeand having a share capital

The company should not be in arrear in therepayment of any deposits accepted by it,either before or after the commencementof the Companies Act, 2013, or the interestpayable thereon.

Manner / circumstances in which capitalcan be reduced:

Paid up share capital of a company maybe reduced in any manner and inparticular, a Company may reduce itscapital in the following manner:

a. extinguish or reduce the liability on anyof its shares in respect of the sharecapital not paid-up; or

b. either with or without extinguishing orreducing liability on any of its shares,—

i. cancel any paid-up share capital whichis lost or is unrepresented by availableassets; or

ii. pay off any paid-up share capital whichis in excess of the wants of the company.

Liability of members in case of reductionof capital

A member of the company, whether pastor present, shall be liable to any call orcontribution in respect of any share heldby him only to the extent of the amount ofdifference, if any, between the amount paidon the share, or reduced amount, if any,which is to be deemed to have been paid

thereon, as the case may be, and theamount of the share as fixed by the orderof reduction.

In case of dues of creditors, if name of anycreditor entitled to object to the reductionof share capital is, by reason of hisignorance of the proceedings for reductionor of their nature and effect with respectto his debt or claim, not entered in the listof creditors, and after such reduction, thecompany commits a default, within themeaning of section 6 of the Insolvency andBankruptcy Code, 2016, in respect of theamount of his debt or claim,

(a) every person, who was a member ofthe company on the date of theregistration of the order for reductionby the Registrar, shall be liable tocontribute to the payment of that debtor claim, an amount not exceeding theamount which he would have beenliable to contribute if the company hadcommenced winding up on the dayimmediately before the said date; and

(b) if the company is wound up, theTribunal may, on the application of anysuch creditor and proof of hisignorance as aforesaid, if it thinks fit,settle a list of persons so liable tocontribute, and make and enforce callsand orders on the contributories settledon the list, as if they were ordinarycontributories in a winding up.

These provisions shall however not affectthe rights of the contributories amongthemselves.


Non applicability of provisions to buy-back of shares under Section 68

Reduction of capital effected under section66 is different from buy-back of shares bya company, which is regulated as perSection 68 of the Act. None of theprovisions of Section 66 are applicable incase of buy-back of its own securities by acompany under section 68.

Reduction of share capital under Section242

Apart from reduction of capital undersection 66, there is another circumstance,when share capital can be reduced. In thecase of oppression and mismanagement,the Tribunal has been given powers undersection 242 to pass an order as it thinks fitwhich may provide for purchase of sharesof any members by the company andconsequent reduction of the share capital.

Reduction of share capital under Section230

Another instance by which capital can bereduced by a company is by way of ascheme of compromise or arrangementswith creditors and members under Section230 of the Act with the approval of theTribunal. Such schemes may interaliaprovide for reduction of share capital inwhich case the provisions of section 66shall not apply to such reduction of sharecapital effected in pursuance of the orderof the Tribunal under this section.

Reduction of Securities PremiumAccount/ Capital Redemption reserveAccount

Provisions of Section 66 of the Act relatingto reduction of share capital extends to andcovers reduction of Securities PremiumAccount and Capital Redemption reserveAccount as well, subject to requirementsof Section 52 and 55 of the Act respectively.This implies that under Section 66 acompany may apply for reduction of itsSecurities Premium Account or CapitalRedemption Reserve Account also. In suchinstances, the securities premium accountor the Capital Redemption reserveAccount shall be treated on par with thepaid up share capital of the Company forthe purpose of reduction.

Penal Provisions

If a company fails to comply with theprovisions of sub-section (4) of Section 66,it shall be punishable with fine which shallnot be less than Rs. 5 Lakhs but which mayextend to Rs. 25 Lakhs.

An officer of the Company will be liableunder Section 447 if the officer:

a) knowingly conceals the name of anycreditor entitled to object to thereduction;

b) knowingly misrepresents the nature oramount of the debt or claim of anycreditor; or

c) abets or is privy to any suchconcealment or misrepresentation asaforesaid.

(The author is a Chennai based CompanySecretary. He can be reached [email protected])


DECODING THE CODE

CA. SRIPRIYA KUMAR

The Insolvency and Bankruptcy code 2016(“code”) seeks to enable a simple yetcomprehensive resolution mechanism forinsolvency and bankruptcyadministrations across all categories ofpersons in India.

The new law is a unified, complete andcomprehensive legislation for theresolution of insolvency for individuals,partnerships, limited liability partnerships,companies and such other categories ofcorporates as may be notified by thegovernment

In this new series under the title decodingthe Code, we attempt to provide the firststep towards learning this new law inrelation to Corporate InsolvencyResolution and to especially enableInsolvency Resolution Professionals toexplore the new professional opportunity.This series will also provide some insightsto managers of corporates seeking to applythe entities they own / manage under thislaw

Too late, Too little or both!

It is common knowledge that theInsolvency and debt resolution landscapein India has been characterized by multiplelegislations, a plethora of regulatorybodies and the resultant unstructureddispute ridden framework that resulted inlow or no recoveries of bonafide debts. Therecovery was too late, too little or in mostcases both.

The absence of a clear insolvencyresolution law was also seen as reducingthe ease of doing business in India and aclear deterrent to the development of astrong debt market due to uncertaintyfaced by lenders in recoveries of their dues

Many laws and many forums

The Presidency Towns Insolvency Act 1909(Chennai, Madras and Kolkata) andProvincial Insolvency Act 1920 (for othertowns and cities) dealt with insolvency ofindividuals. The Corporate scene was farmore complex with having to follow fourdiverse legislations namely, theCompanies Act 2013, Sick IndustrialCompanies Act 1985, Recovery of DebtDue to Banks and Financial InstitutionsAct, 1993, Sarfaesi (Securitization andReconstruction of Financial Assets andEnforcement of Security Interest) Act, 2002.

Much legislation also meant multipleregulatory bodies such as NationalCompany Law Tribunal, Debt RecoveryTribunal and Board for Industrial andFinancial Reconstruction. These, coupled


with intense litigations in the debt recoverylandscape caused the resolution processto be lengthy and time consuming and inmost cases resulted in significantimpairment of debts owed to financial andoperational creditors.

India leads the lag

It is pertinent to note that a World Bankstudy reports that the average time toresolve insolvency is four years in India,compared to 0.8 years in Singapore and 1year in London with the Banking LawsReform Committee report further statingthat “When default takes place, broadlyspeaking, lenders seem to recover 20% ofthe value of debt, on an NPV basis”. Allthis meant a pressing need to provide acomprehensive solution to the issue ofindividual and corporate insolvency andbankruptcy in India.

The Tenth Attempt strikes Gold

Nine Committees were set up by theGovernment since 1964 to study Bankingreforms (Source BLRC report 2015). Whilethese resulted in certain outcomes whichsought to and perhaps even bettered theexisting scenario, the tenth Committee – theBanking Laws Reform Committee headedby Dr T K Viswanathan has been successfulin enabling a new legislation which hasreversed the ethos of insolvency resolutionin India from being debtor led to creditordriven

According to the BLRC report, the new lawis expected to deliver a well-developedinsolvency regime that will amongst other

things, foster ease of doing business andcreate a robust debt market. The keyfeatures of this code include

• A structured process that debtors andcreditors are expected to follow

• A linear stream of thought thatprovides for a defined end state ofinsolvency resolution , the failure ofwhich automatically triggers theliquidation process

• Protection and Preservation ofeconomic value of the debtor

• A time bound and collectivemechanism for insolvency resolutionled by the creditors and supported bythe debtors

• A framework that is expected to betransparent, fair and equitable to allparties involved

A series of ten articles are planned underthe Series. In the first of the series, wediscuss the Advent of the Code and theReport of the Banking Laws ReformCommittee.

The Banking Laws Reform CommitteeReport (“The BLRC report”)

The Government of India constituted theBanking Laws Reform Committee toenable the design and drafting of a newlegal framework for resolving matters ofinsolvency and bankruptcy. Thiscommittee submitted its report inNovember 2015. This report wassubmitted in two volumes.


The guiding principles of this legislationhave been clearly articulated in Volume 1of the Report of the Banking Laws reformCommittee published in November 2015.(Volume 2 is the draft law which has nowbeen legislated with suitable modificationsas were considered necessary).

A synopsis of what the report enshrinedas expectations of the new law are as under

UNCITRAL objectives for Insolvencyresolution

• The key principles set out in the UnitedNations Commission on InternationalTrade Law (UNCITRAL) have beenadopted as the primary objectives ofthis legislation.

• UNCITRAL is the core United Nationsbody operating in the field ofinternational trade law which isengaged in formulating modern, fair,and harmonized rules on commercialtransactions.

• The objectives which are sought to beaccomplished by UNCITRAL in theinsolvency space by a Collectionresolution mechanism are as under :

1. Provision of certainty in the market topromote efficiency and growth.

2. Maximization of value of assets.

3. Striking a balance between liquidationand reorganization.

4. Ensuring equitable treatment ofsimilarly situated creditors.

5. Provision of timely, efficient andimpartial resolution of insolvency.

6. Preservation of the insolvency estate toallow equitable distribution tocreditors.

7. Ensuring a transparent and predictableinsolvency law that contains incentivesfor gathering and dispensinginformation.

8. Recognition of existing creditor rightsand establishment of clear rules forranking priority of claims.

9. Establishment of a framework forcross-border insolvency

Unified legislation and Adjudicatingauthority

• The plethora of laws, regulations andthe resultant regulatory bodies need topave the way for a clean modern lawwhich is a simple, coherent, andeffective answer to the problems facingthe debt recovery space in Indianconditions.

• Multiple forums and Rights of appealcause debt recovery proceedings to bedelayed and or stalled resulting inerosion of economic value, hence thereis a need for a single forum toadjudicate all Debt resolution andinsolvency related proceedings.

• The designated authorities beingNational Company Law Tribunal forCorporate debtors and Debt RecoveryTribunal for individuals andpartnership firms


• The role of the adjudicator will belimited to procedural compliance inrelation to the aspects set out in theCode.

• Matters pertaining to business andviability will be left to the InsolvencyProfessional

The Applicant for Insolvency resolution

• Under the present laws, only thecompany, the Central Government, theReserve Bank of India, StateGovernment, public financialinstitution, a State level institution, ascheduled bank or any secured creditorcan file a declaration in relation to acompany.

• This excludes rights of creditors suchas workmen or other unsecuredcreditors.

• Ideally, any creditor – operational orfinancial should be able to initiate theinsolvency resolution process whichwas to be made operational under thenew law

Control of a Defaulting entity

• Equity holders should ideally have thesole right of management of theCompany and its affairs only when thecompany meets its debt obligations.Where the debt obligations cannot bemet, the control should be transferredto the creditors. This is presently notthe scenario in India where promoterscontinue to stay in control after

default(s). This is sought to be reversedin the new law by a Creditor drivenresolution process aided by anindependent Insolvency ResolutionProfessional

Collective decisions made by debtors andcreditors

• A debtor in default is faced withmultiple options including debtrestructuring, sale as a going concernor liquidation.

• The correct forum for deciding on achoice or a combination of choices isthe creditor’s forum ( Committee ofCreditors ) and not the defaultingpromoters / management or any legalor statutory body

Financial and Business Failures

• The ability of an InsolvencyProfessional, Creditors and the Debtorto distinguish between a FinancialFailure and a Business failure will besignificant in determining the revivalcapability. These two failures alongwith frauds cause entities to becomebankrupt

• Entities which have financial failurescan still be viable through financialrearrangements involvingcompromises by the debtors. Thesemay involve compromises by bothcreditors and the debtor and mayinclude restructuring liabilities,dilution of stake etc.


Insolvency Professional

• The law must appoint a resolutionprofessional (Insolvency Professional)as the manager of the resolution period,so that the creditors can negotiate theassessment of viability with theconfidence that the debtors will nottake any action to erode the value ofthe enterprise. He / she will be viewedas a neutral trustee of the assets of theorganization

• Insolvency Professionals who areengaged to conduct the resolution andthe liquidation process would be aregulated profession administered byInsolvency Professional Agenciesidentified and appointed for thispurpose

• The professional will have the powerand responsibility to monitor andmanage the operations and assets of theenterprise.

• The professional’s role is necessary toenhance the confidence of the debtorsand creditors in the resolution processas well as to ensure that theAdjudicators role is limited toprocedural aspects laid down in theCode

• This person is called the ResolutionProfessional when he/she manages theinsolvency resolution process, andLiquidator when he/she manages theprocess during liquidation

• The RP must be chosen by a majorityvote in the creditors committee for theAdjudicator to accept the application

Insolvency Professional Agency

• The IP agencies will be formedaccording to the guidelines laid out bythe Board.

• All professional IP agencies must abideby the two main objectives of ensuringquality and ensuring fidelity in theirmembers carrying out their functionsas IPs under the Code

• Insolvency professional agencies willperform three key functions –Regulatory, Executive and Quasi-judicial functions

Information utility

• The success of the Insolvencyresolution process also depends onready availability of all credit relatedinformation of the firms which wouldotherwise take the Resolution team along time to compile.

• Hence this code also envisages acompetitive industry of “informationutilities who hold an array ofinformation about all firms at all times

• IU’s will be ready to receiveinformation filings and provide data ondemand, for a charge

• The Board will license and regulate thefunctioning of the IU’s

Time bound resolution plan

• There should be a time boundinsolvency resolution plan /liquidation plan to ensure maximumrecoveries for the creditors of theCompany.


• There is also a provision for a 180 dayresolution window led by theInsolvency Resolution Professional andthe Committee of Creditors duringwhich if no resolution is likely, theCompany moves into liquidation.

• The calm period for insolvencyresolution is where the debtor cannegotiate in the assessment of viabilitywithout fear of debt recoveryenforcement by creditors

Insolvency Board

• The entire mechanism of the oversightof the Code, the rules and regulationswould be entrusted to an InsolvencyBoard constituted at the National level.The proposed law is intended to codifyonly the key aspects in the primarystructure and to be rule / regulationdriven for greater adaptability. TheBoard will be created with the powerto draft regulations

• The key objectives of the Board will beto ensure high recoveries, low delays,sound coverage of widest possible classof claims and to create a perception thatthe Country’s bankruptcy process ismanaged swiftly and in a competentmanner

Individual Insolvency

• Individual insolvency resolution has noclear benchmarks. Hence, a simplifiedprocess is envisaged for default byindividuals. The adjudicatingauthority will be the Debt RecoveryTribunals

• This includes a concept of a “Fresh Startwhere specified loans of a limited classof borrowers can be waived, but thisinformation about individualbankruptcy will reflect in the recordsof the individual

Liquidation

• The law must order the liquidation ofan enterprise which has been foundunviable. This outcome of thenegotiations should be protectedagainst all appeals other than for veryexceptional cases.

Priority of distribution

The law must clearly lay out the priorityof distributions in bankruptcy to allstakeholders. The priority must bedesigned so to ensure that we are able tobuild institutions of scale with greaterconfidence to all stakeholders especiallycreditors who have extended operationalcredit of financial assistance to theenterprise

In the next edition, we will cover thestructure of the Code. As you may beaware, Chartered Accountants can registerthemselves as Insolvency Professionalswhich entails an examination. This isdetailed in http://www.ibbi.gov.in/ andin http://www.iiipicai.in/

(The author is a Chennai based CharteredAccountant and can be reached [email protected])


LEGAL UPDATE ON DIRECT TAXES

CA. G. PARI & CA. P. PRADEEP KUMAR

I. Whether the outer limit prescribed forfiling revised return relaxed by CBDTthrough its circular u/s 119 of ITA isvalid?

The issue came up for considerationin the case of S. SEVUGANCHETTIAR v. PRINCIPAL CHIEFCOMMISSIONER OF INCOME-TAX, Chennai [2016] 76 taxmann.com156 (Madras) DECEMBER 2, 2016

FACTS:

1. The assessee, aged about 68 years anda former employee of ICICI Bank,opted for VRS and while filing returnof income has not claimed anyexemption on the retirement benefitsu/s 10(10C) of ITA on the premise thatthe exemption u/s 10(10A) would beapplicable only on retirement benefitsbut not on voluntary retirementbenefits. Hon’ble Supreme Court, inthe case of S. PALANIAPPAN v. I.T.O.[Civil Appeal No. 4411 of 2010 dated28.9.2015] held that section 10(10C)would be applicable on voluntaryretirement benefits also. Consequentto the decision CBDT has come out witha circular dated 13.4.2016 that relief can

be claimed by the retirees of ICICI Bankwho has opted under Early RetirementOption Scheme, 2003. Assessee hasfiled revised return u/s 139(5) whichwas rejected by AO on 4.08.2016 underthe ground that return has been filedbeyond the time limit prescribed underthe said section. On a petition filedbefore the Court;

HC DECISION:

2. If the default in complying with therequirement u/s 139(5) was due to thecircumstances beyond the control ofthe assessee by virtue of Section 119(2)CBDT has power to relax suchrequirement in order to avoid genuinehardship caused to the assessees. Inthe present case, assessee, being asenior citizen, cannot be denied thebenefit u/s 10(10C) as the amount ofexemption exceeds rupees on lakh.


BUTTRESSES/GROUNDS for theDECISION:

Scheme of section 119 of ITA:

3. Section 119(2)( c ) of ITA provides thatthe Board may, by general or specialorder, in order to avoid genuinehardship relax any requirementcontained in any of the provisionscontained in Chapter IV or Chapter VI-A of ITA, which deal with computationof total income and deductions and,however, such power is exercisablesubject to the conditions that (i) thedefault is due to circumstances beyondthe control of the assessee and (ii) theassessee has complied with therequirement before the assessment inrelation to previous year.

AUTHORS’ NOTE:

4. The three factors which considered bythe Hon’ble High Court, in the abovecase, while allowing the revised returnare i) age of the assessee ii) filing ofrevised return consequent to thedecision of Supreme Court on the samesubject matter and iii) issue of CBDTcircular on this aspect.

Amendments by the FA 2016:

5. Section 119(2)(a) has been amended bythe Finance Act 2016 by extending the

powers of CBDT for issuing general orspecial orders to tone down the rigorsof the newly inserted penalty provisionof Section 270A with effect from01.04.2017 i.e. has power to prescribecircumstances under which penaltymay not be leviable. .

Limitations of CBDT Powers vested in119(2) (c):

6. Powers of CBDT vested u/s 119 to issueorders, instructions or directions for the‘proper administration’ of the Actcannot override the provisions of theAct - KERALA FINANCIALCORPORATION v. CIT [1994] 210 ITR129 (SC). CBDT shall not step into thepowers of assessing authority i.e. itshall not direct the ITO or any otherincome-tax authority to make aparticular assessment or to dispose ofa particular case in a particular manner- J.K. SYNTHETICS LTD. v. CBDT[1972] 83 ITR 335 (SC).

Directions of CBDT binding onAuthorities whereas opinion not so:

7. Benevolent circulars are binding ondepartmental officers - NAVNIT LALC. JAVERI v. K.K. SEN, AAC [1965] 56ITR 198 (SC); however opinionexpressed by the CBDT cannot beconsidered as ‘directions’ issued


u/s 119, which further shall not bindthe income-tax authorities - J.K.SYNTHETICS LTD. v. CBDT [1972] 83ITR 335 (SC).

Genuine hardship relates to financialhardship caused if delay not condoned:

8. CBDT has power to condone delay -R.N. SHETTY TRUST v. SECRETARY,CBDT [2012] 343 ITR 294 (Kar.)provided failure to condone the delaywill cause genuine hardship to theassessee. Genuine hardshipcontemplated u/s 119(2) (b) generallymeant financial hardship caused to theassessee if the delay is not condoned. -PALA MARKETING CO-OP.SOCIETY LTD. v. UNION OF INDIA[2008] 167 Taxman 238 (Ker.).

II. Whether the expression ‘discovers anyomission or any wrong statement’ insection 139(5) envisages for revisionfor not considering the impact of‘conversion of investment into stockin trade’ in the original return, thoughthe same has been disclosed in theNotes to Accounts?

The issue came up for consideration in thecase of ORIGINAL INNOVATIVELOGISTICS INDIA (P.) Ltd. v. JCIT,COMPANY RANGE-V, CHENNAI[2016] 76 taxmann.com 364 (Chennai -Trib.) DECEMBER 28, 2016.

FACTS:

1. The assessee filed its return of incomeon 26.09.2009 admitting businessincome and claiming loss under thehead capital gains. Subsequently on13.05.2010, it filed a revised returnadmitting business loss and short termcapital loss. The reasons adduced forfiling revised return was that there wasomission to disclose the impact on apart of investment that got convertedinto stock in trade. The fact ofconversion of investment into stock-in-trade has been disclosed in the Notesto Accounts without quantifying itsimpact; however in column 12A of 3CDthe amount for such conversion hasbeen reported by the auditor as NIL.Typed copy of Board Resolution wasproduced when the production oforiginal Board Minute Book wasinsisted by AO. The assessment wascompleted on 15.12.2011.

2. AO completed the assessment treatingthe revised return as invalid on theground that through revision the factsgot totally changed consequently notcoming within the purview of anomission or wrong statement which acondition precedent for revision,despite filing of return within the time


limit. The representation of auditor inpursuance to a summon praying toaccept the inadvertent mistake crept in3CD has also been negated by the AO;CIT (A) upheld the assessment of AO.On further appeal;

ITAT DECISION:

3. Bona fide claims shall not be denieddue to procedural irregularitiescommitted by the assessee either underCompanies Act or Income tax Act;Referring the decision of SupremeCourt in the case of NATIONALTHERMAL POWER CO. LTD. [1998]229 ITR 383 wherein it is held that theassessee could make a claim even in theappellate stage, ITAT directed the AOto consider the revised return and tocomplete the assessment.

BUTTRESSES/GROUNDS for theDECISION:

Scheme of section 139(5) of ITA:

4. The conditions to be satisfiedcumulatively for filing a revised returnu/s 139(5) are:

a. That the original return must havebeen furnished u/s.139(1) orpursuance of notice u/s.142(1) ofthe Act;

b. That the assessee discovers anyomission or any wrong statementtherein and

c. That the revised return is filed atany time before the assessment ismade or before the expiry of oneyear from the end of relevantassessment year.

Meaning of expression - ‘discovers’‘omission’, and ‘wrong statement’:

5. The expression “discovers” used inSec.139 (5) connotes `discover of someomission or wrong statement in ROIwhich the assessee was not aware at thetime of filing the original return ofincome’; the word “omission” connotesunintentional act or include to performwhat the law required; and the word“wrong statement” includes in its scope“a statement which was not attentiveto the knowledge of the person makingit”.

Correction Vs Revision

6. The principles/theory emerging in theinterpretation of section 139(5) arewhether the revised return effacing theoriginal return or such revised returndoes not wash away original return butonly cures the defects contained in the


original return. The former one isregarded as ‘revision’ whereas thelatter one is regarded as ‘correction’.

AUTHORS’ NOTE:

Amendments by the FA 2016 in Sec 139(5):

7. Section 139(5) has been amended by theFA 2016 allowing to file revised returnonly in case of returns filed u/s 139(1)and/or u/s 139(4) i.e. belated return.Filing revised return in response tonotice u/s 142(1) is dispensed withfrom the Asst. year 2017-18. Also thetime limit for filing belated return hasbeen restricted to ‘till the end of therelevant assessment year or before thecompletion of the assessment’whichever is earlier. Virtually the timelimit for filing revised return has beencurtailed by one year as and from theAY 2017-18.

Revised return replaces the originalreturn in all aspects:

8. Revised return substitutes the originalreturn for the purpose of assessmentand still retain the character of originalreturn - DHAMPUR SUGAR MILLSLTD. v. CIT [1973] 90 ITR 236 (All.)/Chief CIT v. MACHINE TOOLCORPORATION OF INDIA LTD.[1992] 108 CTR (Kar.) 110.

Intimation u/s 143(1) (a) is not anassessment for the purpose of revision:

9. Intimation u/s 143(1) (a) is not anassessment, consequently the returncan be revised even after the intimationhas been received - CIT v.OMPRAKASH BAGRIA (HUF) [2006]155 TAXMAN 427 (MP).

Concealment or false statements are noteligible for revision u/s 139(5):

10. ‘Concealment or false statements’ arenot covered in ‘omission or wrongstatements’ in section 139(5) - CIT v.J.K.A. SUBRAMANIA CHETTIAR[1977] 110 ITR 602 (Mad.); Addl. CITv. RADHEY SHYAM [1980] 123 ITR 125(All.), whereas it envisages onlybonafide and inadvertent mistakes -SUNANDA RAM DEKA v. CIT [1994]210 ITR 988 (Gauhati).

11. Income cannot be revised by way offiling a revised statement of income -ORISSA RURAL HOUSINGDEVELOPMENT CORPN. LTD. v.ASSTT. CIT [2012] 17 taxmann.com186/204 Taxman 673 (Ori.)

III. Whether deemed dividend underExplanation 3 to 2(22)(e) envisagesadvances received by HUF (thoughthe family is not a registered shareholder) from a closely held company?


The issue came up for consideration in the

case of GOPAL AND SONS (HUF) v. CIT

[2017] 77 Taxmann.Com 71 (SC),

JANUARY 4, 2017

FACTS:

1. The assessee, being HUF, received

advances from M/s. G.S. Fertilizers (P)

Ltd, wherein 37.12% of shares were

held by Sri. Gopal Kumar Sanei, Karta

of HUF; as the beneficial owner of

shares held exceeds 10% the AO, after

considering the Reserves and Surplus

in the Company has invoked section

2(22)( e ) and taxed the advances as

deemed dividends by rejecting the plea

that HUF cannot generally be a

shareholder in a company; in the

present case it is neither a registered

owner nor a beneficial owner.

2. Additions made by AO was confirmed

by CIT(A) on the premise that the

expression ‘concern’ in Explanation 3

to section 2(22)( e ) means ‘a Hindu

undivided family, or a firm or an

association of persons or a body of

individuals or a company’ and the only

condition to attract section 2(2)(22) ( e )

is that the shareholder shall be

beneficial shareholder, which got

fulfilled in this case.

3. ITAT rendered in favour of assessee

holding that ingredients in section

2(22)( e ) have not met in this case by

relying on the decision of BINAL

SEVANTILAL KORADIA (HUF) v.

DEPARTMENT OF INCOME TAX

ITA No. 2900/Mum/2011, AY 2007-08

dated 10.10.2012. The crux of decision

is HUF neither be a shareholder nor a

beneficial owner.

SC DECISION:

4. As Karta is undoubtedly holding

substantial interest (more than 20%

share) in HUF, Section 2(22) ( e ) got

triggered for the advances made by the

closely held company to HUF.

Whether HUF can, in law, be beneficial

shareholder or registered shareholder

in a Company is not a consideration

required for the purpose of taxing

deemed dividend section 2 (22)( e ).

(The authors are Chennai based Chartered

Accountants and they can be reached

at [email protected] &

[email protected] respectively)


LATEST UPDATES ON INTERNATIONAL TAXATION

CA. K SUDARSHAN & CA. CHETNA JAIN

1. New Protocol to India - SingaporeDouble Tax Avoidance Agreement('DTAA') :

With the revision of India-MauritiusDTAA to phase out the Capital GainsTax exemption, the capital gainsexemption for shares in India -Singapore DTAA which was linked

to the India - Mauritius DTAA had to be amended on the same lines.The new protocol signed on 30 December 2016, has inter alia addressed the uncertaintyprevailing over Capital Gains benefit pursuant to the protocol signed with Mauritius. Thesaid protocol has a set of new ideas with stringent substance which will be unique to theIndia - Singapore DTAA.

Key highlights of the protocol:

Article 13 – Capital Gains:

• For shares acquired before 01 April, 2017, the same would be eligible for the existingCapital Gains exemption on alienation. In other words, capital gains would be taxableonly in the Country of Residence of the Alienator subject to the specified conditionsincluding expenditure on operations of the alienator in its Country of Residence of atleast S$200,000 in Singapore or INR 5,000,000 in India, as the case may be, for each ofthe 12- month periods in the immediately preceding period of 24 months from thedate on which the gains arise. Thus, status quo prevails.

• For shares acquired on or after 01 April, 2017, the treatment would be as below:


Thus, for shares acquired on or after 1 April 2017, there will be a two year transitionperiod, during which the capital gains from such shares will be taxed at 50% of India’sdomestic tax rate if the capital gains arise during 1 April 2017 to 31 March 2019.

Article 9 – Associated Enterprises:

The protocol allows both the countries to enter into bilateral discussions for elimination ofdouble taxation arising from transfer pricing or related party transactions. This in linewith India’s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan tomeet the minimum standard of providing Mutual Agreement Procedure (MAP) access intransfer pricing cases.

Article 28A- To enable GAAR Provision

The protocol has inserted Article 28A to the DTAA which is as follows:

“This Agreement shall not prevent a Contracting State from applying its domestic law and measuresconcerning the prevention of tax avoidance or tax evasion”.

Gains arising Up to 31 March 2019 ( up to 2 years)

After 31 March 2019 (after 2 years)

Tax treatment • Tax rate imposed will be limited to 50% of the tax rate applicable in the Country of Residence of the Company whose shares are alienated.

• Subject to specified conditions including expenditure on operations of the alienator in its Residence State of at least S$200,000 in Singapore or INR 5,000,000 in India, as the case may be, for the immediately preceding period of 12 months from the date on which the gains arise.

Will be fully taxable in the Country of Residence of the Company whose shares are alienated.


The said article is the first of its kind wherein the Indian Government has explicitlymentioned that the General Anti Avoidance Rules (GAAR) provisions under the Incometax Act, 1961 shall override even when a specific anti avoidance rules in the form ofLimitation of Benefits clause present in the DTAA. Interestingly, the India-Mauritius revisedprotocol does not contain a similar clause.

1. Revision of India – Cyprus DTAA and related protocol:

India and Cyprus on 18 November 2016 signed a revised DTAA along-with the protocol,which is going to be effective from 1 April 2017. It is imperative to bring to attentionthat the Central Government in 2013 vide Notification No 86/2013 had deemed Cyprusas a non-cooperative jurisdiction for failure to provide for information requested underthe Exchange of Information clause as per the India- Cyprus DTAA. Consequent to it,a withholding tax of 30% was applied to almost all payments made by Indian personsto Cyprus residents. The said action significantly hampered investments from Cyprusand the Madras High Court also gave its affirmation to the CBDT notification andpress release.

With India revising their DTAA with Mauritius, the Indian Government has nowsuccessfully renegotiated their DTAA with Cyprus. Further as a consequent to itssuccessful renegotiation, the Subsequently, CBDT vide its Notification No. 114/2016,dated 14 December 2016 rescinded the notification no 86/2014 dated 01 November2013. Hopefully the revised DTAA should bring cheer to Cyprus and to Indian inboundinvestments.

Key highlights of the Revised DTAA:

• Capital Gains to be taxed in the Country of Residence of the Company whose sharesare being alienated. However, for the shares acquired prior to 01 April, 2017, status quoprevails.

• The scope of Permanent Establishment (‘PE’) has been expanded by includingWarehouse PE, Service PE, Insurance PE, reducing the threshold limit for ConstructionPE from 12 months to 6 months, etc.


• The tax rate for Royalty has been reduced to 10% from 15%, in line with the IndianTax Law.

• The Non – Discrimination clause where the nationals of a contracting state shall not besubjected to any taxation in the other contracting state which is more burdensomewhen compared with the residents of the said contracting state. This clause is alsoapplicable for persons who are not the residents of either of the Contracting states.

• The provisions relating to Exchange of Information have been updated to internationallyaccepted standards. This will enable the exchange of banking information and the useof such information for purposes other than taxation with the prior approval of theCompetent Authorities of the Country providing information.

• The treaty has for the first time introduced an article on Assistance in Collection ofTaxes.

The said Treaty will be effective from 01 April, 2017.

2. Revision of India – Korea DTAA:

India & Republic of Korea has signed a revised DTAA on 18th May, 2015 which hasreplaced the erstwhile DTAA signed in September 1985. The said DTAA will be effectivefrom 01 April, 2017.

Key highlights of the Revised Treaty:

• The scope of Permanent Establishment (‘PE’) has been expanded by including ServicePE, Insurance PE, Dependent Agent PE, reducing the threshold limit for ConstructionPE from 9 months to 183 days, etc.

• The Article on Associated Enterprises includes appropriate adjustment allowed to theamount of the taxes charged on profits that are subject to double taxation. The NewTreaty makes it possible to make transfer pricing adjustments through bilateral AdvancePricing Agreements or Mutual Agreement Procedures.


• The tax rate for Dividends under the new treaty is 15% which is applicable irrespective

of the ownership percentage.

• The tax rate for Interest and Royalties is reduced from 15% to 10%.

• Capital Gains on transfer of shares will be taxed in the country where the property of

the Company is situated, which principally consists of Immovable Property. Further

the revised DTAA provides for source based taxation of capital gains arising from

alienation of shares comprising more than 5% of share capital.

• Limitation of Benefits clause provides that the New Treaty will not restrict the

application of the laws or regulations of a particular jurisdiction designed to prevent

avoidance or evasion of taxes. Further, it states that benefits of the New Treaty will not

be available, if the affairs of a company are arranged with the main or one of the main

purposes of avoiding taxes.

3. Indirect transfer provisions clarifications kept on hold

The CBDT vide press release dated 17 January 2017 has kept in abeyance the clarifications

provided by virtue of Circular no 41 of 2016, wherein the CBDT in the said circular clarified

on the applicability of tax on overseas transfers and its applicability to investors in Foreign

Portfolio Investments subject to exceptions and thresholds.

Pursuant to the circular, various representations were made by FPI’s, FII’s, VC’s etc. on

the apprehensions regarding uncertainty over taxation that were triggered by the circular.

In light of these representations, the CBDT has now kept in abeyance the said circular and

will revisit on the tax aspects again. One would assume that there’ll be more clarity on

these in the upcoming Budget.

(The authors are chennai based Chartered Accountants and can be reached at [email protected]

and [email protected])


Creating Formula that only refer Non-Blank Cells

When you are creating formulas to calculate things like apercentage increase or decrease from the previous periodyou generally do not want to include empty cells inmaking this calculation.

EXCEL TIPS

CA. DUNGAR CHAND U. JAINFor example, let's assume we are calculating the percentage increase in the inventorycounts from one month to the next. If either the previous month has a no entry becausethe current month is the first month we have carried this inventory item then it makesno sense to calculate a percentage increase.

Formula used to calculate % Increase / Decrease is = C2-B2/B2*100

The result is 700 which is not the correct one as we need % increase / decrease. Usage ofbrackets at the appropriate places resolves the issue.

At this juncture, it is worth noting the way excel calculates, which is as follows:1) Bracket 2) Division 3) Multiplication 4) Addition 5) Subtraction


In the above case, since there were no brackets used, the results were as under:1) Bracket Nil2) Division B2/B2 = 1000/1000 = 13) Multiplication 1*100 = 1004) Addition Nil5) Subtraction 800-100= 700

Now by applying brackets at the appropriate place, we get the desired result. The Formulais rewritten as (C2-B2)/B2*1001) Bracket 800-1000=--200 (Anything within the bracket, gets priority,

irrespective of the function)2) Division -200/1000 = -0.23) Multiplication -0.2*100 = 204) Addition Nil5) Subtraction Nil

When the same is applied to all cells, the table looks like this:


Now assuming that the Item XYZ procurement has started from the month of February

2017, the table will then look like this:

To avoid error messages for the instances as above in D7, the following formula can be

used to deal with.

ISBLANK function is used to test for blank cells as shown in the following formula:

=ISBLANK(A2)

Returns TRUE, if the cell A2 is blank and FALSE, if the cell A2 is not filled with any data

To return text values only, use the ISTEXT function as shown in the following formula:

=IF(ISTEXT(A2),A2,"")

To return numeric values only, use the ISNUMBER function as shown in the following

formula

=IF(ISNUMBER(A2),A2,"")

If you are trying to trap errors use the following formula:

=IF(ISERROR(A2/B2),"",A2/B2)

In the above ISERROR function A2, A3 cell can be replaced by a formula also.


Also, In Cell G8, the linkage of Cell D8 can be avoided using the combined formula

Original Formula : IF(ISERROR(D8)=TRUE,"",D8)

Combined Formula : IF(ISERROR((C8-B8)/B8*100)=TRUE,"",(C8-B8)/B8*100)onl

Alternatively, IFERROR function can also be used. IFERROR function returns a value you

specify if a formula evaluates to an error; otherwise, returns the result of the formula.

Syntax : iferror(value, value_if_error)

Formula :

=iferror(D8,"") or =iferror(D8,"Error")

Returns a blank or "Error". as the case may be, if the cell D8 has an error and returns the

result, if there is no error.

(The author is a Madurai based Chartered Accountant. He can be reached at

[email protected])

thInauguration of 18 Annual Residential Conference of CASC “Haai(land) to Yunakthi”

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