MCA extends due date for filing e-form AoC-4 up to Nov. 30, 2019 and e-form MGT-7 up to Dec. 31, 2019

No GST registration required for commission agent supplying exempted agricultural produce at a commission

Bhaktawar Mal Kamra & Sons, In re – [2019] 110 taxmann.com 138 (AAR – HARYANA)

The applicant is a commission agent providing services to the farmers for selling the agricultural produce to various buyers such as traders, manufacturers or stockists. It has sought an advance ruling to determine whether the applicant is liable to obtain GST registration for services relating to purchase or sale of agricultural produce?

The Authority for Advance Rulings, Haryana observed that as per the provisions of the CGST Act, 2017, an agriculturist who supplies produce out of cultivation of land is not liable for GST registration and cannot be considered as a ‘taxable person’. Therefore, a commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is also not liable for compulsory GST registration.

Under GST, scope of supply covers the activities undertaken through an agent. However, as per exemption notification services provided by commission agents relating to purchase or sale of agricultural produce have been exempted from GST. Hence, such commission agents, even when they qualify as agents whose services fall under scope of supply, are not liable to be registered if the agricultural produce or other goods or services supplied by them are wholly exempt from GST. However, in cases where the supply of agricultural produce is not exempted and liable to tax, such commission agents shall be liable for registration if the aggregate turnover, in a financial year exceeds the threshold limit of Rs. 20 lakh rupees.

The Authority for Advance Rulings, Haryana held that a commission agent who is making supplies on behalf of agriculturist, who is not a taxable person, is not liable for compulsory registration under GST. However, if the aggregate turnover of supply of exempted as well as taxable goods supplied by commission agent exceeds the threshold limit, then such commission agent shall be liable for registration.

No GST on medicines, implants, etc., used in medical treatment being ‘Composite Supply’ of healthcare services

Royal Care Speciality Hospital Ltd., In re – [2019] 110 taxmann.com 481 (AAR – TAMILNADU)

The applicant is a multi-specialty hospital providing health care services. It has sought an advance ruling to determine whether the medicines, consumables, implants, etc., used in the course of providing health care services to patients admitted in hospital would be considered as ‘composite supply’ of healthcare services and exempt from GST?

The Authority for Advance Rulings, Tamil Nadu observed that the applicant provides medicines, consumables, implants, etc., to in-patients in the course of treatment for which a single bill is raised. The applicant cannot provide health services including diagnostic, treatment surgery, etc., without the help of medicines to be taken during treatment, implants and consumables used during their stay in the hospital. On usage of medicines, consumable and implants as prescribed by doctors and administered during stay of the patients, the treatment shall be complete.

Under GST, ‘composite supply’ means two or more taxable supplies of goods or services or both which are naturally bundled and supplied in conjunction with each other in the course of business. Therefore, the supply of medicines, implants and consumables are naturally bundled with supply of healthcare services and, hence, to be treated as ‘composite supply’ of healthcare services.

As per exemption notification under GST, health care services provided by clinical establishments are exempt from GST. Since the applicant being a hospital is a clinical establishment and ‘composite supply’ of healthcare services provided by it, shall be exempt from GST.

The Authority for Advance Rulings, Tamil Nadu held that medicines, consumables & implants used in providing health care services to patients are ‘composite supply of healthcare services’ which are exempt from GST.

HC directed Competent Authority to release goods of assessee on furnishing bank guarantee for tax & penalty

RS Development and Constructions India (P.) Ltd. v. Assistant State Tax Officer Squad No. VIII, Palakkad, Kerala – [2019] 110 taxmann.com 142 (Kerala)

The Competent Authority had detained the goods of the assessee under transport and issued a detention notice demanding the tax and penalty. The assessee filed a writ petition before High Court of Kerala challenging the notice issued by the Competent Authority.

The Honorable Court observed that the issues raised in this petition were at preliminary stage and the Court was not convinced to entertain the writ and adjudicate upon its merits at that stage.

The Honorable Court directed the Competent Authority to release the detained goods and vehicle upon submission of the bank guarantee by the assessee equivalent to tax and penalty as demanded in the notice. Also, the Competent Authority would complete the inquiry after giving reasonable opportunity to the assessee and pass its order accordingly.

Ex-parte order against client can’t be recalled if in-person notice was served to its CA: SC
Principal Commissioner of Income-tax.(Central)-1 v. NRA Iron & Steel (P.) Ltd. – [2019] 110 taxmann.com 491 (SC)
The Supreme Court issued a court notice to the assessee-company but no one appeared on behalf of the company. Thereafter, a dasti notice (a notice served in person) of court proceedings was served upon the Chartered Accountant (an authorized representative of the company) but he failed to communicate the same to the company. Therefore, the Supreme Court passed an ex-parte order as assessee remained unrepresented despite service of in-person upon its authorised representative.
The company filed an appeal to recall the judgment on the ground that the Chartered Accountant was not the ‘principal officer’ of the Company and, therefore, notice could not be effected upon him. The Supreme Court keeping in view the facts and circumstances of the case held that the Company was duly served with dasti notice through its authorized representative, and were provided sufficient opportunities to appear before the Court, and contest the matter. Since, the company chose to let the matter proceeded ex-parte. The grounds to re-call the judgment were devoid of any merit whatsoever.

Govt. introduces online proficiency test for Independent Directors with effect from Dec 01, 2019
Independent directors have a crucial role to play for keeping good governance practices. Lately, many individuals have come under the lens of MCA and other regulatory bodies in connection with irregularities at companies while serving as independent directors.

In order to ensure the basic literacy of company law, securities law and accountancy among Independent directors and to boost Corporate Governance standards in India, the Govt. has decided to introduce online proficiency self-assessment test for Independent directors.

In this regard, the Government has notified Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 whereby Indian Institute of Corporate Affairs (‘IICA) has been appointed as an Institute to create and maintain data bank of persons willing to be appointed as independent directors.

Such databank shall be an online databank which shall be placed on the website of IICA. The IICA shall also be responsible for conducting online test and creating study material for such exams for independent directors.

Subsequently, MCA has notified the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019, and the Companies (Accounts) Amendment Rules, 2019. The notifications shall come into force with effective from Dec 01, 2019.

Compensation received by builder for extinction of its right to sue was non-taxable capital receipt

Chheda Housing Development Corpn. v. ACIT – [2019] 110 taxmann.com 56 (Mumbai – Trib.)
The assessee was engaged in the business of financing, construction and development. It entered into a Memorandum of Understanding (MOU) for developing saleable rights of floor surface index on a plot of land. It paid certain sum as advance to the owner at the time of execution of MOU. Later on, it came to know that the development rights had already been transferred by the owner to a company of his family members.
Later on, the assessee & the owner agreed to cancel the development agreement and a deed of cancellation was executed. On execution of cancellation deed, the assessee was paid Rs. 20 crores by the confirming party as refund of advance with interest, loss of profit, liquidated damages and loss of opportunity to develop his own property and cost of liquidation. In the return of income, the assessee declared the said compensation as a capital receipt not chargeable to tax. The Assessing Officer (AO) treated the said receipt as assessee’s income and taxed it as Long Term Capital Gains.
On appeal, the ITAT held that the Act has not defined the terms ‘capital receipt’ and ‘revenue receipt’. One has to rely on the natural meaning of the terms as well as on the precedent of the decided cases. In order to determine the nature of a receipt, it is necessary to go by its nature in the hands of the recipients. In the present case the amount received by the assessee in excess of advance was on account of compensation for extinction of its rights to sue the owner. Since the assessee had not received said amount in the course of business, it couldn’t be construed as a capital receipt.

No prosecution proceedings if tax was deposited belatedly after coercive steps taken by dept.: HC

Vyalikaval House Building Co operative Society Ltd. v. DCIT – [2019] 110 taxmann.com 107 (Karnataka)
In response to the show-cause notice, the assessee filed returns of income and declared the total income of certain amount and the total tax payable of certain amount. But the assessee failed to pay the self-assessment tax along with the return of income.
The revenue contended that the assessee had willfully and deliberately made an attempt to create circumstances to enable it to evade payment of tax. A compliant was lodged before the court for economic offences, seeking prosecution of the assessee for the offence punishable under section 276C(2).
The Karnataka High Court held that the gist of the offence under section 276C(2) is the wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act. What is made punishable under this section is an ‘attempt to evade tax penalty or interest’ and not the actual evasion of tax.
In the instant case, the only circumstance relied on by the dept. in support of the charge levelled against the assessee was that, even though assessee filed the returns but it failed to pay the self-assessment tax along with the returns.
This circumstance even if accepted as true, the same does not constitute the offence under section 276C(2). The act of filing the returns by itself couldn’t be construed as an attempt to evade tax, rather the submission of the returns would suggest that assessee had voluntarily declared his intention to pay tax. Therefore, prosecution proceedings couldn’t be initiated against assessee even if such tax was recovered from assessee after coercive steps taken by department.

Key takeaways from SEBI’s circular tightening norms to check abrupt resignation of auditors

SEBI vide. circular dated October 18, 2019 has tightened norms with regard to resignation of Auditor from listed companies. Earlier, SEBI had issued consultative paper in this regard for seeking public comments to deal with menace of abrupt resignation by auditors in listed companies citing reasons such as pre-occupancy, non-receipt of required information, etc. Now SEBI vide. circular has framed stringent norms for listed companies and auditors to ensure issuance of reports by auditors before tendering their resignation. Key takeaways from SEBI circular on Auditor’s resignation are discussed hereunder:

Additional compliance for listed cos. if auditor resigns within 45 days from end of quarter: All listed companies and material subsidiaries shall have to ensure that an auditor submits the audit limited review /audit report, if he or she is tendering resignation, within 45 days from the end of a quarter.

Compliance in case if auditor resigns after 45 days from end of quarter: Auditors resigning after 45 days from the end of a quarter, before their resignation shall have to issue audit reports for the quarter concerned as well as the next quarter.

What if auditor has signed limited review/audit report for first 3 quarters? If Auditors have signed the limited review or audit report for the first three quarters then they would be required to issue the audit report for the last quarter as well as for the complete financial year before tendering their resignation.

Direct Reporting of concerns hampering audit process to audit committee: Now auditor shall approach the Chairman of the Audit Committee of the listed entity for issues such as non availability of information/non-cooperation by the management which hamper the audit process. The Audit Committee shall receive such concern directly and immediately without specifically waiting for the quarterly Audit Committee meetings.

ITAT deleted sec. 68 addition made by AO on basis of investigation wing report without conducting independent enquiry

October 16, 2019[2019] 109 taxmann.com 403 (Delhi – Trib.)

INCOME TAX : Where assessee declared long term capital gain on sale of shares but Assessing Officer made section 68 addition in hands of assessee on basis of investigation wing report that assessee was beneficiary of accommodation entries, without conducting separate and independent enquiry, since shares were dematerialized and sales had been routed from de-mat account and consideration had been received through banking channels, assessee had successfully discharged onus cast upon him by provisions of section 68

SECTION 32 OF THE INCOME-TAX ACT, 1961 – DEPRECIATION – ALLOWANCE/RATE OF

Residential flats for employees : Residential flats built by assessee-company for accommodation of its employees was to be regarded as building used for purpose of business of company and thus, assessee was entitled to claim high rate of depreciation on said flats – Commissioner of Income-tax v. Ashok Leyland Ltd. – [2019] 110 taxmann.com 3 (Madras)

S.O. 3719(E), Dated 15-10-2019

CBDT exempts Forex authorised dealers & Full-Fledged Money Changers from purview of Sec. 194N TDS

Editorial Note : The CBDT has notified that provisions of sec. 194N shall not be applicable to authorised dealers of forex & Full-Fledged Money Changers. Exemption is available if separate bank a/c has been maintained from which withdrawal is made for purchase of foreign currency from foreign tourists or NR visiting India or from resident Indian on their return to India or for disbursement of inward remittances to recipient beneficiaries in India in cash under Money Transfer Service Scheme.

Sum received as damages from tenant for unauthorized occupation of property was capital receipt not liable to tax

Talwar Bro. (P.) Ltd. v. ITO – [2019] 109 taxmann.com 398 (Kolkata – Trib.)
Assessee owned a property which was given on sub-lease to PSIDC – PSIDC did not vacate premises after determination of sublease. Matter was referred to arbitrator who passed an award in terms of which assessee received damages for unauthorised occupation of property by PSIDC. Assessing Officer (AO) held that amount so received was nothing but unrealized rent and should be taxed as ‘income from house property’.
The Kolkata Tribunal held that the term ‘mesne profits’ relates to the damages or compensation recoverable from a person who’ has been in wrongful possession of immovable property. The mesne profits as per the definition in Code of Civil Procedure is the income which the person in wrongful possession derives from the property or might, with due diligence, have obtained from the property.
Assessee had received the impugned mesne profits not in the nature of rent but damages assessable to tax neither as income ‘from house property’ nor ‘income from other sources’. Thus, amount so received as being in nature of ‘mesne profit’, was a capital receipt which was not liable to tax.

E-commerce operator not liable to pay GST for manpower services rendered by drivers through its platform

Humble Mobile Solutions (P.) Ltd., In re – [2019] 110 taxmann.com 234 (AAR – KARNATAKA)

The applicant operates electronic platform service called ‘DriveU’ which provides drivers on demand to customers who wish to obtain the services of a driver. The applicant has sought an advance ruling to determine whether it is liable to pay GST for services rendered by drivers through e-commerce platform operated by it?

The Authority for Advance Rulings, Karnataka observed that drivers are not employees of the applicant and also not hired by the applicant. Drivers are only listed on applicant’s portal and are providing services on principal-to- principal basis for which consideration is either received directly from customers or indirectly through applicant.

Under GST, the liability for payment of tax in respect of intra-State supplies of ‘services by way of transportation of passengers by radio-taxi, motor cab, maxi cab and motorcycle’ supplied through an e-commerce operator would be on the e-commerce operator and not on actual supplier. In this case, drivers are not rendering the services in their vehicles but are driving the vehicles belonging to the customers and, hence, are providing manpower services ‘driving a motor vehicle’ but are not providing the above specified services.

The Authority for Advance Rulings, Karnataka held that the applicant is not liable to pay GST for supply of services by drivers through e-commerce platform operated by it.

Corpus/Sinking Fund collected by RWA from members not liable to GST

Prestige South Ridge Apartment Owners Association, In re – [2019] 110 taxmann.com 235 (AAR – KARNATAKA)

The applicant is an apartment owner’s association. It has filed an application for advance ruling to determine applicability of GST on corpus/sinking fund collected from members.

The Authority for Advance Rulings, Karnataka observed that the applicant is collecting amount towards corpus/sinking fund for future supply of services to its members. Such fund is mandatory under the Bye-Laws of the Resident Welfare Associations and is in the nature of deposit towards unforeseen or planned events.

As per the meaning of ‘consideration’ defined under GST Act, the deposit given in respect of a future supply shall not be considered as payment made for such supply until the supplier applies such deposit as consideration. Therefore, the amount collected towards Corpus/Sinking fund does not form part of consideration towards supply of services at the time of collection and, hence, not liable to GST. However, the amount so utilized for provision of service is liable to tax at the time of actual supply of service.

The Authority for Advance Rulings, Karnataka held that amount towards corpus/sinking fund collected by applicant from members is not liable to GST.

Sale of goods from Duty Free shops located at International Airports constitutes ‘export of goods’

Sandeep Patil v. Union of India – [2019] 110 taxmann.com 155 (Bombay)

The assessee sells goods to international passengers both departing and arriving passengers from duty free shops (DFS) situated in international airport at Mumbai. Such goods are mainly imported or procured from SEZ units in India and are sold before those cross customs barriers. The assessee procures imported goods without payment of duty, hence, availment of ITC on imported goods does not arise. However, for input services such as rent, maintenance services and other services, different service providers charge GST from the assessee, which is available as credit.

The assessee had challenged the order before the High Court of Bombay, passed by the Deputy Commissioner of Sales Tax denying the refund of ITC accumulated on account of services received by duty free shops at the airport.

The Honorable Court observed that as per provisions of the IGST Act, export means ‘taking goods out of India to a place outside India’. Therefore, supply by assessee from DFS to the outbound passenger constitutes export. Also, supply of goods from arrival DFS is also treated as ‘export’ by the Central Govt. vide an order issued on August 31, 2018. Hence by legal fiction, the supply of goods from arrival DFS would also qualify as an export of goods under the IGST Act. Since the export qualifies for 100% ITC, the assessee is eligible for refund.

As per the amendment made to the CGST Act, from February 1, 2019, supply of warehoused goods before clearance for home consumption is neither supply of goods nor supply of services and, hence, no reversal of ITC is required in respect of such supplies. The same applies to sale of goods from arrival DFS for which the assessee is required to claim ITC.

The Court also agreed with the submissions of the assessee that sales from DFS to arriving passengers are sales from the customs area as the goods have neither crossed customs frontier nor cleared for home consumption by DFS and, hence, customs duty and IGST are not payable by DFS.

The Honorable Court quashed and set aside the said order passed by the Deputy Commissioner of Sales Tax and held that the sale of goods from DFS located at International Airports constitutes ‘export of goods’ and, hence, assessee is entitled to refund of ITC

Amendment in Schedule VII of Companies Act, 2013: MCA
NOTIFICATION NO. [F.NO. 13/18/2019-CSR], DATED 11.10.2019

The Ministry of Corporate Affairs (MCA) has amended the Schedule VII (related to CSR activities) of the Companies Act, 2013 wherein item no (ix) and the entries relating thereto have been amended. Now CSR fund can be spent on incubators funded by the Central or State governments or public- sector undertakings, which includes publicly-funded universities, IITs, National laboratories, Defence Research and Development Organization (DRDO), Council of Scientific and Industrial Research (CSIR), Indian Council of Medical Research (ICMR) and other autonomous bodies established by Government departments.

Ind AS 38: Exp. on gifts to doctors by pharma co. is expensed off in P&L even if it creates future economic benefits

Query

An Ind AS compliant company, say P Ltd. is engaged in the business of manufacturing of medicines. To encourage doctors for prescribing its medicines, it distributes gift items such as mobile phones, decorative items, etc. to doctors along with medicine catalogues. The gifts are distributed without any condition.

Should P Ltd. recognise any revenue from distribution of gifts to the doctors? If not, how the expenditure incurred in the gift items should be recorded by P Ltd.?

Answer

Ind AS 115, Revenue from Contracts with Customers, deals with recognition of revenue. According to para 6 of Ind AS 115, the Standard should be applied only to the contract with a customer. A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and a customer is defined as one of the party to the contract to obtain goods or services from an entity, being counterparty to the contract, that are output of the entity’s ordinary activities in exchange for consideration. In the given case, as there is no contract between the doctors and P Ltd., doctors are not customers of P Ltd. and the distributed promotional gifts are not the output of P Ltd.’s ordinary activities. Accordingly, no revenue from distribution of gifts shall be recognised.

Further, with respect to the accounting treatment of expenditure incurred on gift items, para 69 of Ind AS 38, Intangible Assets provides that expenditure incurred on advertising and promotional activities should be recognised as expense in statement of profit and loss. The said para states that sometimes expenditure incurred for future economic benefits does not create any asset. Such type of expenditure is recorded as an expense. In respect of goods, for claiming expense the entity should have the right to access those goods. It is considered that the entity has right to access the goods when it owns them in accordance with para 69A of Ind AS 38.

In the given case, distribution of gift is a part of sales promotion activities which will create brands or develop customer relationships, which in turn generate future economic benefits. But, Ind AS 38 prohibits recognition of internally generated brands, mastheads, customer lists, etc. as intangible asset. Therefore, the expenditure incurred on purchase of gift items should be expensed off in statement of profit and loss when P Ltd. owns these items.

New Sebi regulations to impact traditional brokers: Nithin Kamath, Zerodha
https://economictimes.indiatimes.com/markets/expert-view/new-sebi-regulations-to-impact-traditional-brokers-nithin-kamath-zerodha/articleshow/71502684.cms

Please note that September 2019 return due date is last date to rectify any error pertaining to year 2018-19 such as:-

1) You can claim any missed ITC of 18-19 till september 2019 return.
2) If any RCM unpaid, pay it & claim ITC till september 2019 return.
3) Issuance of debit note/credit note related to your supply pertaining to year 2018-19.
4) If forgot to upload any invoice in GSTR-1 than upload it otherwise it will be blocked after September 2019 return.
5) Any rectifications/amendments need to be done in GSTR-1 than rectify/amend it otherwise it will be blocked after September 2019 return.
6) Reconcile your GSTR-2A with ITC claimed.
7) In maximum cases your ‘Other incomes’ are taxable, please look to it. Raise invoice for year 18-19 & pay the tax.
8) Reconcile your Sales figure/ ITC claimed/ RCM liability with books & GSTR-3B. If any mismatch arises,rectify it before September 2019 return. Also maintain a register of reconciliation done.

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