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Volume : 41 | Part 1 | April, 2017

AHMEDABADCHARTERED

ACCOUNTANTS

Ahmedabad Chartered Accountants Journal April, 2017 1

Volume : 41 Part : 1 April, 2017

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

C O N T E N T S To Begin with

- Nationalism and Patriotism................................................CA. Yamal A. Vyas...........................3

Editorial - GST and its Impact............................................................CA. Ashok Kataria ........................ 4

From the President.............................................................................CA. Kunal A. Shah....................... ..5

Articles

Transitional Provisions under the CGST Act........................................CA. Chintan M. Doshi......................6

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................12From the Courts.................................................................................. CA. C.R. Sharedalal &

CA. Jayesh Sharedalal................. 13

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................... 16

Unreported Judgements......................................................................CA. Sanjay R. Shah......................20

Controversies.......................................................................................CA. Kaushik D. Shah....................23

Judicial Analysis..................................................................................Adv. Tushar P. Hemani..................27

FEMA & International Taxation

UN TP Manual - India Update........................................................... CA. Dhinal A. Shah &CA. Sagar Shah.............................31

FEMA Updates....................................................................................CA. Savan Godiawala..................35

Indirect Taxes

Service Tax

Recent Judgements..............................................................................CA. Ashwin H. Shah.....................37

Value Added Tax

Judgements and Updates ................................................................... CA. Bihari B. Shah.......................39

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara...............42

Allied Laws Corner..............................................................................Adv. Ankit Talsania.......................45

From Published Accounts .................................................................CA. Pamil H. Shah....................... 49

From the Government ......................................................................CA. Kunal A. Shah........................51

Association News................................................................................CA. Riken J. Patel &CA. Maulik S. Desai .................... 53

ACAJ Crossword Contest......................................................................................................................60

- caaahmedabad

Ahmedabad Chartered Accountants Journal April, 20172

AttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one

month. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Subscription for the financial year 2017-18 is ` 1500/-, single copy ` 150/- (if available).4. Please mention your membership number in all your correspondence.5. While sending Articles for this Journal, please confirm that the same are not published / not even meant for

publishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication, norwill they be sent back.

6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarilyconcur with the authors / contributors.

7. Membership Fees :

Amount in `

Basic S-Tax TotalLife Membership 7500/- 1125/- 8625/-Entrance Fees 500/- 75/- 575/-Ordinary Membership Fees for the year 2016-17In case of Membership (of ICAI) for a period of less than 600/- 90/- 690/-or equal to five years,In case of Membership of (ICAI) for a period of more than five years, 750/- 113/- 863/-Brain Trust Membership Fees 1000/- 150/- 1150/-

Published ByCA. Ashok Kataria,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, NearGujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232No part of this Publication shall be reproduced or transmitted in any form or by any meanswithout the permission in writing from the Chartered Accountants Association, Ahmedabad.While every effort has been made to ensure accuracy of information contained in this Journal,

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

the Publisher is not responsible for any error that may have arisen.

Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciationafter being vetted by experts in the profession.Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]

Journal CommitteeCA. Ashok Kataria CA. Nirav Choksi

Chairman ConvenorMembers

CA. Darshan Shah CA. Gaurang ChoksiCA. Jayesh Sharedalal CA. Rajni Shah CA. Shailesh Shah

Ex-officioCA. Kunal Shah CA. Riken Patel


I have come to learn from first handexperience that all my friends andacquaintances are patriotic and almost all ofthem are very vocal about it. How do we letthe world know that we are true nationalistsand we love our Bharat mata?

We change our photos on Whatsapp andFacebook. We send - mostly forward -patriotic messages at any time of the year. Andwe are usually the first to stand up in a cinemawhen the National Anthem starts playing.Fine. Agreed that we all are true sons anddaughters of our motherland. But is that allthat is to patriotism ?

No. I would say that these actions of ours aremore cosmetic rather than hard corecommitment to our nation. I put forward myhumble views on the subject which is as muchsensitive as it is important for all of us. Theviews are totally personal and the CAAssociation may or may not in agree withthese views. Disclaimer over.

Friends, I feel patriotism means to follow allthe traffic rules without worrying aboutwhether the next person is following the sameor not. Patriotism is not involving ourselvesin becoming ‘practical’ in Professionalmatters. Patriotism is when we follow thequeue in a temple darshan rather thanflaunting our ‘superiority’ and going inthrough the so called VIP lane. The so calledsuperiority could be monetary or in the formof knowing the temple bigwigs.

Patriotism means paying all the taxes that we

Nationalism and Patriotism

are liable to pay. And convincing our clients

to do the same too, without worrying whetherthe client will go away. There is always atemptation to evade taxes by justifying it;“None of my clients/associates/competitors/friends pay full taxes. The politicians amasshuge unaccounted wealth on which theynever pay taxes. The rich farmers don’t paytax. Is it only my responsibility to pay taxes?"

In my humble view this argument is totallybaseless. Friends, we are almost alwayswilling to fight for our rights. I have seen fewpeople who will not fight hard when theirRights-of any kind- are in the danger of beingviolated. But, the same people, you will agree,are not equally strongly insistent onperforming their duties. Such doublestandards are a norm in our country.

And such dual standards can be easilyjustified by any one. We all have read or heardthe story of Jesus Christ asking only someonewho had not committed any sin to throwstones at a thief. The popular interpretation Ihave heard out of this is that all are sinnersand so we can go ahead and do our thingwithout worrying about what is right orwrong!

Coming back to our main topic, I have onerequest to all my friends reading this. Can weall try and follow all the laws of the landreligiously - for a limited period at least? Canwe follow the rules strictly? I think then andonly then will we be able to call ourselves truepatriots. For the rest of us, I will conclude witha popular dialogue of my all time favouritefilm Deewar. “ Doosron ke paap ginane setumhare apne paap kam nahi ho sakte…..”

CA. Yamal A. [email protected]


GST is the most happening event as far as theprofession of chartered accountancy isconcerned. The new proposed levy is alreadyhaving a big impact on the profession and theprofessionals. Every second educationalprogram organised by any organisation isabout GST. Considering the importance andthe impact it is going to have on practisingchartered accountants, I thought it fit tocontinue with the last piece of editorial.

The enactment of the GST laws has clearedthe way for introduction of the GST in thecountry and most likely the date that wouldcreate a new landmark in the Indian Taxation

stSystem is 1 of July, 2017. Though the itemwise rates have not been declared, the GSTcouncil has finalised a four-tier GST structureconsisting of 5%, 12%, 18% and 28%. Theessential items would attract tax at the lowestrate and demerit goods including luxury cars,tobacco products would attract highest rateof tax apart from additional cess. The upperlimit of cess is 15%. Categories of goods onwhich cess will be levied include Pan masala,tobacco and its products, coal and relatedfuels, mineral water, aerated water and drinks,luxury cars etc. Special Economic supplieswill be at Zero Rate. Moreover, essential itemsincluding food will also be taxed at Zero ratewith a view to keep inflation under check.

What impact would GST have on the economyis a larger question. Analysts and experts arealso not able to clearly guess the impact. Someof the advantages in the new GST regimewould be:

· There would be seamless credit availableacross all goods and services.

· Removal of cascading effect of taxesembedded in the cost of production of

[email protected] and its Impact

goods and services will significantlyreduce the cost, ultimately benefitting theconsumer.

· With almost all the indirect taxes nowintegrating into one GST, organisedbusiness houses and sectors would enjoythe ease in business.

The concept and definition of ‘supply’ is veryvast and every person will have to ensureproper compliance to the law. There may be arise, initially, in the cost of compliance. WithGST implemented, the impact on theunorganised sector may be for a shortduration but that would compel them to comeinto the main stream else they would lagbehind in a highly competitive scenario.

It is expected that the rate for services maygo up to 18% from the current level of 15%.The impact of this rise may not me much forthe reason that now the service provider willbe eligible to take credit of inputs on Goodsand Services. At present, assessee is not ableto take the input tax credit benefit of goodsand services, whereas in the proposed GSTsystem assessees will be able to take credit ofsupply of both goods and services which willcover difference of additional 3% GST. Thus,many services many not have much impactwith the increase in rate from 15% to 18%.

The GST era has not yet begun. The exact ratesapplicable to specific goods and services arealso not declared. Only time will tell the exactimpact across all sectors. However,considering all the cascading effect of inputtaxes being removed and availability of inputcredits across the board, most of the sectorsare likely to gain in the new regime.

Pranams,CA. Ashok Kataria


From the President

Dear Members,

At the outset, I express my heartfelt gratitude to allof you for bestowing upon me the honour to be the

st61 President of the Chartered AccountantsAssociation, Ahmedabad. Along with the honourof being the President of this august association, Iam also aware of responsibility and challenges. Ilook forward to diligently performing my dutiesand striving to achieve the vision of the associationwith the support and encouragement from theexecutive committee, respected past presidents andmembers.

It will indeed be a privilege to interact with youthrough CAA journal which is a mouthpiece ofthe Association and serves as an important linkbetween the Association and its members. On mypart, I will be making efforts for greater spread andlarger readership of the Journal, which should notremain confined to Gujarat, but spread to the entireregion of Western India.

Every President who leads the Association musthave a sense of purpose, a mission, a theme, amotto. For this year, I propose that our motto beCHALLENGES ARE AVENUES FOR ACTION.We can expand it thus:

Identify and accept challenges and recognise themas avenues for action. Thus, it is Challenges,Avenues, Action, which can be further abbreviatedas CAA.

Today’s Challenges

Ahmedabad, being designated a megacity, posesnew challenges for us. If we do not accept the needto suitably modify our traditional practices to meetthese new challenges, we will be left behind. In myopening address as the President I stated that thethrust of our educational programmes will be onunderstanding the challenges of globalization andfinding appropriate avenues for responding tothem. This is what Challenges, Avenues and Actionis all about. We should be focusing on emergingissues such as GST, ICDS, Money Laundering,Benami Transactions, International Taxation,FATCA, DTAA, Transfer Pricing, FEMA, andInbound and Outbound Investments in the comingyear. If we do not master these issues, and modifyour services to tackle them, we will no more remaincompetent or even relevant. We must explore newavenues to address these issues before it is too lateand the opportunities slip out of our

CA.

hands.

Kunal A. [email protected]

Implementation of GST will change dynamics ofbusiness and it requires reconsideration of strategy,redefine business rules at every stage. This willbring challenges and we need to convert the sameto opportunity.

My resolution for the year is to offer members anenriched service experience from CAA. As aprofessional we have to update ourselves byattending the study circle meetings and seminars.Keeping this in mind, this year we have planned tohave frequent study circle meetings on direct andindirect taxes so as to enrich the knowledge of theCAA members.

To start with, we have arranged the GST study seriesth thcomprising of ten lectures from 12 May to 13

June,2017. We have received an overwhelmingresponse for the same and we have to close downthe registration. Further we have also arranged aseminar on “ Income Tax Amendments applicablefor AY 2017-18 and changes in new ITR forms on

rd23 May,2017 under the banner of Study circle –Direct Tax Committee. Over and above the studycircle meetings, we have also organized aprogramme on “ Practical Aspects and intricaciesof Income Computation and Disclosure Standards

th(ICDS)” on 17 June, 2017 under the banner ofBrain Trust cum work shop committee.

The Residential Refresher Course (RRC) of the CAAis always eagerly awaited by all the members. We

thhave planned the 44 RRC at Jaypee Greens Spand th& Resorts, Greater Noida from 2 to 5

August,2017. The detailed circular is alreadycirculated and I request all the members to registertheir name for the RRC at the earliest.

As I sign off, I would like to draw your attention tounique opportunity. You can open the doors oflearning by gifting CAA membership to freshlyqualified CAs. Be it your article student or anacquaintance who passed out, you can make a giftthat will take their prefix to a new height. The icingon the cake is a complimentary e-kit that is beingoffered to such qualified CAs. I request all themembers to make this endeavour a grand success.However the CAA, as a mark of recognizing themeritorious students will be giving them freemembership.

With regards,

CA. Kunal A. ShahPresident


Transitional Provisionsunder the CGST Act

Introduction:

The Goods and Service Tax Law is soon going tostbe a reality in our country. 1 July, 2017 is the date

that everyone is expecting when the new tax lawwould be effective. The most important aspect inthis paradigm shift would be the transitionalprovisions for all taxpayers moving from old systemto the new regime. An attempt is made to cover thetransitional provisions as per the Central Goods &Service Tax Act in this Article.

Section 139 – Migration of existing taxpayers

Every person, other than Input Service Distributoror a person deducting tax at source, who is registeredunder any of the existing laws and havingPermanent Account Number (PAN) shall have toenrol on the common portal by validating his emailaddress and mobile number.

Upon such enrolment, he shall be grantedregistration on provisional basis and certificate ofregistration in FORM GST REG-25, incorporatingGSTIN therein, shall be made available on commonportal.

Every person shall be granted only one registrationbased on single PAN, though he may have multipleregistration under existing laws.

Any person having centralised registration underService Tax, shall be granted only one provisionalregistration in each state or union territory.

Every person who has been granted a provisionalregistration shall submit an application electronicallyin FORM GST REG-24, duly signed along withthe information and documents specified therein.

Such information as specified in application shallhave to be furnished within 3 months or within suchfurther period as may be extended.

Proper officer after verification of such furnishedinformation and documents shall make available

certificate of registration in FORM GST REG-06electronically on the common portal.

If such information or documents are neitherfurnished nor found to be correct or complete, theproper officer after serving a show cause notice andaffording a person a reasonable opportunity of beingheard, shall cancel the provisional registration.

If any person, who is registered under the existinglaws and not liable to registration u/s. 22 or 24 ofTHE CGST Act, files an application for cancellationof his provisional registration in FORM GST REG-28 within 30 days from the appointed day and hisprovisional registration shall be deemed to have notbeen issued and the proper officer shall, afterconducting such enquiry as deemed fit, cancel theregistration.

Section 140 – Transitional Arrangements forInput Tax Credit

Every registered person can claim input credit onduties involved in the closing stock on hand as onthe day immediately preceding the appointed day.

For claiming such credit, transitional provisions aremade u/s. 140 to 142 of The CGST Act and rulesmade thereunder.

Arrangement for availment of Input Tax Creditfrom existing laws to the GST laws is prescribedfor following persons:

1. A registered person, who has not opted forcomposition levy u/s. 10 and eligible to availcredit balance of CENVAT credit of existinglaws(Section 140(1))

2. A registered person, who has not opted forcomposition levy u/s. 10, and eligible to availcredit of unavailed CENVAT credit in respectof capital goods (Section 140(2))

3. A registered person – (Section 140(3))a. who was not liable to be registered under

the existing law or,

CA. Chintan M. [email protected]


b. who was engaged in the manufacture ofexempted goods or provision of exemptedservices or,

c. who was providing works contract servicesand was availing benefit of notification No.26/2012 of Service tax or,

d. a first stage dealer or,e. a second stage dealer or,f. a registered importer or,g. a depot of manufacturer

4. A registered person who was engaged in themanufacture/provision of taxable as wellexempted goods/services (Section 140(4))

5. A registered person receiving inputs/inputservices after the appointed day, but the tax forthe same has been paid by supplier in earlierlaw(Section 140(5))

6. A registered person, who was either paying taxat a fixed rate or paying a fixed amount in lieuof the tax payable in earlier law(Section 140(6))

7. An Input Service Distributor(Section 140(7))

8. A registered person having centralisedregistration under the existing law(Section140(8))

Following common conditions are prescribed forall of the above persons:

a. The registered person is eligible for inputtax credit under GST law.

b. Such person shall have to submit anapplication electronically in FORM GSTRTRAN-1 within 60 days from the appointedday.

In addition to aforesaid condition differentconditions for above mentioned different personsare as follows:

1. A registered person, who has not opted forcomposition levy u/s. 10:

Such person can take in his electronic creditledger, credit of CENVAT credit carriedforwarded in the return furnished by him in theexisting law relating to the period ending withthe day immediately preceding the appointedday, subject to following condition:

a. He has furnished all the returns requiredunder existing law for the period of 6months immediately preceding theappointed day.

b. Said credit is not related to goodsmanufactured and cleared under anyexemption notification.

2. A registered person, who has not opted forcomposition levy u/s. 10, and wants to availcredit of unavailed CENVAT credit inrespect of capital goods:

Unavailed CENVAT credit means the amountthat remains after subtracting the amount ofCENVAT credit already availed in respect ofcapital goods under the existing law from theaggregate amount of CENVAT credit of capitalgoods.

Such unavailed CENVAT credit can be takenin electronic credit ledger if, -

a. Such CENVAT credit was admissibleunder existing law also.

b. In the application for CENVAT credit, thefollowing particulars shall be mentioned:

i) The amount of tax or duty availed orutilized by way of input tax credit underexisting law.

ii) The amount of tax or duty yet to be availedor utilized by way of input tax credit underexisting law till the appointed day.

3. A registered person who was not liable tobe registered under the existing law or whowas engaged in the manufacture ofexempted goods or provision of exemptedservices or who was providing workscontract services and was availing benefitof notification No. 26/2012 of Service tax ora first stage dealer or a second stage dealeror a registered importer or a depot ofmanufacturer:

Such person can take credit of eligible dutiesin respect of inputs held in stock and inputscontained in semi-finished or finished goods

Transitional Provisions under the CGST Act


held in stock on the appointed day subject tofollowing conditions:

a. Such inputs or goods are used or intendedto be used for making taxable suppliesunder GST law.

b. Said person is in possession of invoice orother prescribed documents evidencingpayment of duty and which should havebeen issued not earlier than 12 monthsimmediately preceding the appointed day.

c. Such supplier is not eligible for anyabatement under GST law.

d. In the application for CENVAT credit,details of stock held on appointed day shallbe specified separately.

If such person is a first stage dealer or, asecond stage dealer or, a registered importer,and who is not in possession of any invoicesor any other documents evidencingpayment of duty, then also he can takeCENVAT credit in his electronic creditledger at the rate of 40% of applicableCentral tax after the appointed day subjectto following conditions:

a. Applicable Central tax on such supply afterthe appointed day, has been paid.

b. Supply of such stock can be made within6 months from the appointed day.

c. Such goods should not be wholly exemptfrom duty of excise under the existing law.


e. At the end of each of the 6 months fromthe appointed day, monthly stock statementshall be submitted electronically inprescribed form, indicating details ofsupply of such goods effected.

f. The stock of goods on which credit isavailed should be so stored in such mannerthat it can easily identified.

g. Benefit of such credit should be passed to

4. A registered person who was engaged in the

the recipient by way of reduced prices.

manufacture of taxable as well as exemptedgoods/services:In respect of inputs held in stock for themanufacture of taxable goods, such personcan take CENVAT credit as mentioned in pointNo. 1 above.

In respect of inputs or inputs held in stockandinputs contained in semi-finished or finishedgoods held in stock for the manufacture ofexempted goods or services, such person cantake credit of eligible duties as mentioned inpoint No. 3 above.

5. A registered person receiving inputs/inputservices after the appointed day, but the taxfor the same has been paid by supplier inearlier law:Such person can take credit of eligible dutiesand taxes in his electronic credit ledger, inrespect of inputs or input services subject tofollowing conditions:

a. Invoice or duty or tax paying document forthe said goods is recorded in the books ofsuch person within 30 days from theappointed day.

b. In the application for CENVAT credit,following details shall be mentioned:

i. The name of supplier, serial numberand date of issue of the invoice by thesupplier or any document on the basisof which credit of input tax wasadmissible under existing law.

ii. The description, quantity and value ofthe goods or services.

iii. The amount of eligible taxes and dutiesor, as the case may be, the value addedtax or entry tax charged by the supplierin respect of goods or services.

iv. The date on which the receipt of goodsor services is entered in the books ofaccount of the recipient.

6. A registered person, who was either payingtax at a fixed rate or paying a fixed amountin lieu of the tax payable in earlier law:



Such person can take credit of eligible dutiesin his electronic credit ledger in respect ofinputs held in stock and inputs contained insemi-finished or finished goods held in stockon the appointed day subject to followingconditions:

a. Such inputs or goods are used or intendedto be used for making taxable suppliesunder GST laws.

b. Said person is in possession of invoice orother prescribed documents evidencingpayment of duty and which should havebeen issued not earlier than 12 monthsimmediately proceeding the appointed day.

c. Such person is not paying tax undercomposition scheme, i.e. paying lumpsumtax.


7. An Input Service Distributor:

Such person can distribute input tax credit ofexisting law, under GST laws even if such creditrelates to the service received prior to appointedday and invoice for the said services arereceived on or after the appointed day.

8. A registered person having centralisedregistration under the existing law:

Such person can take in his electronic creditledger, credit of CENVAT credit carriedforward in the return furnished by him in theexisting law relating to the period ending withthe day immediately preceding the appointedday, subject to following condition:

a. He has furnished the return (either originalor revised) for the period ending with theday immediately preceding the appointeddaywithin 3 months of the appointed day.

b. In the application for CENVAT credit,details of stock held on appointed day shallbe specified separately.

Such credit can be transferred to any otherregistered person having same PAN for which

centralised registration is obtained underexisting law.

According to Section 140(9), whereCENVAT credit has been availed for the inputservices provided under the existing law hasbeen reversed due to non-payment of theconsideration within a period of 3 months, suchcredit can be reclaimed on payment of suchconsideration within a period of 3 months fromthe appointed day.

The term eligible duties is defined in theexplanations to Section 140, according to whichEligible duties for persons mentioned in Section140(3), 140(4) and 140(6) means –

a. Excise duty specified in First Schedule toCETA, 1985

b. Excise duty specified in Second Scheduleto CETA, 1985

c. Additional duty of excise leviable underSection 3 of Additional Duties of Excise(Textile and Textile Articles) Act, 1978

d. Additional duty of excise leviable underSection 3 of Additional Duties of Excise(Goods of Special Importance) Act, 1957

e. National Calamity Contingent Duty(NCCD)

f. Additional duty leviable under Section 3(1)of Customs Tariff Act, 1975 –CVD

g. Additional duty leviable under Section 3(5)of Customs Tariff Act, 1975 – SAD

The term eligible duties and taxes is defined inthe explanations to Section 140, according towhich Eligible duties and taxes for personsmentioned in Section 140(5) means –

a. All the duties mentioned above and

b. The service tax leviable under section 66Bof the Finance Act, 1994.

Section 141 – Transitional Provisions relatingto job work

Where any inputs received at a place of businesshad been removed as such or removed after beingpartially processed to a job worker for furtherprocessing, testing, repair or reconditioning or any



other purpose in accordance with provisions ofexisting law prior to the appointed day, or

Where any semi finished goods had been removedfrom the place of business to any other premisesfor carrying out certain manufacturing processes inaccordance with provisions of existing law prior tothe appointed day, or

Where any excisable goods manufactured at a placeof business had been removed without payment ofduty for carrying out tests or any other process notamounting to manufacture, to any other premises,whether registered or not, in accordance withprovisions of existing law prior to the appointedday –

And such inputs/semi finished goods/ excisablemanufactured goods are returned to the saidpremises, after completion of job work or otherwise/ undergoing of manufacturing process or otherwise/ undergoing tests or any other processes, within 6months from the appointed day, no tax shall bepayable on such goods.

Period of 6 months may be extended by theCommissioner for a further period not exceeding 2months, on sufficient cause being shown.

If the said goods are not returned after completionof job work, then input tax credit availed shall beliable to be recovered.

After completion of manufacturing process inrelation to semi finished goods, the manufacturermay in accordance with the existing law, transferthe said goods to the premises of any registeredperson for the purpose of supplying therefrom onpayment of tax in India or without payment of taxfor exports within 6 months from the appointed day.

Same way, after completion of tests or otherprocesses on manufactured excisable goods, themanufacturer may in accordance with the existinglaw, transfer the said goods on payment of tax inIndia or without payment of tax for exports within6 months from the appointed day.

In all the aforementioned situations, tax is notpayable only if the manufacturer and job worker

within 60 days from the appointed day, submits anapplication electronically in FORM GST TRAN-1, specifying therein the details of the inputs orgoods held in stock by the job worker on behalf ofthe manufacturer on the appointed day.

Section 142(1) – Refund of duty on return ofgoods

Where any goods,on which duty has been paidon the removal thereof under existing law, notbeing earlier than 6 months prior to appointedday, has been returned by a person, not being aregistered person,to any place of business withina period of 6 months from the appointed day,andsuch goods are identifiable to the satisfaction ofproper officer,then such registered person shallbe eligible to refund of such duty paid on suchgoods.

If such goods are returned by a registeredperson, the return of goods shall be deemed to bea supply under GST laws and GST is to be paidthereon.

Section 142(2) – Upward/downward revision inthe price of goods or services

Where any contract is entered prior to appointedday and price of such goods or services is revisedupwards after the appointed day, the registeredperson shall have to issue a supplementaryinvoice or debit note, and if price of such goodsor services is revised downwards after theappointed day, the registered person may issue acredit note,within 30 days of such price revision,and it shall be deemed to have been issued in respectof an outward supply.

Such registered person shall be allowed to reducehis tax liability in respect of credit note issued, onlyif the recipient of such credit note has reduced hisinput tax credit.

Section 142(3), 142(4), 142(5)–Claim for Refund

Any of the following claims for refund shall bedisposed of in accordance with the existing law:

1. Claim for refund filed by any person before,on or after the appointed day for refund of anyamount of CENVAT credit, duty, tax,



interest or any other amount paid under theexisting law, shall be paid in cash.

2. Claim for refund filed after the appointed dayfor refund of duty or tax paid under the existinglaw in respect of goods or services exportedbefore or after the appointed date, shall bedisposed of in accordance with the existing law.

3. Claim for refund filed by a person after theappointed day for refund of tax paid under theexisting law in respect of services notprovided shall be paid in cash.

If any claim for refund of CENVAT credit is fullyor partially rejected, the rejected amount shall lapse.

Any amount of CENVAT credit shall not berefunded, if such CENVAT credit has been carriedforward under GST laws.

Section 142(6), 142(7), 142(8) – Proceedings ofappeal, review or reference, assessment oradjudication proceedings

Any proceedings instituted or initiated before, onor after the appointed day under the existing lawshall be disposed of in accordance with theprovisions of existing laws and –

- any amount of credit/output duty/tax/interest/fine/penalty found to be admissible to theclaimant shall be refunded in cash,

- any amount of credit/output duty/tax liability/interest/fine/penalty becomes recoverable, thesame, unless recovered under existing laws,shall be recovered as an arrear of tax under GSTlaws and the amount so recovered shall not beadmissible as input tax credit under GST laws.

Section 142(9) – Revision of return after theappointed day

If any return furnished under the existing law isrevised after the appointed day, due to which anyamount is found to be recoverable or any amountof CENVAT credit is found to be inadmissible, thesame, unless recovered under existing laws, shallbe recovered as an arrear of tax under GST lawsand the amount so recovered shall not be admissibleas input tax credit under GST laws.

If due to revision of such return, any amount foundto be admissible to any person or CENVAT creditis found to be admissible to any taxable person,then the same shall be refunded in cash inaccordance with the provisions of existing lawsother than the provisions of Section 11B(2) ofCentral Excise Act, 1944. For such refund, thereturn should be revised within the time limitspecified under the existing law.

Section 142(10) – Goods or services providedafter the appointed day

Goods or services or both supplied on or after theappointed date, but contract for the same has enteredinto prior to the appointed day, said supply shall beliable to tax under GST law.

Section 142(12) -Goods sent on approval basis

If goods are sent on approval basis, not earlier than6 months prior to appointed day, are rejected bythe buyer and returned to the seller on or within 6months from the appointed day, no tax shall bepayable thereon.

If such goods are not returned within 6 month fromthe appointed day, the person who has sent thegoods on approval basis shall be liable to tax underGST law.

If such goods are returned after 6 months from theappointed day, the person returning the goods shallbe liable to tax under GST law.

The said period of 6 months can be extended bythe Commissioner but for a period not exceeding 2months, on sufficient cause being shown.

Every person having sent goods on approval underearlier law, shall submit details of such goods inFORM GST TRAN-1, within 60 days from theappointed day.

Section 142(13) – No TDS on supply of goodsbefore appointed day if payment has been madeafter the appointed day

In respect of sale of goods, on which tax wasrequired to be deducted in VAT under any law ofstate or union territory, and invoice also has beenissued prior to appointed day, no TDS shall be madeu/s. 51, if payment to the said supplier is made onor after the appointed day.

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Transparency of records:

Any Court or Tribunal exercising judicial reviewis entitled to call for the records to satisfy itself as tothe existence of reasons in appropriate casesinvolving a challenge to such order, even if thosereasons or information need not be communicated.Further, the reasons of confidentiality must bediscernible on scrutiny of records by the appellateauthority because of mandate of R.7(3) that if theclaim of confidentiality is not worthy of acceptance,or the supplier of the information is unwilling tomake the information public without any goodreasons, Designated Authority has no choice but todisregard such information.

[Union of India and another Vs. MeghmaniOrganics Ltd. and others (2016) (10 SCC 28) ]

The word ‘buyer’ in cl.(e) of the provisoto Se.11-B(2) of Central Excise Actcannot be restricted to the first buyerfrom the manufacturer.

The turnover discount is an admissible deduction.Turnover discount is known to the dealer at the timeof purchase. Trade discounts shall not be disallowedonly because they are not payable at the time ofeach invoice or deducted from the invoice price.The assessee is entitled for filing a claim of refundon the basis of credit notes raised by him towardsturnover discount.

Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

1The doctrine of unjust enrichment is a just andsalutary doctrine. No person can seek to collect theduty from both ends. In other words, he cannotcollect the duty from his purchaser at one end andalso collect the same duty from the State on theground that it has been collected from him contraryto law. The power of the Court is not meant to beexercised for unjustly enriching a person. Thedoctrine of unjust enrichment is, however,inapplicable to the State. State represents the peopleof the country. No one can speak of the peoplebeing unjustly enriched.

The sine qua non for a claim for refund ascontemplated in Section 11-B of the Act is that theclaimant has to establish that the amount of duty ofexcise in relation to which such refund is claimedwas paid by him and that the incidence of such dutyhas not been passed on by him to any other person.Section 11-B(2) provides that in case it is foundthat a part of duty of excise paid is refundable, theamount shall be credited to the fund. Section 2(ee)defines ‘fund’ to mean the Consumer Welfare Fundestablished under Section 12-C. There is a provisoto Section 11-B(2) which postulates that the amountof excise duty which is refundable may be paid tothe applicant instead of being credited to the fund,if such amount is relatable to the duty of excise paidby the manufacturer and he had not passed on theincidence of such duty to any other person.

[CCE Vs. Addison and Co. Ltd. (2016)(10 SCC 56)

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Ascertained Liability v/s. ContingentLiability : Recognition of a ProvisionCIT v/s. Wipro GE Medical System Ltd.(2016) 387 ITR 77 (Kar)

Issue:

Whether ascertained liability and contingent liabilityare deductible?

Held:

An ascertained liability is deductible whereas acontingent liability is not deductible. Normally aprovision is a contingent liability. Three conditionsto be satisfied for recognition of provisions are:-

(a) An enterprise should have a present obligationas a result of a past event;

(b) It is probable that an outflow of resources willbe required to settle the obligation; and

(c) A reliable estimate can be made out of theamount of obligation.

No income can arise through mere book entries.

Book Profit: Power of Assessing Officerto disturb the Accounts: CIT v/s. J.K.Synthetics Ltd. (2016) 387 ITR Page 2(Statutes)

Issue:

Whether Assessing Officer has power to make freshinquiry in respect of the entries in books of account?

Held:

Hon. Supreme Court has dismissed the specialleave petition of the Department and has held asunder:-

Dismissed the Department’s special leave petitionagainst the judgment dated October 1, 2015 of theAllahabad High Court in I.T.A. No. 451 of 2009whereby the High Court following 255 ITR 273

CA. C. R. [email protected]

held that the net profit shown in the profit and loss

account of the assessee company having beenprepared in accordance with Parts II and III ofSchedule VI to the Companies Act, 1956, theAssessing Officer was not entitled to embark upona fresh enquiry in regard to the entries made in thebooks of account of the company to disallowexcess depreciation.

Expenditure out of unaccounted income:CIT v/s. Babulal K. Daga (2016) 387 114(Guj)

Issue:

When there is unaccounted income to be taxedwhether expenditure incurred to earn such incomeis allowable?

Held:

It is well settled that even in case of unaccountedreceipts of a businessman, it is only the profitelement embedded in the business which can betaxed and not the entire amount. If the assessee canpoint out that even on unaccounted receipts,expenditure was also incurred for the purpose ofbusiness; it would be only the reasonable profit onsuch receipts which should be taxed.

Validity of Notice u/s 147 after four years: Requirement of materials outside theassessment proceedings.Nishith Surenedrabhai Soni v/s. CIT(2016) 387 ITR 99 (Guj)

Issue:

Whether notice u/s 147 for reopening of assessmentcan be issued “on verification of each records” orsome materials outside the assessment proceedingsare required?

Held:

We are concerned with the notice for reopening onthe basis of reasons recorded by the Assessing

From the Courts

CA. Jayesh C. [email protected]

Officer. In this respect, the reasons start with

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narration “on verification of the case record ….”Thus, the conclusions of the Assessing Officer arebased on verification of the case record. In otherwords, there was no material outside of theassessment proceedings which enabled theAssessing Officer to conclude that incomechargeable to tax had escaped assessment. Thiselement would be crucial since we are judging thevalidity of the notice for reopening which has beenissued beyond a period of four years from the endof the assessment year. Since therefore, there wasclearly even according to the Assessing Officer, nofailure on part of the assessed to disclose truly andfully all material facts, such notice could not havebeen issued.

Necessity to pass a reasoned order.CIT v/s. Banarsi Sweets P. Ltd. (2016)387 ITR 172 (P & H)

Issue:

Is there a statutory requirement to pass a reasonedorder by the authorities passing order?

Held:

The Supreme Court in Kranti Associates P. Ltd. v/s. Masood Ahmed Khan (2010) 9SCC 496statutorily requires recording of reasons andrequirement of passing a reasoned order by anauthority whether administrative, quasi – judicialor judicial. The Income Tax Appellate Tribunalbeing the final fact finding authority should pass awell reasoned order after examining the entireevidence on record.

That a perusal of the order passed by the Tribunalshowed that findings had not been recorded aftergiving detailed reasons and considering the overallmaterial and evidence on record. The order of theTribunal was to be set aside.

Applicability of Sec. 43 B where there isno claim of deduction : CIT v/s. KnightFrank (India) P. Ltd. (2016) 290 CTR25 (Bom)

Issue:

Can provisions of Sec. 43-B be invoked when thereis no claim of deduction?

From the Courts

Held:It is an admitted position before us that the respondentassessee had not claimed any deduction on accountof the service tax payable in order to determine itstaxable income. In the above view, there can be nooccasion to invoke S. 43B of the Act.

The issue stands concluded against the Revenueby the decisions of this Court in CIT v/s. OviraLogistics (P) Ltd. (2015) 119 DTR (Bom) 269 :(2015) 377 ITR 129 (Bom) and CIT v/s. CalibrePersonnel Services (P) Ltd. (IT Appeal No. 158 of

nd2013) rendered on 2 Feb. 2015.

Premium paid by firm towards KeymanInsurance Policy of partners is allowablePrincipal CIT v/s. Ramesh Steels (2016)290 CTR 93 (P & H)

Issue:

Whether premium paid by firm in KeymanInsurance Policy of the partners is allowableexpenditure?

Held:

Sec. 10(10D) Explanation 1 defines KeymanInsurance Policy as under:-

“Keyman Insurance Policy” means a lifeinsurance policy taken by a person on the life ofanother person who is or was the employee of thefirst mentioned person or is or was connected inany manner whatsoever with the business of thefirst mentioned person.

The object and purpose of a Keyman InsurancePolicy is to protect the business against a financialsetback which may occur, as a result of a prematuredeath, to the business or professional organization.There is no rational basis to confine the allowabilityof the expenditure incurred on the premium paidtowards such a policy only to a situation where thepolicy is in respect of the life of an employee. AKeyman Insurance Policy is obtained on the life ofa partner to safeguard the firm against a disruptionof the business that may result due to the prematuredeath of a partner. Therefore, the expenditure whichis laid out for the payment of premium on such apolicy is incurred wholly and exclusively for thepurposes of business.

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Sec. 14-A : Interest free funds :presumption - CIT v/s. Max India Ltd.(2016) 290 CTR 76 (P & H)

Issue:

How the presumption is to be applied in respect ofinterest free funds while invoking provisions of Sec.14A.

Held:

Merely because the interest free funds with theassessee have decreased during any period, it doesnot follow that the funds borrowed on interest wereutilized for purpose of investing in assets yieldingexempt income. If even after the decrease theassessee has interest free funds sufficient to makethe investment in assets yielding the exempt income,the presumption that it was such funds that wereutilized for the said investment remains. There is noreason for it not to. The basis of the presumption isthat an assessee would invest its funds to itsadvantage. It gains nothing by investing interest freefunds towards other assets merely on account of theinterest free funds having decreased. In that event solong as even after the decrease thereof there aresufficient interest free funds the presumption thatthey would be first used to invest in assets yieldingexempt income applies with equal force.

Reassessment : Change of Opinion : CITv/s. Hidustan Zinc Ltd (2016) 290 CTR322 (Raj)

Issue:Whether reassessment proceedings are permissibleon change of opinion?

Held:

Issue examined by AO in assessment under sec.143(3). Assessee had made true and full disclosureof all relevant facts relating to the claim of additionaldepreciation and also in respect of claim for grantof deduction under sec. 80IA. Audit report in theprescribed form 10CCB in support of the claim fordeduction under sec. 80IA /80-IB was also dulysubmitted. It is not even the case of the Revenuethat the formation of the belief regarding theescapement of income by the AO is based on anynew material coming on record. Apparently, the

formation of the belief by the AO is based on re-appreciation of the material already available onrecord at the time of scrutiny assessment whichamounts to mere change of opinion Tribunal wasjustified in quashing reassessment proceedings.

Notice u/s 143(2) and Sec. 292-BB :Travancore Diagnostics (P) Ltd. v/s.Asst. CIT (2016) 290 CTR 241 (Ker)

Issue:What is the importance of notice u/s 143(2) evenafter recourse to sec. 292-BB?

Held:

Sec. 292BB creates an estoppel against the assesseein claiming that no notice has been served on him, ifhe has participated in the proceedings. However, thesaid section does not in any manner grant anyprivilege to the AO in dispensing with the issuanceof a notice under Sec. 143(2). Since the jurisdictionunder Sec. 143 is founded on the issuance of a noticeunder Sec. 143(2), the AO could have assumedjurisdiction only after issuing a notice under sec.143(2). Even the participation of the assessee wouldnot provide the benefit under sec. 292BB to theRevenue. The requirement that a notice be issued ismandatory and the AO has no other option but toissue the notice before commencing the jurisdiction.The only benefit that s. 292BB obtains to the AO isthat after the issuance of such notice the assesseeappears and participates in the proceedings, then heshall not he heard, subject to the proviso to the saidsection, that he had not been properly served withnotice. The AO can claim and avail the benefit undersec. 292BB and the assessee will be burdened bythe rigour of estoppel contained therein only after anotice under sec. 143(2) had been validly issued.When it is virtually admitted that no such notice hadbeen issued, the AO loses even the authority to enterinto the jurisdiction under sec. 143 and theparticipation or otherwise of the assessee would beof no avail Asst. CIT v/s. Hotel Blue Moon (2010)229 CTR (SC) 219 : (2010) 35 DTR (SC) 1 : (2010)321 ITR 362 (SC) and Anisminic Ltd. v/s. ForeignCompensation Commission (1969) 2 AC 147applied.

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From the Courts


DCIT Vs. Elitecore Technologies (P.)Ltd. 80 taxmann.com 6 (Ahmedabad)Assessment Year: 2012-13 Order Dated:

st31 March, 2017

Basic Facts IAssessee is a wholly-owned subsidiary of a USAbased company engaged in software development.During the course of the assessment proceedings,the AO noticed that the assessee has paid commissionto non resident agents for procuring the business onwhich no tax was deducted at source. The AO heldthat the payment were not genuine and further sinceright to receive commission income accrued in India,the income is deemed to accrue or arise in India andaccordingly the assessee has failed to discharge hisobligations under section 195 and thus thedisallowance under section 40(a)(i) comes into play.Aggrieved, assessee carried the matter in appealbefore the CIT(A) who deleted the disallowance onthe ground that clause (a) of Explanation 1 to Section9(1)(i) is not applicable as the non-resident agentsdid not carry on any activity in India and no portionof commission was attributable to the Indianoperations. The position stands settled even after thewithdrawal of CBDT circular 23 and 786 as severalrulings post withdrawal of the said circulars haveheld that the foreign commission is not chargeableto tax in India. Aggrieved revenue is in appeal.

IssueWhether where commission payments made byassessee to non resident commission agents werenot chargeable to tax in India, assessee had noobligation to deduct tax at source from suchcommission?

HeldOnce the agreements and related invoices have beenfurnished by the assessee at the assessment as alsoat the appellate stage, and no specific defects havebeen pointed out in the same, it cannot be open tothe revenue to contend that genuineness of

commission payments is not established. Thecommission payments are made with regulatoryapprovals and through banking channels, and allthe requisite documentation is furnished for perusal.In these circumstances, the Tribunal agreed withthe view of the CIT(A). The Tribunal further heldthat so far as deeming fiction under section 9(1)(i)is concerned, it cannot be invoked in the presentcase since no part of the operations of the recipient’sbusiness, as commission agent, was carried out inIndia. Even though deeming fiction under section9(1)(i) is triggered on the facts of this case, onaccount of commission agent’s business connectionin India, it has no impact on taxability in the handsof commission agent because admittedly nobusiness operations were carried out in India, and,therefore Explanation 1 to Section 9(1)(i) comesinto play. Accordingly it was held that thecommission was not taxable in India andaccordingly the assessee did not have obligation todeduct tax as per section 195 of the Act.

Facts IIThe assessee has claimed a foreign tax credit ofRs.55,61,306, the AO granted the tax credit of onlyRs.3,10,799. In respect of the balance amount ofRs. 52,50,507 (i.e. tax withheld abroad at Rs.55,61,306 minus tax credit allowed of Rs.3,10,799), the assessee contended that the same wasallowable as deduction under section 37 of theAct.The CIT(A) held that it should be allowed asdeduction under section 37(1). Aggrieved, theRevenue is in appeal.

Issue IIWhether deduction under section 37(1) couldbe allowed in respect of foreign tax credit forwhich only partial credit was allowed in thecurrent year?

HeldThe Tribunal did not agree with the assessee’s

Tribunal News

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

contention that if any part of the amount of income

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tax withheld abroad is not allowed as credit againstIndian tax liability, a deduction u/s 37(1) is allowableto the same. The argument of the appellant was thatthere is a bar under section 40(a)(ii), on thededuction in respect of ‘tax’ on the profits and gainsof the business, such bar does not apply on the taxespaid outside India, as in terms of definition of taxunder section 2(43), “income tax chargeable underthe provisions of this Act. The assessee had furthercontended that in terms of Explanation 1 to section40(a)(ii), it was clear that the bar on deduction undersection 40(a)(ii) is confined to only such incometax paid abroad in respect of which tax credit isgranted under section 90 or 91. So far as the foreigntax in respect of which no tax credit is available,there is no bar on deduction under section 40(a)(ii).The tax is defined expression under the Income TaxAct and its connotations are confined to only suchtax as is paid under Income Tax Act. Based on thedecision of Bombay High Court in case ofLubrizol’s case and Supreme Court in case ofSmithkline & French India Ltd. v. CIT [(1996) 219ITR 581 (SC)]that Section 40(a)(ii) of the presentAct do not contain any words indicating that theprofits and gains spoken of by them should bedetermined in accordance with the provisions ofthe IT Act. All they say is that it must be a rate ortax levied on the profits and gains of business orprofession”,The Tribunal held that no deductionunder section 37(1) can be allowed in respect ofany income tax withheld abroad as the same willbe hit by the disabling provisions under section40(a)(ii) of the Act.

Mrs. Rekha Agarwal Vs. ITO 79Taxmann.com 290 (Jaipur) Assessment

thYear: 2011-12 Order Dated: 17February, 2017

Basic FactsDuring the course of assessment proceedings, theAO observed that the assessee has shown LongTerm Capital loss in respect of sale of flat .The AOcalled for registered sale deed of the flat situatedfor adopting the value of sale consideration u/s 50Cof the Act. It was submitted that at the time of saleof the property was under construction hence, noregistered sale deed was required to be executed.

The AO worked out the sale consideration as perthe DLC rate provided by the Sub-Registrar,Gurgaon and the amount of Rs.32,50,000/- being½ of the total sale consideration of the property ofRs. 65,00,000/- was brought to tax in the hands ofthe assessee u/s 50C of the Act. On appeal, theCIT(A) on perusal of the agreements of purchaseand sale held that what was being sold and purchasedwas a flat and not a right. Accordingly, theprovisions of section 50C were held to be correctlyapplied by the AO. Aggrieved by the order ofCIT(A), the assessee is in appeal before the ITAT.

IssueWhether the assessee has sold right to acquire aproperty or has actually sold the property itself?Whether the provisions of section 50C areapplicable in the case of right to acquire?

HeldThe Hon’ble ITAT held on perusal of the documentsavailable, it was the right in the property by way ofright of allotment which has been assigned by theassessee in favour of the buyer and not the propertyitself. The ITAT further held that section 50C(1) isa deeming provision which is limited to land,building or both and cannot be extended beyondthe purpose for which it is enacted. It was thereforenot applicable in the instant case. The ITAT heldthat what has been transferred by the assessee is aright of allotment in the property and not the actualproperty itself and in respect of such rights, thedeeming provisions of section 50C are notapplicable. The appeal of the assessee was allowed.

Mrs. Meena Vaswani Vs. ACIT 80Taxmann.com 2 (Mumbai)Assessment Year: 2009-10, 2010-11 and

th2011-12 Order Dated: 30 March, 2017

Basic FactsThe AO during the course of assessmentproceedings observed that the assessee was stayingin her own house in Mumbai as she had claimeddeduction u/s 80C of the Act for housing loanrepayment. The assessee claimed the HRA receivedfrom her employer as exempt u/s. Section 10(13A)of the Act. The AO asked the assessee to justify theexemption of HRA as claimed by her. The assesseesubmitted that she has paid a rent of Rs.31,500/-

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per month to her mother in cash. The AO rejectedthe contention of the assessee and held that theassessee needs to prove that she hired anaccommodation and used it and paid the rent. TheA.O. deputed Ward Inspector to make an enquiryto verify claim of the assessee that she is living withher mother. The AO observed that ward inspectorreport clearly reveals that the assessee is not stayingwith her mother but with her husband andaccordingly the AO concluded that the rent receiptissued by mother of the assessee are merely to claimthe benefit of exemption of HRA. On appeal, theld. CIT(A) rejected the contention of the assesseeand held that the assessee grossly failed to establishthat she was staying with her mother and payingrent to her mother and hence , as such learnedCIT(A) held that the exemption of HRA u/s10(13A) of the Act was rightly denied to theassessee by the AO.

Issue

Whether the assessee will be entitled to HRAexemption u/s 10(13A) of the Act?

HeldThe Hon’ble ITAT held that assessee did not comeforward with any evidence to substantiate hercontentions except rent receipt which is not backedby any known sources of cash held by the assesseeas there were no cash withdrawal from bankaccount of the assessee. The ITAT held that theassessee was staying in her own flat with herhusband which is emanating from various evidenceswhich are on record such as ration card, bankstatements, return of income filed with Revenue.The mother of the assessee has also not filed returnof income since last six assessment years and saidrental income was not brought to tax in the handsof mother of the assessee. The ITAT looking intoall these factual matrix held that the wholearrangement of rent payment by the assessee to hermother is a sham transaction which was undertakenby the assessee with the sole intention to claimexemption of HRA u/s 10(13A) of 1961 Act inorder to reduce tax liability and hence in ourconsidered view, exemption u/s 10(13A) of the Actcannot be allowed. The appeal of the assessee was

DCIT Vs. Saraswat Co-Operative Bank

thus dismissed.

Ltd. [2017] 79taxmann.com305Assessment Year: 2010-11 Order Dated:

st31 October 2016Basic FactsThere was a sudden spurt in advances and recoveryin March 2010 , which could not at all have beenanticipated by the assessee while making its bona-fide estimation of advance tax. Therefore, it wascontended by the assessee that there was no defaultor deferment of advance tax liability, andconsequently interest u/s. 234B and 234C of theAct is not leviable. The AO rejected above claimof the assessee and levied interest u/s 234B & 234C.The CIT(A) upheld the order of the AO.IssueWhether interest u/s 234B and 234C maybelevied when factors could not be anticipated bythe assessee while making a bonafide estimationof advance tax liability?HeldThis plea/contentions of the assessee that there wasa sudden spurt in advances in the month of March2010 while led to increase in advance tax liabilitywhich could not be anticipated while estimatingadvance tax liability as per provisions of the Actneed verification by the Assessing Officer andhence the issue is set-aside and restored to file ofthe Assessing Officer for de-novo adjudication onmerits. Proper and adequate opportunity of beingheard shall be provided by the AO to the assesseein accordance with principles of natural justice inaccordance with law.

Bhavin A.Shah, Ahmedabad vs Acit[2017] ITA No. ITA No.933/Ahd/2013Assessment Year: 2009-10 Order Dated:

th29 March, 2017Basic FactsThe assessee, resident of India had earned dividendincome on the foreign investments. The dividendincome was received after withholding of tax bythe US Tax authorities. However, the rate of withholding on some transaction was at rate lower than25% and on some transaction at rate higher than25%. The assessee claimed credit u/s 90 at a blanketrate of 25% on such income received which wasdisallowed on the ground that the evidences do notbear the name of the appellant and are not signed

Tribunal News

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Tribunal News

by appropriate person. Also the AO contended thatrelief is available only on actual payment made inreturn of income filed in USA and not on taxesdeducted.The CIT(A) confirmed the order of theAO. The appellant aggrieved is before ITAT.Issue :Whether the appellant is eligible to get foreign taxcredit in respect of taxes withheld in the US; to berestricted to rates prescribed in the tax treatyHeld:The Tribunal held that the taxpayer will be eligibleto claim FTC in respect of income which is taxedboth in India and the US, irrespective of whethersuch taxes are paid directly or by way ofwithholding. The Tribunal also clarifies that FTCcan be claimed only if a taxpayer qualifies as a treatyresident and the taxes paid/withheld in the sourcestate is in accordance with the provisions of theapplicable DTAA. It concludes that FTC, however,will be limited to the amount computed based onthe withholding rate prescribed in the applicableDTAA. This aspect is in line with the Indian Ruleson claim of FTC, which provide that where theforeign tax paid exceeds the amount of tax payablein accordance with the provisions of the applicableDTAA, such excess shall be ignored for thepurposes of computing FTC. The ITAT alsoconcluded that the tax credit computation is to bedone on a case to case basis, dealing with the taxlevied in the other contracting state (i.e. US) andthe income in respect of which such tax is levied.

Cadila Healthcare Limited vs ACIT,Range-1, Ahmedabad [2017] 80taxmann.com 24 (Ahmedabad - Trib.)Assessment Year: 2009-10 and 2010-

rd11,Order Dated: 03 March, 2017Basic FactsDuring relevant year, the assessee had advancedan optionally convertible loan to its AE ‘ZIPL’. Thetenure of this loan was five years and the lenderhad the option for repayment or for conversion ofloan into equity at par with the company at anytime during the tenure of the loan. The assessee didnot provide for any interest on said loan.The TPO was of the view that merely because loanwas convertible into equity, it did not alter itscharacter as loan at the relevant point of time, andonce that was so, the benchmarking of loan was to

be done as per the prevailing market rate. He thusmade addition to assessee’s ALP in respect ofinterest on loan to AE. The DRP confirmed saidaddition.Issue:Whether the loan given by the assessee to its AEwith an option to convert same into equity atpar could be considered to be in nature of quasicapital transaction which could not becompared with simple loan transaction andinterest could be imputed to make an addition?Held:The Hon’ble ITAT held that the transaction underconsideration is not of the transaction of lendingmoney to the associated enterprise. The amountadvanced to the AE is attached with the obligationof the AE to issue share capital, in case the assesseeexercises option for the same, on certain conditions,which are admittedly more favourable, and at anagreed price, which is admittedly much lower, vis-à-vis the conditions and price which independententerprise would normally agree to accept. Thelending is thus in the nature of quasi capital in thesense that substantive reward, or true consideration,for such a loan transaction is not interest simplictoron amount advanced but opportunity to own capitalon certain favourable terms.The Hon’ble ITAT observed that usually loantransactions are benchmarked on the basis of interestrate applicable on the loan transactions simplictorwhich, under the transfer pricing regulations, cannotbe compared with a transaction which is somethingmaterially different than a loan simplictor. Forexample, a non-refundable loan which is to beconverted into equity. It is in this context that theloans, which are in the nature of quasi capital, aretreated differently than the normal loan transactions.However, what the authorities below have held, andwrongly held for that reason, is that a quasi capitaltransaction can be compared with a simple loantransaction where sole motivation and considerationfor the lender is the interest on such loan.Based on the above factors, the Hon’ble ITATconcluded that it is fit and proper to delete the arm’slength price adjustment in respect of interest which,according to the revenue authorities, assesseeshould have charged on the optionally convertibleloan granted to the AEs.

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In this issue we are giving gist of two decisionsrendered by the Ahmedabad Benches of Hon’bleTribunal. The first one relates to allowability offorward booking loss in respect of ForeignExchange where the A.O. had considered the sameas speculative loss.

In the second one, the issue was about deductibilityof brought forward losses while computing bookprofit u/s 40 (b) of the Act for the purpose ofdetermining the eligibility of Partners’ remunerationwhile computing the income of the firm.

We hope the readers would find the same useful.

In the Income Tax Appellate TribunalAhmedabad ‘B’ Bench, Ahmedabad

[Coram :Pramod Kumar AM and S SGodaraJM]

ITA No. 2016/Ahd/2013Assessment Year : 2010-11

Dy. Commissioner of Income Tax,Circle-8, Ahmedabad ………. Appellant

v/s

Shree Swati Texdyes Pvt. Ltd. …….Respondent

134-A, Phase-I, GIDC Industrial EstateNaroda, Ahmedabad

Appearances by

James Kurian for the appellantA.C. Shah for the Respondent

Hearing concluded on : 13/01/2017Order pronounced on : 11/04/2017

Gist only

A. Facts

In this departmental appeal, the departmentchallenged the disallowance of Rs.4,20,000/-made on account of forward booking loss by

CA. Sanjay R. [email protected]

Unreported Judgements

treating it as speculation loss by A.O., whichwas deleted by CIT(A).

The assessee is engaged in the business ofmanufacturing, exporting and trading in alltypes of reactive dyes. During the course ofscrutiny assessment proceedings, it was noticedthat the assessee has shown a forward bookingloss of Rs.4,20,000/-. When this matter wasprobed further, it was noticed that the said lossoccurred on account of forward contracts forsale of foreign exchange. While the deal wasfor sale of US$ @ Rs.47.70 and @ Rs.47.10respectively, due to need of funds, the assesseehad to sell the dollars on an earlier date @Rs.46.53 and Rs.45.82 respectively. As thisforward contract was said to be in the courseof assessee’s business, and in respect of hisforeign exchange dealings, the loss wasclaimed as a business loss. The AssessingOfficer, however, did not agree. He was of theconsidered view that since the contract wassettled, otherwise than through delivery, section43(5) was attracted, and, accordingly, loss wasrequired to be treated as speculative loss.Aggrieved, assessee carried the matter in appealbefore the CIT(A). Learned CIT(A) held thatthe transactions in question were to guardagainst fluctuations in foreign exchange ratesand were thus incidental to the business.Relying upon Hon’ble Bombay High Courtdecision in the case of ITO v/sBhdridasGauridu Pvt. Ltd. (2003) 261 ITR256 (Bom) and a coordinate bench decision inthe case of DCIT v/s Bombay Diamond CoLtd. [(2010) 33 DTR 59 (Mum)], learnedCIT(A) upheld the plea of the assessee, andheld the loss to be a business loss and deductibleunder section 37 (1).


B. Held

(i) The Hon’ble Tribunal after considering thecontentions of both the parties held thatwhen speculative transactions are such thatthey are incidental to the main business ofthe assessee, they cannot be considered asspeculative business. If they are consideredto be integral part of the business carriedout by the assessee, they do not fall in thedefinition of speculative business asmentioned in the Explanation 2 to Section28 and hence, they are eligible for beingallowed as deduction u/s 37(1). Thereasoning given by the Hon’ble Tribunalis reproduced here below :

“5. We have noticed that, as evident froma plain reading of the assessmentorder, the short case of the AssessingOfficer is that since the transactionleading to the impugned loss is aspeculative transaction, under section43(5) of the Act, the loss incurred onthe transaction is required to be treatedas loss from speculative businesswhich cannot be set off against incomeof the assessee under the head ‘profitsand gains from business andprofession’. However, in ourconsidered view, this approach itselfproceeds on the fallacy that every loss,in the course of or due to a speculativetransaction, is to be treated as loss ofthe speculative business. Explanation2 to Section 28 states, “wherespeculative transactions carried on byan assessee are of such a nature asto constitute a business, the business(hereinafter referred to as“speculation business” shall bedeemed to be distinct and separatefrom any other business”), whichimplies it is only when speculativetransactions are of such a nature as toconstitute business on standalonebasis, the income and losses from such

transactions is required to be treatedas distinct and separate from any othernormal business. In other words, evenspeculative transactions, as long assuch transactions are incidental to themain business of the assessee, cannotresult in the profits or losses from suchtransactions being treated separatelyas that of a speculation business andthus making them ineligible for beingset off against normal business profitsand losses. Nothing really, therefore,turns on a transaction being settled,otherwise than through delivery, aslong as such a transaction hasstandalone character isolated from themain activities of business. For thisshort reason alone, the action of theAssessing Officer must be held to beunsustainable in law. In any event,there is a categorical finding by theCIT(A) that the transactions inquestion were integral to the businessand that the loss on such transactionsis admissible as deduction undersection 37(1). There is a categoricalfinding by the CIT(A) that thetransactions were entered into tosafeguard legitimate business interestsof the assessee in respect of its foreignexchange transactions. Having heardthe rival contentions and havingperused the material on record, weapprove these well reasoned findingsof the first appellate authority, and, forthis reason also, decline to interfere inthe matter”.

(ii) Another issue in the appeal was relating toloss on conversion of foreign exchangemade on account of EEFC account, whichwas decided in favour of assesseeby theHon’ble Tribunal following the decisionof Hon’ble Supreme Court in the case ofCIT v/s Woodward Governor India Pvt.Ltd. 312 ITR 254 and accordinglydepartmental appeal was dismissed.

Unreported Judgments


II

In the Income Tax Appellate TribunalAhmedabad ‘SMC’ Bench

(Before Shri N.K. Billaiya, Accountant Member& Shri Mahavir Prasad, Judicial Member)

ITA No. 1173/AHD/2014(Assessment Year : 2005-06)

M/s Shree Yogeshwar v/s Income Tax Offier,Developers Ward-9 (1)16, Vadudha Society, AhmedabadSardar Patel ColonyNaranpura, Ahmedabad

Appellant by : Shri S.N. Divatia, ARRespondent by : Shri Rahul Kumar, Sr. D.R.

Gist only

The issue that fell for consideration in this case waswhether while computing eligibility of Partners’remuneration to be deducted while computing bookprofit u/s 40 (b) of the Act,in the case of firm,whether the past brought forward losses are to bededucted or it is only after the deduction of Partners’remuneration that set off of such brought forwardloss has to be given effect for the purpose ofcomputing income of the firm.

A. Facts

While scrutinizing the return of income of thefirm for the year under consideration, A.O.noticed that firm has claimed remuneration tothe Partners at Rs.7,73,486/-. For this purposethe firm had not set off the past brought forwardlosses against the firm’s current income. TheA.O. recalculated the allowable remunerationto Partners at Rs.2,59,772/- and disallowed asum of Rs.5,13,714/- from the remunerationpayable to the Partners. For this purpose, A.O.deducted the brought forward losses of the firmfrom the current profit and on the resultantfigure so arrived at he calculated the eligibilityof remuneration payable to Partners. Theassessee lost before CIT (A) and filed secondappeal before Hon’ble Tribunal. The Tribunalallowed the appeal of the assessee in followingterms.

Unreported Judgments

B. Held

“10. We have given a thoughtful considerationto the orders of the authorities below quathe issue. The book profit has beendefined in Explanation 3 below section40(b) of the Act and the same reads asunder:

“Explanation-3 – For the purpose of thisclause, “book profit” means the netprofit, as shown in the profit and lossaccount for the relevant previous year,computed in the manner laid down inChapter IV-D as increased by theaggregate amount of remuneration paidor payable to all the Partners of the firmif such amount has been deducted whilecomputing the net profit” Only from thebusiness income of the firm”.

11. "A perusal of the above clearly shows thatthe book profit as shown in the Profit andLoss account has to be computed in themanner laid down in Chapter IV-D.Therefore, in our considered opinion, boththe lower authorities have erred in settingoff brought forward losses first incomputing the book profit for theallowability of remuneration to Partners.In our understanding of the law, theremuneration to Partners should be firstallowed and thereafter brought forwardbusiness losses should be set off. We,therefore, set aside the findings of thelearned CIT(A) and direct the A.O. to deletethe disallowance of Rs.5,13,714/-.”

As per the provisions of Explanation-3 belowSection 40(b), the book profit has to becomputed in the manner laid down in ChapterIV-D, which does not contain the provisionsrelating to set off of losses which fall in Chapter– VI of the Act. Accordingly, the Hon’bleTribunal allowed the appeal of the assessee.

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However, in present case, the investment inshares was made to acquire the control alongwith earning interest income and thus theinvestment was not fully and exclusively forearning interest and dividend income.

Let me now refer to the decision of CIT v. AmritaR. Shah 238 [ITR] 777 (Bom). Their lordship ofBombay High Court decided that the interest paidby the assessee in this case does not fall within thepurview of Section 57(iii) of the Act and hence thesame is not an allowable deduction in computationof the income of the assessee. Deduction underSection 57(iii) is allowable only of expenditure laidout or expended wholly or exclusively for thepurpose of making or earning the income referredto in that section, i.e., “income from other sources”.The object of the acquisition of shares beingacquisition of controlling interest in the company,the expenditure incurred on the loan obtained forthat purpose could not be regarded as expenditureincurred wholly and exclusively for the purpose ofmaking or earning income from other sources.

View in Favour of Proposition:

It is submitted that as the income arising is taxableunder the Act, the expenditure related to suchincome should be allowed as deduction.

The Supreme Court in the case of VodafoneInternational Holdings B.V. v. UOI, held that if thedividend income is taxable during the year underconsideration, the interest is allowable as deductionunder section 57(iii).

It was observed by the Hon. Supreme Court that:

· Controlling interest forms an inalienable partof the share itself and cannot be tradedseparately unless otherwise provided by thestatute.

· The argument that controlling interest is anidentifiable or distinct capital asset independent

ControversiesCA. Kaushik D. Shah

[email protected].

of holding of shares, cannot be accepted.

Whether Interest paid on borrowed funds foracquiring a Controlling Interest in a companybe allowed as deduction?

The allowance of deduction u/s 57(iii) for interestpaid on loan availed for acquiring the controllinginterest by purchasing shares of the company ismatter under debate.

Issue:

When loan is taken for making investment in sharesof the company which results into acquiring of thecontrolling interest of that company, whetherdeduction of interest paid on such loan would beallowed as per sec 57(iii) of the Act.

Proposition:

It is submitted that the interest expenditure incurredon loan taken for acquiring the shares to be allowedas deduction under sec 57(iii) as the interest anddividend income earned against such expenditurewas chargeable to the tax. As per sec 57 of the Act,the income chargeable under the head ‘Income fromother Sources’ shall be computed after makingfollowing deductions; wherein sub-section (iii)states that any other expenditure (not being anexpenditure of capital nature) laid out or expendedwholly and exclusively for the purpose of makingor earning such income would be allowed asdeduction.

View against the Proposition:

1. When the primary intention of acquiring theshares was having a control over the othercompany and not earning interest or dividendincome, the expenditure incurred for acquiringthe control would constitute to be of capitalnature and accordingly to be disallowed u/s57(iii).

2. It is provided in sec 57(iii) that ‘expenditurelaid out or expended wholly and exclusivelyfor the purpose of making or earning suchincome’ would be allowed as deduction.


Controversies

· It was inherently a contractual right and not aproperty right and cannot be considered as acapital asset unless the statute stipulatesotherwise.

· Acquisition of shares may carry the acquisitionof controlling interest, which is purely acommercial concept and tax is levied on thetransaction, not its effect.

Further, the Bombay High Court in case of CIT v.Srishti Securities Pvt. Ltd. did not agree with theirprevious decision and held that the object of theloan was irrelevant and the interest on investmentwould be allowed as deduction.

Let me now refer to the decision of CIT v. SrishtiSecurities Pvt. Ltd. (2010) 321 ITR 498 (Bom).Their lordships of Bombay High Court held asunder:

“The learned Tribunal addressed itself to thequestion, as to whether the assessee is entitled todeduction in respect of interest liability either underSection 36(1)(3) or under Section 57(3) of theIncome Tax Act. Reliance was placed on thejudgment of this Court in the case of Commissionerof Income Tax Vs. Lokhandwala ConstructionIndustries Ltd.

260 ITR 579 (Bom) for the proposition that whenthe assessee claims deduction of interest paid oncapital borrowed, all that the assessee has to showis that the capital which was borrowed was usedfor the business purpose in the relevant year ofaccount and it does not matter whether the capitalwas borrowed or not to acquire revenue asset orcapital asset. The learned Tribunal also relied onthe judgment of the Calcutta High Court in the caseof CIT Vs. Rajeeva Lochan Kanoria 208 ITR 616(Cal) where the Calcutta High Court took a viewthat under the provisions of Section 36(1)(3) of theIncome Tax Act, the only enquiry to be made iswhether the payment of interest was in respect ofcapital borrowed for the purpose of assessee’sbusiness or profession. Such amount borrowed, iffor the purpose of business of profession may beutilized for the purpose of acquisition of stock intrade or for the purpose of acquisition of capitalasset.

The learned court took a view that under Section36(1)(3) there is no bar for allowance of interestpaid in respect of capital borrowed which has beenutilized for the purpose of acquisition of capitalassets. Considering this the learned I.T.A.T. heldthat if the funds are borrowed by an investmentcompany for making investment in shares whichmay be held as investment or as stock in trade orfor the purpose of controlling interest in othercompanies, interest paid on such borrowed fundswill be deductible u/s. 36(1)(iii) of the Income TaxAct.”

After recording this finding, it held that the interestexpenditure is allowable under Section 36(1)(3) andtherefore, disallowance to the extent sustained bythe C.I.T.(A) was directed to be deleted.”

Following authorities have also taken the sameview:

a) CIT v. Lokhandwala Construction Inds Ltd[2003] 260 ITR 579 (Bombay)

b) India Cements Ltd. v. CIT [1996] 60 ITR 52(SC)

Summation:

At the outset, it is submitted that the interestexpenditure is to be allowed as deduction and thereis no question of treating the same as capitalexpenditure.

In the case of Srishti Securities Pvt Ltd, the BombayHigh Court, relying on the decision ofLokhandwala Construction Inds Ltd v. CIT [2003]260 ITR 579 (Bom) and the decision of IndiaCements Ltd v. CIT [ 1966] 60 ITR 52 (SC) heldthat the object of the Loan was irrelevant and theinterest which was disallowed to the extent ofinvestment would have to be allowed.

The decisions relied in the case of Srishti SecuritiesPvt Ltd were applicable to the facts of the presentcase since in those cases also the loan was takenfor acquiring the controlling interest in the company.In the present case also, the loan was taken foracquiring shares of the company and after acquiringshares of the company, the taxpayer had gotcontrolling interest of the company.


In the decision of the Amitaben R. Shah theBombay High Court held that interest was notallowable if the loan was taken for acquiringcontrolling interest. However, when two viewswere possible then the view beneficial to thetaxpayer had to be considered as held by theSupreme Court in the case of Vegetable ProductsLtd [1973] 88 ITR 192 (SC)

In the case of Vodafone International Holdings B.V.the Supreme Court has observed that

Ø Controlling interest forms an inalienable partof the share itself and cannot be tradedseparately unless otherwise provided by statue.

Ø Control is an interest arising from holding aparticular number of shares and cannot beseparately acquired or transferred.

Ø Controlling interest was not an identifiable ordistinct capital asset independent of holding ofshares.

Ø It was inherently a contractual right and not aproperty right and cannot be considered a capitalasset unless statute stipulates otherwise.

Ø Acquisition of shares may carry the acquisitionof controlling interest, which is purely acommercial concept and tax is levied on thetransaction, not on its effect.

Ø Controlling interest which stood transferred toVodafone from HTI (BVI) Holdings Ltd.accompanied the CGP (Cayman Islandscompany) share and cannot be dissected so asto be treated as transfer of controlling interestof Mauritian entities and then that of Indianentities and ultimately that of Hutchison EssarLtd (The Indian Telecom Company).

Ø Thereafter, the Supreme Court held that capitalgain chargeable under section 45 and theircomputation is to be in accordance with theprovisions that follow section 45 and there isno notion of indirect transfer in section 45.

The ratio in case of Vodafone International HoldingsB.V. was applicable to facts of the present case sinceacquiring of controlling interest in the company doesnot bear any income or expenditure, to be assessedor not to be allowed.

Since the interest was paid on borrowed funds foracquiring the shares of a company and the dividendincome was taxable during the last year underconsideration, the interest was allowable asdeduction under section 57(iii) or under section36(1)(iii) of the Act.

Our Comment:

In present case the Tribunal relied on the decisionof the Supreme Court in the case of Vodafone whereit was held that the controlling interest forms aninalienable part of the share itself and it cannot betraded separately unless otherwise provided by thestatue. Accordingly, the Tribunal did not accept thecontention of the Tax Department that the mainpurpose for making investment was to acquirecontrolling interest in the company and not to earndividend. Consequently, the Tribunal held that theinterest, of a company is allowable as deductionunder section 57(iii) or under section 36(1)(iii) ofthe Act.

In the case of Off Shore India Ltd. v. DCIT [1996]59 ITD 652 (Cal), the Calcutta Tribunal held thatthe motive to acquire the controlling interest of acompany by acquiring shares of such company bythe taxpayer was a wholly irrelevant considerationfor judging allowability of interest payment onborrowings under section 57(iii) of the Act.Accordingly, the interest paid by the taxpayer onborrowings for purchasing shares was allowableas deduction even though no dividend was receivedon those shares during the year under consideration.

In the case of Model Manufacturing Co. (P) Ltd v.CIT [1980] 122 ITR 767 (Cal), the Calcutta HighCourt held that though ultimate motive of thetaxpayer might have been to acquire controllinginterest, yet immediate purpose for acquisition ofshares was to earn income from dividends thereofand therefore, the taxpayer was entitled to deductionunder section 57 of the Act. Further, the MumbaiTribunal in the case of Ultimate & Pigments Ltd V.ACIT (IT A no. 2775/Mum/2005) held that intereston borrowings made for acquiring shares inMalaysian company along with controlling interestis allowable under section 57(iii) of the Act.

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Controversies



Is it open to AO to re-examine fulfillment ofconditions of deduction when the approval forthe same is granted by the PrescribedAuthority as per the statutory scheme?

Pr. CIT vs. B.A. Research India Ltd. (TaxAppeal No. 233 & 234 of 2016, dated 16/06/2016)(Gujarat High Court)xxx…9. From the above materials on record, the

question that arises for our consideration is,whether once the prescribed authority grantsapproval in terms of sub rule(2) of rule 18D ofthe Rules, can the Revenue Authorities examinefulfillment of conditions of deduction and denythe same?

xxx…13. Combined reading of the statutory provisions

noted above, the scheme for grant of deductionto the companies involved in scientific researchand development becomes clear. Subsection(8A) of section 80IB provides for deductionand also prescribes four conditions uponfulfillment of which such deduction shall begranted. These conditions are that the companymust be registered in India, that it has its mainobject of scientific and industrial research anddevelopment, is approved by the prescribedauthority and fulfills such other conditions asmay be prescribed.

14. The Commissioner in his revisional order agreedthat in respect of the assessee company, first andthird conditions were duly satisfied, but hereferred to second and fourth conditions, whichaccording to him, were not fulfilled. In thiscontext, we may refer to rule 18D. This rule inaddition to prescribing DSIR as the prescribedauthority; under sub rule (2) authorises suchprescribed authority to grant approval initiallyfor a period of three years. The renewal is subjectto satisfactory performance to be judged onperiodic review. The maximum extension wouldbe for a period of 10 years from the initialassessment year. Rule 18DA carries the title“Prescribed conditions for deduction undersubsection(8A) of section 80IB” and thus has

Advocate Tushar [email protected]

Judicial Analysis

correlation to the fourth condition contained insubsection (8A) of section 80IB. Sub rule(1) ofRule 18DA prescribes six requirementscontained in clauses (a) to (f) for a company tobe eligible for deduction under section 80IB(8A). Conditions No. (i) and (ii) contained insubsection(8A) are repeated in clauses (a) and(b). Clause (c) pertains to requirement ofadequate infrastructure such as laboratoryfacilities, qualified manpower, scaleup facilitiesand prototype development facilities forundertaking scientific research and developmentof its own. Clause (d) requires a well formulatedresearch and development programmecomprising of time bound research anddevelopment projects with proper mechanismfor selection and review of the projects orprogramme. Clause (e) requires the company tobe engaged exclusively in scientific research anddevelopment activities leading to technologicaldevelopment, improvement of technology andtransfer of technology developed by themselves.Clause (f) requires the company to submit theannual return along with statement of accountsand annual report within eight months after theclose of each accounting year to the prescribedauthority. Under sub rule(2) of rule 18DA everycompany which is approved under sub rule (2)has certain obligations such as to sell anyprototype or output from its laboratories or pilotplants with the prior permission of the prescribedauthority. It has to intimate the change, if any, inits memorandum of association and articles ofassociation relating to its main objects andforward the altered copy of its memorandum ofassociation and articles of association to theprescribed authority. It would have to apply forextension of the approval, three months beforeexpiry of the previous approval granted by theprescribed authority. It would also have to havea system of monitoring the cost of research anddevelopment projects. Under sub rule(3) of rule18DA, the prescribed authority has the powerto withdraw the approval if it is found that theapproval granted was to avoid payment of taxesby its group companies or companies related to


its directors or majority of its shareholders or thatany provisions of the Act or the rules have beenviolated. Sub rule (4) of Rule 18DA providesthat every company referred to in sub rule (1)shall make an application to the prescribedauthority for the purpose of obtaining approval.Sub rule (5) of Rule 18DA provides fordocuments and details required to be filed alongwith such application for approval. Under Subrule(6) of Rule 18DA, the prescribed authoritymay call for any further information anddocuments which will be necessary forconsideration of application for grant of approval.Sub rule (7) of Rule 18DA lays down the timelimit within which such approval will be granted.Further proviso to sub rule (7) provides that theapplicant would be heard before rejecting theapplication for approval.

15. It can thus be seen that detailed provisions havebeen made under Rule 18D and Rule 18DA ofthe Rules for the prescribed authority to examinethe nature of research and scientific development,proposed to be or being carried out by thecompany who seeks approval or extension ofapproval. For example, under sub rule (2),approval once granted has validity for a periodof three year and no more. It could be extendedonly upon satisfactory performance of thecompany which would be judged on periodicreview by the prescribed authority. Whilegranting approval in addition to informationprescribed under sub rule(5) of Rule 18DA, theprescribed authority is empowered to call for suchother information or documents, which may befound necessary for consideration of theapplication for grant of approval. Even duringthe currency of the approval granted by theprescribed authority, in terms of sub rule(2) ofrule 18DA, the company has to satisfy severalconditions including, as noted above, to sell itsprototype or output, only with the permission ofthe prescribed authority and intimate any changein its memorandum of association and articlesof association. This later condition would enablethe prescribed authority to examine whether inview of any change in memorandum ofassociation and articles of association relating tothe main objects of the company, the fundamentalrequirement i.e. the company’s main object ofscientific and industrial research anddevelopment has been maintained.

16. As noted, if at any stage, the prescribedauthority finds either that the approval granted

to the company was to avoid payment of taxesby its group companies or companies relatedto its directors or majority of its shareholdersor that there has been breach of any of theprovisions of the Act or the Rules, theprescribed authority would be empowered towithdraw the approval.

17. Thus, the statutory scheme envisages theprescribed authority as a body which canminutely examine all these highly technical andscientific requirements in case of a company. Wemay recall that the prescribed authority is theDepartment of Scientific and Industrial Research,Ministry of Science and Technology,Government of India. It has experts at itscommand in the field of scientific research toadvise it on various extremely complex scientificissues which may arise while granting, extendingor recalling the approval. In this context, therequirements contained in clauses (c) to (e) ofsub rule (1) of rule 18DA would also have to benecessarily examined by the said authority. Whenthese clauses refer to requirement of adequateinfrastructure such as laboratory facilities, wellformulated research and developmentprogramme and engagement of the companyexclusively in scientific research anddevelopment activities, the same would be withinthe realm of the said prescribed authority.

18. Under the circumstances, once such authoritygrants approval and such approval holds the field,it would not be open for the Assessing Officeror any other revenue authority to go behind suchapproval certificate and reexamine for himself,the fulfillment of the conditions contained in subrule(1) of rule 18DA. These conditions areprescribed in terms of clause no.(iv) ofsubsection (8A) of section 80IB of the Act. TheCommissioner was therefore, completely in errorin observing that even though the assesseecompany had valid approval issued by theprescribed authority, the Assessing Officer stillhad to examine whether such company hadfulfilled the conditions referred to in clause(iv),as such other conditions as may be prescribed,reference to which we find in rule 18DA. Anyother view would create conflict of decisionmaking process. Even counsel for the Revenuecould not dispute that many of theserequirements prescribed under rule 18DA are tobe examined by the prescribed authority. If oncethe prescribed authority examines such conditions

Judicial Analysis


and upon being satisfied that the conditions arefulfilled, grants approval, can the AssessingOfficer take a different view? The answerobviously has to be in the negative. First andforemost, the prescribed authority is a specializedbody having expertise in the field of scientificresearch and development. The requirements areextremely complex scientific requirements andhave therefore, been rightly placed in the handsof an expert body to judge. Secondly, there isno reason why once an authority which isprescribed under the Rules for a specific purposehas been invested with statutory functions, theAssessing Officer should be allowed to overrulethe decision of the said body. Thirdly, there aremultiple indications within the Rules themselves.We may recall, under sub rule (2) of rule 18D,extension of approval once granted is subject tosatisfactory performance of the company, to bejudged on periodic review. Further, sub rule(3)of Rule 18DA gives wide powers to theprescribed authority to withdraw the approval ifit is found that the same was to avoid paymentof taxes by its group companies or companiesrelated to its directors or majority of itsshareholders or that any provisions of the Act orthe Rules have been violated. Thus, once againthe task of judging whether the provisions ofthe Act or the Rules have been violated or not,has entrusted to the prescribed authority withmatching powers for withdrawal of the approval,if the authority is satisfied about such breach.

19. The word ‘may’ used while empowering theprescribed authority, according to the counselfor the Revenue, would be of somesignificance. He contended that even if therehas been a violation of the Acts and the Rules,the prescribed authority is not duty bound towithdraw the approval since the legislature hasused the word ‘may’ and not ‘shall’. Accordingto him therefore, it would be open to theAssessing Officer to disallow the deduction onthe ground of breach of the provisions of theAct and the Rules even if the prescribedauthority has not withdrawn the approval onthat basis. To our mind, this is not the correctposition. Sub rule (3) is an enabling powerempowering the prescribed authority towithdraw the approval, if it finds violation ofprovisions of the Act or the Rules. However,the Act and the Rules make various provisions;breach of many of them may be purely

technical. It is not necessary therefore, in everysuch breach, irrespective of the nature of thebreach, the prescribed authority must withdrawthe approval, the moment it is pointed out thatthere has been a violation of any otherprovisions of the Act or the Rules. It is possiblytherefore, that the legislature has while clothingthe prescribed authority with sufficient powersto withdraw the approval, used the word ‘may’rather than ‘shall’ giving discretion inappropriate cases to the authority not towithdraw the approval. This however, wouldnot mean that the Assessing Officer would haveany role in the context of verifying requirementsrelatable to grant, extend or withdraw theapproval. These issues solely rest within thejurisdiction of the prescribed authority.

20. Judged from such angle, in our opinion, oncethe approval is granted by the prescribedauthority and such approval is valid, it wouldno longer be open for the Assessing Officer toverify the satisfaction of the conditionsprescribed under rule 18DA in order to refusededuction under subsection (8A) of section80IB of the Act. This however, does not meanthat other issues relevant to the claim ofdeduction by the assessee would be taken awayfrom the jurisdiction of the Assessing Officer.We do not share the anxiety of the counsel forthe Revenue that interpretation that we haveadopted would divest the Assessing Officerfrom examining any claim of deduction underthe said provisions and grant deductionmechanically without verifying the claim. Forexample, in this very case, the Assessing Officerhad doubt about the sample storage incomebeing part of the income from eligible business.After hearing the assessee, he disallowed thededuction holding that the same does not formpart of the income of the assessee’s business ofscientific research and development.

21. Before closing, we may refer to the decisioncited by Shri Bhatt for the Revenue. In case ofSouthern Technologies Ltd.(supra), the issuewas regarding the taxability of income ignoringthe provisions contained in the Companies Actconcerning non banking financial companywhich permitted adjustment of a provision forpossible diminution of value of assets of thecompany allowing the company to show onlythe net figure in the balance sheet.

Judicial Analysis


22. In the result, while answering the question infavour of the assessee, we clarify that the powerof the Assessing Officer to verify the claim ofdeduction is not taken away. He can certainlyverify the accounts and refuse deduction whichdoes not form part of section 80IB (8A) andthe income which does not arise out of theeligible business. He however, cannot ignorethe approval granted by the prescribed authorityand hold that the prescribed conditions are notfulfilled by the assessee.

xxx…SIRO Clinpharm (P.) Ltd. V. DCIT [2014] 49Taxmann.com 62 (Mumbai - TRIB.)xxx…22. We have considered the rival submissions and

also perused the relevant material available onrecord. As per sub-s. (8A) of s. 80-IB of theAct, any company carrying on scientificresearch and development is entitled fordeduction in respect of 100 per cent of theprofits and gains of such business for a periodof ten consecutive assessment years beginningfrom the initial assessment year if suchcompany is registered in India having its mainobject the scientific and industrial research anddevelopment provided it is approved by theprescribed authority and it satisfies such otherconditions as may be prescribed. Theprescribed authority is Secretary, Departmentof Scientific and Industrial Research, Ministryof Science and Technology, Government ofIndia and the other conditions to be fulfilledare prescribed in r. 18DA of the IT Rules, 1962.We have already extracted the said rule in theforegoing portion of this order while narratingthe relevant facts of the case. The main issuethat arises for our consideration in the presentcontext is whether the prescribed authorityhaving granted the approval to the assesseecompany as required for the purpose of s. 80-IB(8A) of the Act, the AO is empowered to sitin appeal on such approval and re-examinewhether the conditions stipulated for claimingdeduction under s. 80-IB(8A) of the Act aresatisfied by the assessee or not. It is pertinentto note in this context that the voluminous paperbook filed by the assessee giving details anddocuments furnished before the prescribedauthority is sufficient to show that the approvalwas not only granted by the prescribed authoritybut was also renewed/extended twice after

having satisfied about the main objective of theassessee company, the research anddevelopment activities carried on by it andinfrastructure facilities available with it such aslaboratory, qualified manpower etc. whichclearly shows that the conditions stipulated inr. 18DA were found to be satisfactorily fulfilledby the assessee and on such satisfaction, theapproval as required under s. 80-IB(8A) of theAct was given by the prescribed authority andextended further twice.

23. In the case of Rubicon Research Ltd. (supra),a similar issue arose for consideration of theCo-ordinate Bench of this Tribunal and it washeld by the Tribunal that when the approvalwas initially granted and “further renewed onlywhen the assessee had satisfied the prescribedauthority that it was carrying on the activity ofscientific and industrial research anddevelopment and was having necessaryinfrastructure to do so, the AO or the learnedCIT(A) could not sit on appeal on such approvaland re-examine whether the conditionsstipulated for claiming deduction under s. 80-IB(8A) of the Act were satisfied by theassessee. For this conclusion, reliance wasplaced by the Tribunal in the case of Hon’bleBombay High Court in the case of IndianPlanetary Society (supra) wherein it was heldthat when the legislature had thought it fit toentrust the responsibility with the Governmentof India who with the help of the body ofpersons, who would be conversant with thesubject, would apply its mind before issuingsuch certificate, the AO or the CIT(A) for thatmatter cannot sit in appeal against the order ofsuch authority. Keeping in view of the decisionof the Co-ordinate Bench of this Tribunal inthe case of Rubicon Research Ltd. (supra) andthat of the Hon’ble Bombay High Court in thecase of Indian Planetary Society (supra) andhaving regard to the facts of the case, we setaside the-order of the learned CIT(A)confirming the disallowance made by the AOon account of assessee’s claim for deductionunder s. 80-IB(8A) and direct the AO to allowthe claim of the assessee for such deduction.Ground Nos. 1 and 2 of assessee’s appeal forasst. yr. 2007-08 are accordingly allowed.

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Judicial Analysis


A. BackgroundAn updated version of the United NationsTransfer Pricing Manual for DevelopingCountries (UNTP Manual) was presented tothe UN Tax Committee for approval, at thetwelfth session held in Geneva in October 2016,with a view to publish the revised UNTPManual in 2017. The revised draft of the UNTPManual (2016 Draft) gives due considerationto the outcome of the Organisation forEconomic Co-operation and Development(OECD)/G20 Action Plan on Base Erosion andProfit Shifting (BEPS) relating to TP. The 2016Draft also includes Chapters on the practicesand positions of emerging countries such asIndia, Mexico, China, South Africa and Brazil.

B. India UpdateThe Indian tax administration in the country-specific Chapter in the 2016 Draft has revisedand updated its comments on a number ofemerging TP issues from an Indian perspective,including issues pertaining to comparabilityanalysis, allocation of risk, use of multiple yeardata, location savings, intra-group services andtransactions involving transfer/use ofintangibles. The India Chapter of the 2016Draft also contains an acknowledgment ofIndia’s endorsement of the recommendationscontained in the final report on TP underActions 8—10 (Aligning Transfer PricingOutcomes with Value Creation) and Action 13(Transfer pricing Documentation and Country-by-Country Reporting) of the OECD/G20Action Plan on BEPS.India’s position on BEPS Reports on Actions8—10 and Action 13After having endorsed the final reports of theBEPS projects on Actions 8—10, the Indiantax administration has acknowledged that someof the TP issues as addressed in the BEPSreports are in conformity with the long-standingviews of the Indian tax administration, namely:

CA. Dhinal A. [email protected]

UN TP Manual -India Update

CA. Sagar [email protected]

1. The broad objective of “aligning TPoutcomes with value creation”

2. Giving importance to the development,enhancement, maintenance, protection andexploitation (DEMPE) functions in respectof intangibles for remunerating the groupentities of multinational enterprises (MNEs)

3. Testing of contractual allocation orcontractual assumption of risk on theparameters of exercising control over riskand/or the financial capacity to bear therisk, and disregarding such contractualallocation or assumption of risk

4. Harmonizing contracts with the conduct ofparties, and identifying and accuratelydelineating the transaction by analyzing theeconomically relevant characteristics

5. Preventing the “cash box” entities fromcontributing to base erosion or profitstripping

6. Non-recognition of commercially irrationaltransactions that cannot be seen betweenindependent parties

Accordingly, the Indian tax administration isof the view that the guidance flowing from thefinal report of the BEPS project on Actions 8—10 should be utilized by both transfer pricingofficers (TPOs) and taxpayers in situations ofambiguity in interpretation of the law.However, India has not endorsed the guidancein the BEPS report pertaining to low value-adding intra group services under Action 10and has not opted for the simplified approach.Further, India has endorsed therecommendations contained in the BEPS finalreport on Action 13, which supported the three-tiered documentation regime comprising aLocal File, a Master File and a Country-by-Country Report and has already carried outlegislative changes in its domestic law.Key considerations for risksBEPS Action Plans 8—10 provide detailedguidance on analyzing risks as an integral part


of a functional analysis, including a new six-step analytical framework. In view of theassumption that increased risk should beremunerated by an increase in expected return,it is critical to determine which risks are assumed,what functions are conducted in connection withthe assumption or impact of risks and which partyor parties assume these risks. The Action Plansprovide that detailed guidance on risk does notmean that risks are more important than functionsand assets, but arises from the practicaldifficulties introduced by risks. The Action Plansfurther state that if the associated enterprise (AE)contractually assuming the risk does not exercisecontrol over the risk or does not have thefinancial capacity to assume the risk, then therisk should be allocated to the enterpriseexercising control and having the financialcapacity to assume the risk.According to the India Chapter of the 2016Draft, the Indian practice has been to evaluaterisks in conjunction with functions and assets,and it is unfair to give undue importance to riskin the determination of an arm’s length price(ALP) in comparison to the functions performedand assets employed. There is also reference tosituations where research and development(R&D) functions are “controlled” by a relatedparty situated outside India, while the actualR&D functions take place within India. The IndiaChapter states that the Indian tax administrationdisagrees with the notion that risk can becontrolled remotely by (employees operating outof) the parent company and that the Indian entityengaged in core functions, such as carrying outR&D activities or providing services, can berisk-free entities. According to the India Chapter,the Indian tax administration believes that inmany cases core R&D functions that are locatedin India require important strategic decisions bythe management and employees of the Indiansubsidiary and accordingly, in such cases, theIndian subsidiary exercises control overoperational and other risks and the ability of therelated party to exercise control over risksremotely is very limited.Intangibles generated through R&D activitiesGlobalization has led many MNEs to establishinformation technology, R&D and back-officeoperations in India in order to take advantage

of savings inherent in its relatively moderate-cost-labor market. Typically, the Indian affiliatesproviding services operate as “captive serviceproviders” and are insulated from business risksand hence remunerated by providing a routinereturn for the functions performed.The India Chapter of the 2016 Draft observesthat India-based R&D centers may take strategicdecisions pertaining to the day-to-day activitiesand allocation of budgets to different streams ofR&D activities. While funds for R&D activitiesare provided by the entity that bears the financialrisk of the R&D activities, other importantaspects of R&D activities, such as technicallyskilled manpower and know-how for R&Dactivities, are developed and owned by the Indiansubsidiaries. Accordingly, control over risks ofR&D activities rests both with the AE and theIndian subsidiary, but the Indian subsidiary couldcontrol more risks as compared to its AE.Therefore, the Indian tax administration is of theview that a routine cost plus return may not beappropriate in such cases and the Indiansubsidiaries should be entitled to a suitable returnfor their functions (including strategic decision-making and monitoring of R&D activities), useof their tangible and intangible assets andexercising control over the risks.Marketing intangiblesAccording to the India Chapter of the 2016Draft, TP aspects of marketing intangibles havebeen a focus area for the Indian revenueauthorities. The Chapter states that themarketing expenditure incurred by the Indianentities has been considered for adjustment bythe Indian revenue authorities on the premisethat the Indian taxpayers were incurring theseexpenses for and on behalf of the brand owneroutside India. The Indian tax authorities are alsoof the view that these expenditures provide adirect and indirect benefit to the brand ownerand therefore the Indian entity needs to becompensated for that.The guidance provided in BEPS Action Plans8—10 on marketing intangibles contains a clearrecognition of the implications of the advertising,marketing and promotional (AMP) activities ofthe distributor on the development andenhancement of marketing intangibles. The

UN TP Manual - India Update


guidance states that returns should be earned onperformance of DEMPE functions in relation tothe marketing activities. A thorough functionalanalysis is required to determine whether thedistributor should be compensated only forpromotion and distribution or also for enhancingthe value of the trademarks and other marketingintangibles. Where remuneration is required, itcan be in the form of cost plus mark-up basis,reduction in royalty rates or share of profitsassociated with enhanced value of intangibles.Depending on the individual case, the PSM maybe considered to eventually better reflect valuecontribution rather than a one-sided analysis suchas the transactional net margin method (TNMM).Since the approach of the Indian tax authoritieshas been subject to judicial review in India, theIndia Chapter states that the present approach ofthe Indian tax administration for carrying out TPreviews is in line with the judicial rulings as wellthe recommendations contained in the BEPSAction Plans 8—10. The approach of the Indiantax authorities, as stated in the India Chapter, isto carry out a detailed functional analysis toidentify all the functions of the taxpayer and theAEs pertaining to international transactions aswell as to determine the DEMPE functions.Intra-group servicesIn recent years, appropriate treatment of the intra-group provision of services has become a criticalTP issue in India. The India Chapter of the 2016Draft states that TP of intra-group services isconsidered a high risk area in India. Further,India considers the payment for such intra-groupservices to be base-eroding in nature and,accordingly, attaches a great importance to theTP of such payments. The Chapter sets forththe approach to be adopted for determining thearm’s length nature of these charges.The Indian tax authorities believe thatshareholder services, duplicate services andincidental benefit from group services do notqualify as intra-group services requiring arm’slength remuneration. The Chapter alsoidentifies choice of allocation keys andtreatment of pass-through costs as keychallenges. Further, the Chapter states that evenif an arm’s length result is achieved in respectof such payments from India, an additional

protection in the form of an overall ceiling onthe amount of such payments may be required.This may be justified because even an arm’slength payment might result in erosion of allthe profits of the Indian entity or in enhancementof losses of the Indian entity, thereby makingthe arm’s length nature of such paymentsquestionable. Thus, an overall ceiling on suchpayments in the form of a certain percentageof the sales or revenue of the Indian entity isbeing used in appropriate cases.

C. ImplicationsThe 2016 Draft of the UN TP Manual is aresponse to the need expressed by developingcountries to align the guidance with the OECDGuideline on BEPS Action Plans. Therevisions made to the India Chapter of the 2016Draft demonstrate India’s commitment toimplementing a number of the BEPSrecommendations relating to TP. The work ofthe OECD under Actions 8—10 is expected toresult in changes to the OECD TP Guidelines.In India, the OECD TP Guidelines are oftenreferred to as a source of interpretation of thearm’s length principles by courts, tax authoritiesand taxpayers, even though they are not bindingand cannot contradict existing legislative rules.India’s endorsement of the BEPS Actions 8—10 (with the exception of the recommendationsrelating to low value-adding intra groupservices) can therefore be expected to have animmediate impact in terms of TP audits andenforcement. Further, as the reference to theBEPS reports and OECD TP guidelines couldbe “ambulatory,” this could impact existinginter-company pricing arrangements as well.MNEs with Indian operations must evaluatethe implications on their TP practices,documentation and defense positions. Inaddition, enterprises should focus on the newreporting and TP documentation requirementsin order to assess whether the necessary data isavailable, what must be done to gain access tosuch data in the required form, and how taxadministrations are likely to interpret such data.

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UN TP Manual - India Update



CA. Savan [email protected]

Risk Management and Inter-bankDealings: Operational flexibility forIndian subsidiaries of Non-residentCompanies

In regard to Master Direction on Risk Managementand Inter-Bank Dealings dated July 5, 2016, asamended from time to time, with a view toproviding operational flexibility to multinationalentities and their Indian subsidiaries exposed tocurrency risk arising out of current accounttransactions emanating in India, the extant hedgingguidelines have been amended as per the terms andconditions in the annexure to this circular.

Necessary amendments (Notification No.FEMANo.384/2017-RB dated March 17, 2017) to ForeignExchange Management (Foreign ExchangeDerivatives Contracts) Regulations, 2000(Notification No. FEMA.25/RB-2000 dated May3, 2000) (Regulations) have been notified in theOfficial Gazette vide G.S.R.No.260 (E) datedMarch 17, 2017 a copy of which is given in theAnnex II to this circular. These regulations havebeen issued under clause (h) of sub-section (2) ofSection 47 of FEMA, 1999 (42 of 1999).

A. P. (DIR Series) Circular No. 41, dated March21, 2017

For Full Text refer to https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10891

Purchase of foreign exchange fromforeign citizens and others

This refers to A.P. (DIR Series) Circulars No. 20,22 and 24 dated November 25, 2016, December16, 2016 and January 3, 2017 respectively,permitting foreign citizens (i.e. foreign passportholders) to exchange foreign exchange for Indian

currency notes up to a limit of Rs. 5000/- per weektill January 31, 2017.

On a review of the provisions contained in thesecirculars, in line with restoration of limits on cashwithdrawals from bank accounts and ATMs, it hasbeen decided to restore status quo ante regardingpurchase of foreign exchange from customers byauthorised persons as mentioned in paragraph 4.4(e) (iii) of Annex to A.P. (DIR Series) CircularNo.17 dated November 27, 2009.



Investment by Foreign PortfolioInvestors in Government Securities

This refers to Schedule 5 to the Foreign ExchangeManagement (Transfer or Issue of Security by aPerson Resident outside India) Regulations, 2000notified vide Notification No. FEMA.20/2000-RBdated May 3, 2000, as amended from time to time.The limits for investment by foreign portfolioinvestors (FPIs) in Government securities were lastincreased in terms of Medium Term Framework(MTF) announced vide A.P. (DIR Series) CircularNo. 4 dated September 30, 2016.

The limits for investment by FPIs in CentralGovernment Securities and State DevelopmentLoans (SDLs) for the quarter April-June 2017 areproposed to be increased by Rs. 110 billion andRs. 60 billion respectively.

The total increase in limits over the next quarterwould, accordingly, be as under:

FEMA Updates

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contd. on page no. 52



CA. Ashwin H. [email protected]

Sumitomo Corporation Pvt. Ltd. vs.Commissioner of Service Tax, Delhi.

Facts:-

The Appellant is engaged in trading in goods andalso receives commission from foreign entities inrelation to importation of goods in India. The issueinvolved is the taxability of the commission receivedfrom the foreign entities and reversal of CENVATcredit on the input services attributable to the tradingactivity. The services provided to the foreign entitiesinclude services relating to transmitting proposals,delivering transport documents, schedule of thevessels, information on business potential, providingassistance while submitting bids, communicationwith customers etc. It was argued that the servicesprovided fall under Category III of the Export ofService Rules, 2005, therefore since the benefit ofthe service accrues to the recipient outside India,the service is exported and accordingly not liablefor service tax. Further with regard to reversal ofCENVAT credit it was argued that during therelevant period there was no specific provisionregarding quantification of reversal which wasintroduced only with effect from 01.04.2011 videRule 6(3D) of the CENVAT Credit Rules, 2004and therefore, no reversal is applicable prior to suchdate.

Held:-

The Tribunal in the matter of commission receivedfrom foreign entities noted that it is the person whorequested for the service and is liable to makepayment for the same, is to be treated as recipientof service and not the person affected by theperformance of the service. Accordingly, it was heldthat the business auxiliary services provided by theAppellants covered under category III of the ExportRules is considered to be exported as the recipientsare the foreign entities and the service is consumedoutside India. In respect of reversal of CENVAT

Service Tax -Recent Judgements

credit, it was noted that trading to be considered asan exempted service was introduced by anexplanation under Rule 2(e) of the CENVATCredit Rules, 2004 with effect from 01.04.2011.The said insertion clearly states that it is for theremoval of doubts and therefore clarificatory.Accordingly, in the absence of any other statutoryformula prior to such date, the Tribunal held thatthere is no impropriety in considering the formulaprescribed with effect from 01.04.2011.

Commissioner of Central Excise, Nashikvs. Graphite India Ltd.

Facts:-

The Appellant is a manufacturer and also a serviceprovider. They are maintaining consolidated recordsfor availment/utilisation of CENVAT credit ofinputs and input services pertaining tomanufacturing activities as well as servicesprovided by them. A Show Cause Notice wasissued proposing demand of service tax paid byutilizing the CENVAT credit availed from acommon pool. It was argued that there is norestriction on cross-utilisation of CENVAT creditand various judicial pronouncements were reliedupon.

Held:-

The Tribunal noted that availment of CENVATcredit in respect of excise duty, service tax etc. andits utilisation thereof is provided in Rule 3 ofCENVAT Credit Rules, 2004. It is clear from thesaid rule that the credit of either excise duty paidon input or service tax paid on the input services istermed as “CENVAT credit” and the said credit isallowed to be utilised either for payment of exciseduty or for payment of service tax. Therefore, inthe absence of any restriction, it was held that oneis free to maintain a consolidated CENVAT accountand discharge the excise duty as well as the servicetax liability from such common pool.

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Gannon Dunkerley & Co. Ltd. vs. CST,Mumbai; CESTAT, Mumbai decided on7-4-2017.(Unreported decision)

Facts:-

M/s. Gannon Dunkerley & Co. Ltd. (“Appellant”)have been providing works contract services tovarious service recipients. As per the contracts, theamount charged by the Appellant was inclusive ofall the taxes including service tax. The presentdemand is with respect to the said amount collectedas service tax from the service recipients by theAppellant under the head ‘Erection, Commissioningand Installation Services’ for the period prior to 1-6-2007.

The Appellants submitted that they are providingservices in the nature of ‘works contract’ and priorto 1-6-2007, the said services are not taxable as heldby the Hon’ble Supreme Court in the case ofCCE&C, Kerala vs. Larsen Toubro Ltd. 2015-TIOL-187-SC-ST. The Appellant furthercontended that when service tax itself is not payablethen the department is not entitled to impose penaltyunder section 76 or 78 of the Finance Act, 1994.

Held:-

The Hon’ble CESTAT agreeing with thesubmissions of the Appellant, held that the tax under‘erection, commissioning and installation’ chargesare not payable by the Appellant for the period priorto 1-6-2007 as the contracts executed by theAppellant being ‘works contract’. Further, eventhough an amount was collected as service tax, thefact that the service tax was not payable on workscontracts prior to 1-6-2007, the penalty underSection 76 and 78 of the Finance Act, 1994 cannotbe imposed. Accordingly, the appeal is allowed byway of setting aside of penalties.

Tata Motors Limited vs. CST, Mumbai-II; CESTAT, Mumbai decided on 7-4-2017.

Facts:-

Tata Motors Ltd. (‘Appellant’) has entered intocontract with manufacturers of distillates of crudeoil and products thereon. Under the terms of the

Service Tax - Recent Judgements

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contract certain products created specifically for usein automobiles produced by the Appellant areapproved and to signify that approval these productsare permitted to carry specified logo/symbol of theAppellant, as evidence of its compatibility andrecommended usage. The Appellant has beencharging for the said services based on volume ofthe product sold by the manufacturers.

The department demanded service tax on the groundthat prior to 10-9-2004, the Appellant’s wereproviding marketing and promotional service ofgoods belonging to the clients and hence, are liableto pay service tax under the head ‘Business AuxiliaryServices’. The department also relied on variousclauses of agreement to substantiate their claim thatthe Appellant has been providing ‘BusinessAuxiliary Services’ to the said manufacturers.

The Appellants submitted that they have takenregistration and have been duly discharging theirservice tax liability under the head ‘IntellectualProperty Service’ from 10-9-2004, after theincorporation of the said services under Section65(105)(zzr) of the Finance Act, 1994. Since, therewas no such category prior to 10-9-2004, theAppellants were not liable to pay service tax on thesaid transactions.

Held:-

The Hon’ble CESTAT held that after 10-9-2004,department themselves have accepted the taxabilityof the impugned services under the head of“Intellectual Property Service” Hence, the demandof service tax under ‘Business Auxiliary Services’for the period prior to 10-9-2004 is not justifiable.The Hon’ble CESTAT relied upon the decision ofHon’ble High Court of Bombay in the case ofIndian National Shipowners’ Association vs. UOI,2009 (14) STR 289 (Bom) and decision of Hon’bleCESTAT in the case of Hero Honda Motors Ltd.vs. CST 2012 (27) STR 409 (Tri-Del.) to concludethat the activity undertaken by the Appellants is‘IPR’ service and demand under ‘BusinessAuxiliary Services’ is not justifiable. Accordingly,the impugned order was set aside.

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CA. Bihari B. [email protected].

Important Judgments:

Hon. Gujarat High Court in the case of SafalDevelopers & ORS.

Issue:

The dealer is a Building Contractor and has paidthe Tax with interest before the ProvisionalAssessment is completed and afterwards thedealer has taken the benefit of Amnesty Schemedeclared by the Government. However,regarding the amount paid before the date ofthe scheme, the Government has denied thebenefit of Amnesty Scheme. The Hon. HighCourt has decided that the benefit is to be giveneven though prior payment has been madebefore the date of amnesty scheme.The gist of the judgment is reproduced hereunderfor the benefit of the readers.

The Petitioner – dealer was engaged in the businessof building construction. It acquired an old and closedtextile mill with an intention to demolish it andconstruct a commercial complex upon it. The salesof scrap and debris were duly recorded in the booksof account regularly maintained by the dealer andthe turnover of such sales was admitted in the returnssubmitted under the Gujarat. The dealer was underthe bona fide belief that such transactions were salesof immovable property attracting stamp duty and notliable to tax under the Gujarat Value Added Tax Act,2003. The dealer did not admit any tax liabilityrelating to consideration received for sales of officesin the returns filed under the Act but paid purchasetax under section 9(1) of the Act on the purchasesmade from unregistered dealers. Output tax liabilitywas also admitted on sales of scrap and debris. OnAugust 24, 2012, the Asst. Commissioner visited thebusiness premises of the dealer and concluded thatthe dealer was making sales in the execution of workscontract and was liable to pay tax under the Act onthe consideration received for sale of offices. The

VAT Judgmentsand Updates

dealer was compelled to pay the tax and interest evenbefore the passing of the provisional assessmentorders. On Sept. 4, 2012, the provisional assessmentorders were passed for the years 2010-11, 2011-12

st thand for the period 1 April 2012 to 30 June 2012.The dealer filed appeals against the provisionalassessment orders which were dismissed summarilyon the ground of non-payment of pre-deposit. Thedealer carried the matter in appeals before theTribunal. On Sept. 23, 2013, the Large Bench of theSupreme Court in the case of Larsen and ToubroLtd v. State of Karnataka [2013] 65 VST 1 (SC)held that the agreement to sell flats/offices duringthe course of construction constituted works contractand involved deemed sales. Representations weremade by various associations before the Governmentof Gujarat requesting for administrative relief. Inresponse thereto, On Oct. 14, 2014, the Governmentof Gujarat notified the Amnesty Scheme for waiverof interest and penalty to builders whose transactionswere taxable in terms of the decision of the SupremeCourt, Benefit was also made available to thosedealers whose cases were pending in appeal, if theappeal was withdrawn. The dealer withdrew itsappeals before the Tribunal and filed an applicationunder the Amnesty Scheme. While the dealer wasawaiting the adjudication of the application underthe Amnesty Scheme, a regular audit assessmentorder was passed for the year 2010-11, wherein tax,interest and penalty were imposed as in theprovisional assessment order and demand notice wasissued for recovery of amount of penalty. The dealerappealed against the regular assessment orderrequesting the first Appellate Authority to keep theappeal proceedings in abeyance since the applicationof the dealer under the Amnesty Scheme waspending. The dealer immediately met the authoritiesof the Commercial Tax Department to enquire aboutthe status of the application made under the AmnestyScheme and was informed that it was not entitled tothe benefit of the scheme because that payment of


VAT - Judgements and Updates

tax and interest was made prior to the date of thenotification: Paragraph 7 of the notification requirespayment of tax only during the period of AmnestyScheme. On a writ petition:

Held, allowing the petition that main reason for notgranting the benefit of the Amnesty Scheme to thedealer was that the Scheme having been introducedon Oct. 14, 2014 was prospective in effect and,therefore, the dealer was not entitled to the benefitthereof and secondly, paragraph 7 of the Schemebrings within the ambit of the Scheme only thosedealers who make payment during the period ofoperation of the Scheme, Many of the contractors inthe business of constructions and development ofimmovable properties, were under the impressionthat sale of immovable property by them, could notbe considered sale of goods and had not dischargedtheir tax liabilities. At the time of implementation ofthe Scheme, a considerable number of workscontractors had not obtained registration in the Stateand such registered as well as non-registeredcontractors had not discharged their tax liabilities. Itwas considering the position of the works contractorsthat the scheme had been introduced. Now, in viewof the decision rendered by the Supreme Court onSept. 26, 2013 in the case of Larsen Toubro Limitedv. State of Karnataka [2013] 65 VST 1 (SC), therewas clarity in the legal position and with a view tosee that such contractors and developers could paythe taxes for the period April 1, 2006 and such workscontractors and developers could be brought underthe tax net, it had been decided to grant remissionunder the provisions of section 41.

The Preamble and the memorandum of the AmnestyScheme showed that the benefit of the Scheme wasto be given in respect of the transactions commencingfrom April 1, 2006. The scheme by its very naturewas retrospective in effect, viz. applicable to pasttransactions. Admittedly, the dealer sought the benefitof the scheme in relation to the years 2010-11, 2011-12 and 2012-13 which were well within the ambitof the Scheme namely, between April 1, 2006 andOct. 14, 2014, Paragraph 7 only provided that thedealer, to be entitled to the benefit of the scheme,shall have to have paid the taxes there under duringthe operation of the Scheme. It did not in any manner

preclude those dealers who had already paid the taxprior to coming into force of the Scheme. The onlycondition is that in case where the tax, interest andpenalty has already been paid, the dealer shall notbe entitled to refund thereof. The provisions ofparagraph 7 of the Scheme had to be construed inconsonance with the provisions of paragraphs 10 and13 thereof, which clearly indicated that dealers whohad paid the taxes during the period of operation ofthe Scheme and prior thereto were brought withinthe ambit thereof. The respondents were to forthwithgrant the benefit of the Amnesty Scheme dated Oct.14, 2014 to the dealer.

[2] Hon. Gujarat Value Added Tax Tribunal inthe following cases:[a] Bansal Bros v. The State of Gujarat, the

Hon Tribunal has decided that the shipbreaking activity is a manufacturingprocess under GVAT Act and thereforeconsumption of Petroleum Gas andOxygen Gas are raw materials andtherefore the tax credit is to be entitledon the purchase of commodity.

Held:

The dealer was engaged in business activityof shop breaking and in the course of suchbusiness purchased ships, dismantled themand sold the material derived there from. Themethod used by the dealer was known asthe float method in which the dismantlingstarted while the ship was in water. Thedealer has filed determination applicationbefore the learned Joint Commissioner ofCommercial Tax (Legal), on the question,whether the credit for tax paid on purchaseof oxygen gas and liquefied petroleum gasused in cutting the hull of the ship duringship breaking/scrapping process wasadmissible whereupon the determiningauthority determined that no tax credit wasavailable. On appeal, the Hon. Tribunalcame to the conclusion that the activitybeing undertaken by the dealer was amanufacturing activity and the liquefiedpetroleum gas, forming part of raw materialin the process and therefore, the tax credit


VAT - Judgements and Updates

of tax paid on purchases of thesecommodities was admissible under section11 of the Vat Act. Against the order of HonTribunal the department has filed tax appealbefore the Hon. Gujarat High Court.

The Hon. Gujarat High Court hasdismissed the appeal of department andconformed the order of Hon. Tribunalholding that the ship breaking activity is amanufacturing process under theprovisions of the Act and the liquefiedpetroleum and oxygen gases formed partof the process, being raw material coveredwithin the sweep of section 2(19) of theAct and since they were processing materialand consumable stores, credit of tax paidon purchases of these commodities areadmissible under section 11 of the Vat Act.

[b] Shiv Shakti Ice Cream the Hon GVATTribunal has held that the activity ofselling of Faluda Ice Cream and FruitSalad does not amount to manufactureand therefore the provision of lump sumpayment of tax is available to the dealer.

Held:The appellant engaged in the business ofselling faluda ice cream and fruit salad wasgranted permission to pay lump sum tax u/s. 14 of the Vat Act. The appellant paid lumpsum tax while filing returns. The place ofbusiness of the appellant was visited on17.10.2013 and it was held that the activityof selling faluda ice cream and fruit saladwas manufacturing of goods and hence, theappellant was not entitled to get permissionto pay lump sum tax u/s. 14 of the Vat Act.The assessment order was passed for theyear 2010-11 in which the benefit of lumpsum tax was denied and the appellant washeld liable to pay tax @ 15% and the duesof Rs. 8,29,034/- were raised including theamount of interest and penalty. Against theassessment order the appeal was preferred.The permission granting payment of lumpsum tax was cancelled vide order dated

01.01.2014. The appeal preferred againstthe cancellation of permission to pay lumpsum tax was rejected and hence the secondappeal was filed in which the appellantcontended that the definition of manufactureas given u/s. 2(16) of the GST Act and u/s.2(14) of the Vat Act identical in nature andin view of the judgment in the case of PolsonDairy Ltd. dated 20.06.1974, the activityof selling faluda ice cream and fruit saladdoes not amount to manufacture and theappellant was entitled to pay lump sum taxu/s. 14 of the Vat Act. The appellant reliedon the judgment in the case of Jabson FoodsAppeal No. 20 of 2001 decided on15.04.05. The appellant also relied on Hon.Apex Court judgment in case of SACSEagle Chickory, Hon Allahabad High Courtjudgment in the case of S. R. Cannery 10VST 23, Hon. Gauhati High Courtjudgment in the case of DeepakkumarPoddar and the judgment in the case ofGalteshwar Quarry Works dated 20.02.14.The Hon Tribunal referred judgments reliedon by the appellant and also referred Hon.Gujarat High Court judgment in the case ofSukhram Jagannath 50 STC 76 and Hon.Supreme Court judgment in the case of ShivDatta & Sons 84 STC 597.

The Hon. Tribunal further referreddefinition of manufacture and held that nonew product has come to in existence inthe process of faluda ice cream and fruitsalad. The original identity does not losemerely because new nomenclature namelyfaluda ice cream or fruit salad is given tothe product. Accordingly, it is held that theappellant is entitled to get permission ofpayment of lump sum tax u/s. 14 of theVat Act.

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CA. Naveen [email protected]

Corporate Law Update

MCA Updates:

1. Companies (Audit and Auditors)Amendment Rules, 2017:In the Companies (Audit and Auditors) Rules,2014, in rule 11, after clause (c), the followingclause shall be inserted, namely:“(d) whether the company had providedrequisite disclosures in its financial statementsas to holdings as well as dealings in SpecifiedBank Notes during the period from 8thNovember, 2016 to 30th December, 2016 andif so, whether these are in accordance with thebooks of accounts maintained by the company.”[F. No. 1/33/2013-CL-V-(Vol.I) dated30.03.2017]

2. Companies (Meetings of Board and itsPowers) Amendment Rules, 2017:In the Companies (Meetings of Board and itsPowers) Rules, 2014, in rule 15, in sub-rule(3), in clause (a):a. in item (i), item (ii), item (iii) and item (iv),

for the words “exceeding ten per cent.”Wherever they occur, the words“amounting to ten per cent or more” shallbe substituted; and

b. in item (iii), for the words “ten per cent ofturnover” the words “ten per cent or moreof turnover” shall be substituted.

[F. No. 1/32/2013-CL-V-Part dated30.03.2017]

3. Insolvency and Bankruptcy Board of India(Voluntary Liquidation ProcessRegulations, 2017:The IBBI has notified the Insolvency andBankruptcy Board of India (VoluntaryLiquidation Process) Regulations, 2016 whichshall come into force from April 1, 2017. TheseRegulations shall apply to the voluntaryliquidation of corporate persons provided underChapter V of Part II of the Insolvency and

Bankruptcy Code, 2016 i.e. the companies,limited liability partnerships and any otherpersons incorporated with limited liability.The regulations provides for the requisitemajority to initiate voluntary liquidationproceedings, provisions for appointment ofLiquidator and their remuneration, their powersand functions. The regulations also provides forthe manner and content of public announcement,receipt and verification of claims of stakeholders,reports and registers to be maintained, preservedand submitted by the liquidator, realisation ofassets and distribution of proceeds tostakeholders, distribution of residual assets andthe dissolution of corporate person.Following forms have been prescribed in theSchedule I:Form Heading of the Form RegulationNo. No. of the

Insolvencyand

BankruptcyBoard of

India(VoluntaryLiquidation

Process)Regulations,

2017)

Form A Public Announcement Regulation 14

Form B Proof of claim by Regulation 16operational creditorsexcept workmen andemployees

Form C Proof of claim by Regulation 17Financial Creditors

Form D Proof of claim by a RegulationWorkman or Employee 18(1)

Form E Proof of claim by Regulationauthorised representative 18(2)of workmen or employees

Form F Proof of claim by any Regulation 19other Stakeholder



Further, the formats for various ledgers andregisters have been prescribed in the ScheduleII.For full text, please refer the link at http://ibbi.gov.in/IBBI % 20 (Voluntary %20Liquidation).pdf.[ADVT.-III/4/Exty./453/16 dated31.03.2017]

4. Companies (Removal of Names ofCompanies from the Register of Companies)Amendment Rules, 2017:· In the Companies (Removal of Names of

Companies from the Register ofCompanies) Rules, 2016 (hereinafterreferred to as the principal rules), in rule 7,in sub-rule (1), after the proviso, thefollowing proviso shall be inserted,namely:-“Provided further that the publication ofnotice under clause (iii) of this sub-rule, inrespect of cases falling under sub-section(1) of section 218 shall be in Form No. STK5A.”

· In the principal rules, after Form STK-.5,the FORM No. STK-5A, PUBLICNOTICE shall be inserted.It is the form for publishing a notice forseeking objections, if any, for removal orstriking off the name of the company, incase of the Registrar of Companies has areasonable cause to believe that, thecompanies, whose names are listed on theMinistry’s website:i. Have not commenced business within

one year of their incorporation; ORii. Have not been carrying on any

business or operation for a period oftwo immediately preceding financialyears and have not made anyapplication within such period forobtaining the status of dormantcompany under section 455 of theCompanies Act, 2013.

[F. No. 1/28/2013 CL.V dated 13.04.2017]5. Notification of Section 234 of the Companies

Act, 2013:The Central Government hereby appoints the

th13 day of April, 2017 as the date on whichthe provisions of section 234 of the said Act

shall come into force. This section deals withthe Merger and Amalgamation of company withforeign company.[F. No. 1/37/2013-CL.V dated 13.04.2017]

6. Companies (Compromises, Arrangementsand Amalgamations) Amendment Rules,2017:1. In the Companies (Compromises,

Arrangements and Amalgamations) Rules,2016, (hereinafter referred to as theprincipal rules) after rule 25 the followingrule shall be inserted, namely:-“25A. Merger or amalgamation of aforeign company with a Company andvice versa. - (1) A foreign companyincorporated outside India may merge withan Indian company after obtaining priorapproval of Reserve Bank of India andafter complying with the provisions ofsections 230 to 232 of the Act and theserules.(2) (a) A company may merge with aforeign company incorporated in any of thejurisdictions specified in Annexure B afterobtaining prior approval of the ReserveBank of India and after complying withprovisions of sections 230 to 232 of theAct and these rules.(b) The transferee company shall ensurethat valuation is conducted by valuers whoare members of a recognized professionalbody in the jurisdiction of the transfereecompany and further that such valuationis in accordance with internationallyaccepted principles on accounting andvaluation. A declaration to this effect shallbe attached with the application made toReserve Bank of India for obtaining itsapproval under clause (a) of this sub-rule.

(3) The concerned company shall file anapplication before the Tribunal as perprovisions of section 230 to section 232 ofthe Act and these rules after obtainingapprovals specified in sub-rule (1) and sub-rule (2), as the case may be.Explanation I. For the purposes of this rulethe term “company” means a company asdefined in clause (20) of section 2 of theAct and the term “foreign company” meansa company or body corporate incorporated



outside India whether having a place ofbusiness in India or not:Explanation II. For the purposes of thisrule, it is clarified that no amendment shallbe made in this rule without consultationof the Reserve Bank of India.”

2. In the principal rules after Annexure A thefollowing Annexure shall be insertednamely:-

“Annexure BJurisdictions referred to in clause (a) of sub-rule(2) of rule 25AJurisdictions –(i) whose securities market regulator is a signatory

to International Organization of SecuritiesCommission’s Multilateral Memorandum ofUnderstanding (Appendix A Signatories) or asignatory to bilateral Memorandum ofUnderstanding with SEBI, or

(ii) whose central bank is a member of Bank forInternational Settlements (BIS), and

(iii) a jurisdiction, which is not identified in thepublic statement of Financial Action Task Force(FATF) as:(a) a jurisdiction having a strategic Anti-Money

Laundering or Combating the Financingof Terrorism deficiencies to which countermeasures apply; or

(b) a jurisdiction that has not made sufficientprogress in addressing the deficiencies orhas not committed to an action plandeveloped with the Financial Action TaskForce to address the deficiencies.”.

[F. No. 1/37/2013 CL.V dated 13.04.2017]7. Clarification regarding online Generation

of Challans for offline Payment cases:The MCA has suggested the following 2 stepsfor facilitating the e-form IEPF-1 for theCompanies which have transferred the amountto IEPF prior to 15.12.2016, through challansnot generated on MCA portal and suchcompanies were unable to file IEPF-1:Step-1:Company concerned is required to submit thedetails of the challans in prescribed format toIEPF authority on email [email protected]. The copy ofchallans and certificate for authentication of the

details submitted are required to be obtainedfrom practicing professionals. This informationwill be accepted by the IEPF authority up to

th20 May, 2017.Step-2:The submitted data shall be processed by theIEPF authority and a front office service will

thbe made available on IEPF website from 05June, 2017 for a period of 30 days to enablethe Companies to submit the required dataonline. An automated generated number willbe provided by the MCA system on validationof entries and using this automated generatenumber as SRN, companies may file e-formIEPF-1 online and upload investor detailswithout requirement of filing additional fees.[F. No. 05/05/2016-IEPF dated 20.04.2017]

8. Investor Education and Protection Fundauthority (Accounting, Audit, Transfer andRefund) Amendment Rules, 2017.Pursuant to second proviso to Rule 6 of InvestorEducation and Protection Fund Authority(Accounting, Audit, Transfer and Refund)Amendment Rules, 2017 notified on February28, 2017, where the seven year period providedunder subsection (5) of section 124 iscompleted during September 7, 2016 to May31, 2017, the due date for transfer of such sharesby companies is May 31, 2017.

In this relation, following clarifications have beenmade:1. The IEPF Authority has decided to open a

special demat account with NSDL through aDepository Participant of NSDL.

2. The special demat account will have featuresand functionality to support IEPF operationsusing paperless, digital processes.

3. All companies required to transfer shares toIEPF Authority, whether such shares held indematerialized form or physical form, to thedemat account of IEPF Authority by way ofcorporate action.

4. NSDL will prescribe the file formats andoperational procedures for transfer of shares tospecial demat account of the IEPF Authorityby April 30th, 2017 and May 15th, 2017respectively.[F. No. 11/06/2017-IEPF dated 27.04.2017]

❉ ❉ ❉


Allied Laws Corner

Adv. Ankit [email protected]

that the Petitioner being an employee of theRespondent, cannot maintain the CompanyPetition under section 439 of the CompaniesAct, 1956 as he was not a creditor of theRespondent Company. In support of thisproposition, the Respondent relied upon adecision of the learned Single Judge of theBombay Court in the case of Mumbai LabourUnion (supra). In this decision, the learnedSingle Judge, placing reliance on the decisionof the Supreme Court in the case of NationalTextile Workers’ Union v. P.R. RamkrishnanAIR 1983 SC 75, came to the conclusion thatthe workers had no right to prefer a Petition ofwinding up of the Company. If that was so, thelearned Single Judge held that a Trade Unionalso could not present such a Petition claimingto represent the class of unpaid employees ascreditors of the Company.

2. On the other hand, the Petitioner relied uponthe judgment of the Full Bench of the MadhyaPradesh High Court in the case of JonathanAllen v. Zoom Developers (P.) Ltd.[2015] 62taxmann.com 125. Placing reliance on thisdecision, the Petitioner submitted that even ifan employee has no locus to file a CompanyPetition in respect of his unpaid wages, salaryand emoluments, he was entitled to file aCompany Petition as a creditor of theCompany. He therefore contended that theMadhya Pradesh High Court has rightlydistinguished the judgment of this Court in thecase of Mumbai Labour Union (supra). ThePetitioner also placed reliance on a judgmentof the Delhi High Court in the case of ArghaSen v. Interra Information Technologies (India)(P) Ltd. [2007] 75 SCL 150 which alsoconsidered the Bombay High Court’s decisionin Mumbai Labour Union (supra) andthereafter distinguished it.

3. After considering all these decisions, the SingleJudge hearing this Company Petition wasunable to agree with the view taken by this

Ex-employee of the Company would becomea creditor within the provisions of S.439 ofthe Companies Act, 2013 and therefore hecould file winding-up petition. A winding upPetition at the instance of a Trade Union andfor the dues that are payable to its membersis maintainable as it clearly falls within section439 of the Companies Act, 1956.

Recently, the Division (Larger) Bench of BombayHigh Court in the case of Sanjay SadanandVarrier (Petitioner) vs. Power Horse India (P.)Ltd. (Respondent) reported in 80 taxmann.com47 held that as contemplated under section439(1)(b) of the Companies Act, 2013, workmenwho have not been paid their wages / salary by theCompany, would certainly be a creditor andtherefore the petition filed by such employee forwinding up for recovery of his unpaid salary /wages is maintainable.A. Facts of the case :1. The Petitioner was an employee of the

Respondent Company and was initiallyappointed as the Regional Sales Manager andthereafter as the Manager, Key-Accounts andTrade Marketing, with effect from 1st October,2007. Since October 2009 till he resigned inMarch 2012, his entire salary was outstanding.It is in this light that the Petitioner issued astatutory notice under section 434 of theCompanies Act, 1956 dated 21st February,2014 calling upon the Respondent Companyto pay his dues, failing which winding upproceedings would be initiated. Since nopayment came forth, the Petitioner approachedthe Bombay High Court claiming that theCompany is indebted to him in the sum ofRs.39,51,558/- and filed the Company Petition.

B. Reference to the Division (larger) Bench :1. The Company Petition came to be filed before

the Single Judge Bench of the Bombay HighCourt. It was the contention of the Respondent


Court in Mumbai Labour Union (supra). Sincethe decision in Mumbai Labour Union(supra) would affect a large number ofworkmen who seek to file a CompanyPetition for winding up in their capacity ascreditors, the learned Judge hearing thisCompany Petition was of the view that thisissue required reconsideration by a LargerBench. In these circumstances, the learnedSingle Judge directed the Registry to place thepapers of these proceedings before the Hon’bleChief Justice in order to enable the Hon’bleChief Justice to constitute a Larger Bench foranswering the question set out by us earlier.Thereafter, the matter has therefore beenassigned by the Hon’ble Chief Justice to theDivision Bench to answer the below question:“Whether an employee can maintain aPetition for winding up of a Company undersection 439 r/w sections 433(e) and 434(1)(a)of the Companies Act, 1956 as a creditorbased on the claim of the recovery of hisunpaid salary and wages?”

C. Findings of the Division Bench of theBombay High Court are as under :

1. When this matter was first placed before us on22nd February 2017, it was brought to thenotice of the learned counsel that the judgmentof the learned Single Judge in the case ofMumbai Labour Union (supra) has alreadybeen overruled by a Division Bench of thisCourt at Nagpur in the case of KhandelwalTube Mill Kamgar Sangh v. Government ofMaharashtra [2006] 1 CLR 51.

2. This decision was rendered in Writ PetitionNo.2243 of 2005 decided on 11th August,2005. On a perusal of this decision, it is clearthat a workman or an individual employee,being a creditor within the meaning of therelevant statutory provisions of theCompanies Act, can institute or file a Petitionfor winding up of a Company.

3. The Bombay High Court therefore, in orderdated 22nd February, 2017, recorded thatthe only issue that would survive forconsideration was whether a Trade Unioncan file a Petition so as to espouse the causeof a workman or workmen who are

Allied Laws Corner

members of such a Trade Union. Whetherthe Trade Unions Act, 1926 would be thegoverning law in so far as this aspect isconcerned, or whether the applicable provisionsin so far as the State enactments carving out acategory of unions namely, representative /recognized unions alone could maintain sucha Petition was also needed to be considered.The above being the only surviving issue, theparties have addressed us on the same.

4. To understand the controversy, it would benecessary to refer to certain provisions of theCompanies Act, 1956 as well as the TradeUnions Act, 1926. As far as winding up of aCompany is concerned, it falls under Part VIIof the Companies Act, 1956. Part VII in turn isdivided into five chapters. Chapter I of Part VIIdeals with the modes of winding up and consistsof sections 425 to 432. Chapter II of Part VIIdeals with winding up by the Court (whichjurisdiction is now exercised by the Tribunal).Section 433 sets out the circumstances in whicha Company may be wound up. One of thegrounds on which a Company may beordered to be wound up is that it is unableto pay its debts [section 433(e) of the saidAct]. Thereafter, section 434 creates a deemingfiction and inter alia stipulates that a Companyshall be deemed to be unable to pay its debts ifa creditor, by assignment or otherwise, to whomthe Company is indebted in a sum exceedingRs.1,00,000/- then due, has served on theCompany, by causing it to be delivered at itsregistered office, by registered post orotherwise, a demand under his hand requiringthe company to pay the sum so due and thecompany has for three weeks thereafterneglected to pay the sum, or to secure orcompound for it to the reasonable satisfactionof the creditor. In other words, to put it simply,once a notice under section 434(1)(a) of theCompanies Act, 1956 is served upon theCompany at its registered office, claiming a sumin excess of Rs.1,00,000/- as due and payableby the Company and the sum is either unpaidor not secured to the reasonable satisfaction ofthe creditor then, the Company is deemed tobe unable to pay its debts.


Allied Laws Corner

5. Section 439 of the Companies Act, 1956 dealswith the provisions as to applications forwinding up and inter alia sets out the personswho can file a Petition for winding up of aCompany.

6. In so far as the matter was concerned, theBombay High Court have to decide iswhether a winding up Petition filed by aTrade Union would fall within any of thecategories set out in section 439. If the answeris in the affirmative, then there can be no doubtthat a winding up Petition would bemaintainable at the instance of the Trade Union.

7. Having set out the relevant provisions of theCompanies Act 1956, the attention is drawn toa few provisions of the Trade Unions Act,1926. It is an Act to provide for registration ofTrade Unions and in certain respects to definethe law relating to registered Trade Unions. Thewords ‘Registered Trade Unions’ have beendefined in section 2(e) to mean a Trade Unionregistered under the Trade Unions Act, 1926.Section 2(g) defines the words ‘trade dispute’to mean any dispute between employers andworkmen or between workmen and workmen,or between employers and employees whichis connected with the employment or non-employment, or the terms of employment orthe conditions of labour of any person and‘workmen’ means all persons employed in tradeor industry whether or not in the employmentof the employer with whom the trade disputearises. From this definition, it is clear thatwhen a workman or an employee is not paidhis wages and/or salary, the same wouldcertainly fall within the definition of thewords ‘trade dispute’.

8. Thereafter, Chapter II of this Act deals withthe registration of Trade Unions and theconditions on which a Trade Union can gainregistration as well as its cancellation. Section13, which falls under Chapter II, stipulates thatevery registered Trade Union shall be a bodycorporate by the name under which it isregistered and shall have perpetual successionand a common seal with power to acquire andhold both movable and immovable propertyand to contract, and shall, by the said name,sue and be sued. Thereafter, the rights and

liabilities of Registered Trade Unions are setout in Chapter III. Section 15, which fallsunder Chapter III, sets out the object onwhich the general funds of the Trade Unionsmay be spent. Section 15 of the TradeUnions Act 1926 reads thus:—“15. Objects on which general funds may bespent.—The general funds of a registered TradeUnion shall not be spent on any other objectsthan the following, namely,—(a) the payment of salaries, allowances and

expenses to office-bearers of the TradeUnion;

(b) the payment of expenses for theadministration of the Trade Union,including audit of the accounts of thegeneral funds of the Trade Union;

(c) the prosecution or defense of any legalproceeding to which the Trade Union orany member thereof is a party, when suchprosecution of defense is undertaken forthe purpose of securing or protecting anyrights of the Trade Union as such or anyrights arising out of the relations of anymember with his employer or with aperson whom the member employs;

(d) the conduct of trade disputes on behalf ofthe Trade Union or any member thereof;

(e) the compensation of members for lossarising out of trade disputes;

(f) allowances to members of their dependantson account of death, old age, sickness,accidents or unemployment of suchmembers;

(g) the issue of, or the undertaking of liabilityunder, policies of assurance on the lives ofmembers, or under policies insuringmembers against sickness, accident orunemployment;

(h) the provision of educational, social orreligious benefits for members (includingthe payment of the expenses of funeral orreligious ceremonies for deceasedmembers) or for the dependants ofmembers;

(i) the upkeep of a periodical published mainlyfor the purpose of discussing questionsaffecting employers or workmen as such;


Allied Laws Corner

(j) the payment, in furtherance of any of theobjects on which the general funds of theTrade Union may be spent, of contributionsto any cause intended to benefit workmenin general, provided that the expenditurein respect of such contributions in anyfinancial year shall not at any time duringthat year be in excess of one-fourth of thecombined total of the gross income whichhas up to that time accrued to the generalfunds of the Trade Union during that yearand of the balance at the credit of thosefunds at the commencement of that year;and

(k) subject to any conditions contained in thenotification, any other object notified bythe 2 [appropriate Government] in theOfficial Gazette.”

9. As can be seen from the said section,Registered Trade Unions can prosecute ordefend any legal proceeding to which theTrade Union or member thereof is a party,when such prosecution or defense isundertaken for the purpose of securing orprotecting any right of the Trade Union assuch, or any rights arising out of therelations of any member with his employeror with a person whom the memberemploys. In fact, the Trade Union can evenspend general funds on the conduct of tradedisputes on behalf of the Trade Union orany member thereof.

10. On a conjoint reading of the provisions ofthe Companies Act, 1956 and moreparticularly sections 434 and 439 as well asthe provisions of the Trade Unions Act 1926,the Bombay High Court was clearly of theview that looking to the mandate of sections13 and 15 of the Trade Unions Act 1926,there is no doubt in our mind that a Petitionfor winding up would be maintainable atthe instance of the Trade Union. This is forthe simple reason that section 15(c) and (d)clearly mandates that the prosecution or defenseof any proceeding to which the Trade Unionor any member thereof is a party as well as theconduct of trade disputes on behalf of the TradeUnion or any member thereof can be done by

the Trade Union. This would clearly go toshow that the Trade Union, for and onbehalf of the members can certainly prefera winding up Petition as contemplatedunder section 439 of the said Act. This is forthe simple reason that if the workmen havenot been paid their wages and/or salary bythe Company, they would certainly be acreditor or creditors as contemplated undersection 439(1)(b) of the Companies Act,1956. Section 15 clearly mandates that the TradeUnion can take up this cause for and on behalfof its members. Hence, after complying withthe provisions of section 434 of theCompanies Act, 1956 the Trade Unionwould certainly be competent to present awinding up Petition.

11. The High Court further noted that “We mayadd here that this does not mean that inevery instance when a Trade Union or aworkman files a winding up Petition, theCompany is ipso facto to be wound up.Whether or not there is any merit in theclaim made by the workman and/oremployee depends on the circumstances ineach case. All that we are holding is that aTrade Union, though having a legitimateclaim, cannot be shut out from approachingthe appropriate forum for winding up theCompany on the ground that its membershave not been paid their wages and/orsalaries.”

12. It was therefore held that that an employee canmaintain a Petition for winding up of aCompany under section 439 r/w sections 433(e)and 434 of the Companies Act, 1956 as acreditor based on the claim of the recovery ofhis unpaid salary and wages. Further it was heldthat a winding up Petition at the instance of aTrade Union and for the dues that are payableto its members is maintainable as it clearly fallswithin section 439 of the Companies Act, 1956.The issue is answered accordingly.

❉ ❉ ❉


CA. Pamil H. [email protected]

From Published Accounts

AS 15 - Employee Benefits -Annual Report 2015-16

Deepak Fertilisers And PetrochemicalsCorporation Limited

Employee benefitsShort –term employee benefits are recognised asan expense at the undiscounted amount in thestatement of profit and loss of the year in which therelated service is rendered.

Provident fund

The eligible employees of the company are entitledto receive benefits under the provident fund, adefined contribution plan in which both theemployees and the company make monthlycontributions at a specified percentage of thecovered employees’ salary [currently 12% ofemployees’ salary]. The contributions as specifiedunder the law are paid to the regional providentfund commissioner and the central provident fundscommissioner and the central provident fund underthe pension scheme the company recognises suchcontributions as expense of the year in which theliability is incurred.

Gratuity

The company has an obligation towards gratuity, adefined benefit retirement plan covering eligibleemployees. The plan provides for a lump sumpayments to vested employees at retirement, deathwhile in employment or on termination ofemployment of an amount equivalent to 15 to 30days salary payable for each completed year ofservice. Vesting occurs upon completion of fiveyears of service. The plan is managed by a trustand the fund is invested with recognised insurancecompanies under their group gratuity scheme. Thecompany makes annual contributions to gratuityfund and recognises the liability for gratuitybenefits payable in future based on an independentactuarial valuation.

SuperannuationThe company has an optional superannuation planfor its executives, a defined contribution plan. Thecompany makes annual contributions at 15 % ofthe covered employees’ salary, subject to maximumof 1,00,000 per employee, for the executives optingfor the benefit . The plan is managed by a trust andthe funds are invested with recognised lnsurancecompanies under their group superannuationscheme. Annual contributions as specified underthe trust deed are paid to the lnsurance companiesand recognised as an expense of the year in whichthe liability is incurred.Compensated AbsencesThe company provides for the encashment of leaveor leave with pay subject to certain rules. Theemployees are entitled to accumulate leave foravailment as well as encashment subject to the rules.As per the regular past practice followed by theemployees, it is not expected that the entireaccumulated leaves shall be encashed or availedby the employees during the next twelve monthsand accordingly the benefit is treated as log-termdefined benefit. The liability is provided for basedon the number of days of unutilized leave at thebalance sheet date on the basis of an independentactuarial valuation.Medical BenefitsThe company has a medical benefit plan accordingto which employees are entitled to be covered undermediclaim policy for the next five years post theirsuperannuation. The amount being insignificant,the liability towards such benefit is recognised basedon the actual premium payable.Post–retirement benefitsThe company has a post retirement benefit plan,which is a defined benefit retirement plan, accordingto which executives superannuating from theservice after ten years of services are eligible forcertain benefits like medical, fuel, telephonereimbursement, club membership etc. for specified


From Published Accounts

number of years. The liability is provided foe onthe basis of an independent actuarial valuation.DLF Ltd.Expenses and liabilities in respect of employeebenefits are recorded in accordance with the notifiedaccounting standard 15 employee benefits.i) Provident Fund

Certain entities of the DLF group makecontribution to statutory provident fund trustsetup in accordance with the EmployeesProvident Funds and Miscellaneous ProvisionsAct, 1952. In terms of the guidance onimplementing the revised accounting standard15 employee benefits, the provident fund trustset up by the DLF group is treated as a definedbenefit plan since the DLF group has to meetthe interest shortfall, if any, is recognised as anexpense in the period in which services arerendered by the employee.Certain other entities of the DLF group makecontribution to the statutory provident fund inaccordance with the Employees ProvidentFund and Miscellaneous Provisions Act, 1952which is defined contribution plan andcontribution paid or payable is recognised asan expense in the period in which the servicesare rendered.

ii) GratuityGratuity is a post employment benefit and is inthe nature of a defined plan. The liabilityrecognized in the financial statement in respectof gratuity is the present value of the definedbenefit/obligation at the reporting date less thefair value of plan assests, together withadjustments for unrecognized actuarial gainsor losses and past service costs. The definedbenefit/obligation is calculated at or near thereporting date by an independent actuary usingthe projected unit credit method.Actuarial gains and losses arising from pastexperience and changes in actuarial assumptionsare credited or charged to the statement of profitand loss in the year in which such gains or lossesare determined. For certain consolidated entities,contributions made to an approved gratuity fund(funded by contributions to LIC under its groupgratuity scheme) are charged to revenue on

iii) Compensated Absences.Liability in respect of compensated absences

accrual basis.

becoming due or expected to be availed withinone year from the reporting date is recognisedon the basis of undiscounted value of estimatedamount required to be paid or estimated valueof benefit expected to be availed by theemployees. Liability in respect of compensatedabsences becoming due or expected to beavailed more than one year after the reportingdate is estimated on the basis of an actuarialvaluation performed unit the projected unitcredit method.Actuarial gains and losses arising form pastexperience and changes and changes inactuarial assumptions are credited or chargedto the statement of profit and loss in the year inwhich such gains or losses are determined.

iv) Superannuation BenefitSuperannuation is in the nature of a definedbenefit plan. Certain entities make contributionstowards superannuation fund (funded bypayments to life insurance corporation of indiaunder its group superannuation scheme) whichis charged to revenue on accrual basis.

v) Employee shadow option scheme (cashsettled options)Accounting value of cash settled optionsgranted to employees under the employeeshadow/phantom option scheme is determinedon the excess of the average market price,during the month before the reporting date, overthe exercise price of the shadow option. Thesame is charged as employee benefits price ofthe shadow option. The same is charged asemployee benefits over the vesting period, inaccordance with guidance note no.18Accounting for employee share basedpayments, issued by the Institute of CharteredAccountants of India (ICAI).

vi) Other Short-term BenefitsExpense in respect of other short-term benefitsis recognised on the basis of the amount paidor payable for the period during which servicesare rendered by the employee.

❉ ❉ ❉


From the Government

CA. Kunal A. [email protected]

Income Tax

1) Circular regarding Lease rent from lettingout buildings/developed space along withother amenities in an Industrial Park/SEZ–to be treated as business income.

1. The issue whether income arising from lettingout of premises /developed space along withother amenities in an Industrial Park/SEZ is tobe charged under head ‘Profits and Gains ofBusiness’ or under the head ‘Income fromHouse Property’ has been subject manner oflitigation in recent years. Assessee’s claim theletting out as business activity, the income arisingfrom which to be charged to tax under the head‘Profits and Gains of Business’ ,whereas theAssessing Officers hold it to be chargeable underthe head ‘Income from House Property’.

2. The matter has been considered by the Incomefrom the Industrial Parks/ SEZ establishedunder various schemes framed and notifiedunder section 80IA(4)(iii) of the Income-taxAct, 1961 (‘Act’) is liable to be treated asincome from business provided the conditionsprescribed under the schemes are met.

In the case of Velankani Information SystemsPvt Ltd , the Hon’ble Karnataka High Courtobserved that any other interpretation woulddefeat the object of section 80IA of the Actand Government Schemes for development ofIndustrial Parks in the country. SLPs filed inthis case by the Department have beendismissed by the Hon’ble Supreme Court.

In a subsequent judgment, in the case of CITvs. Information Technology Park Ltd., theKarnataka High Court has reaffirmed its earlierviews. It has held that, since the assessee-company was engaged in the business ofdeveloping, operating and maintaining anIndustrial Park and providing infrastructurefacilities to different companies as its business,

the lease rent received by the assessee fromletting out buildings along with other amenitiesin a software technology park would bechargeable to tax under the head “Income fromBusiness” and not under the head “Incomefrom House Property”. The judgement has beenaccepted by the Board.

3. In view of the above, it is now a settled positionthat in the case of an undertaking whichdevelops, develops and operates or maintainsand operates an industrial park/SEZ notified inaccordance with the scheme framed andnotified by the Government, the income fromletting out of premises/ developed space alongwith other facilities in an industrial park/SEZis to be charged to tax under the head ‘Profitsand Gains of Business’.

4. Accordingly, henceforth, appeals may not befiled by the Department on the above settledissue and those already filed may be withdrawn/not pressed upon.

(Circular No.16, dated 25/04/2017 )

2) Notification regarding method of valuationfor the purposes of sub-section (2) of section115TDFor the purpose of sub-section (2) of section115TD of the Act, the aggregate fair marketvalue of the total assets of the trust or institution,shall be the aggregate of the fair market value ofall the assets in the balance sheet as reduced by-

(i) any amount of income-tax paid asdeduction or collection at source or asadvance tax payment as reduced by theamount of income-tax claimed as refundunder the Act, and

(ii) any amount shown as asset including theunamortized amount of deferredexpenditure which does not represent thevalue of any asset.


(Section 115TD – Special Provisions relatingto tax on accreted income of certain trustsand institutions)

(For detailed text refer Notification no.32/2017, dated 21/04/2017)

Service Tax

1) Notification regarding the person liable forpaying service tax in case of servicesprovided or agreed to be provided by aperson located in non-taxable territory to aperson located in non-taxable territory byway of transportation of such goods by avessel from a place outside India up to thecustoms station of clearance in India.

In the notification No. 30/2012-Service Tax,dated the 20th June, 2012 and last amendednotification No. 3/2017-Service Tax, dated the12th January, 2017, for Explanation III andExplanation IV, following shall be substituted,namely:-

“Explanation III.- The business entity locatedin the taxable territory who is litigant, applicantor petitioner, as the case may be, shall be treated

as the person who receives the legal servicesfor the purpose of this notification.

Explanation IV.- For the purposes of thisnotification, “non-assessee online recipient” hasthe same meaning as assigned to it in clause(ccba) of sub-rule 1 of rule 2 of Service TaxRules, 1994.

Explanation V.- For the purposes of thisnotification, in respect of services provided oragreed to be provided by a person located innon-taxable territory to a person located in non-taxable territory by way of transportation ofgoods by a vessel from a place outside Indiaup to the customs station of clearance in India,person liable for paying service tax other thanthe service provider shall be the importer asdefined under clause (26) of section 2 of theCustoms Act, 1962 (52 of 1962) of suchgoods.”

This notification shall come into force on the23rd day of April, 2017.

(Notification No. 15/2017, dated 13/04/2017)

❉ ❉ ❉

From the Government

Rs. Billion

Central Government State securities Develop-

mentLoans Aggregate

For Addit- Total Forall ional all

FPIs- for FPIsGeneral Long (includingCategory Term Long Term

FPIs FPIs)

Existing 1520 680 2200 210 2410Limits

Revised 1565 745 2310 270 2580limits forquarterApril-June,2017

The revised limits will be effective from April 1,2017.

The limits for the long term investors remainingunutilized at the end of March 2017 will be releasedfor investment under the general category in April2017.

All other existing conditions, including the security-wise limits, investment of coupons being permittedoutside the limits and investments being restrictedto securities with a minimum residual maturity ofthree years, will continue to apply.

The operational guidelines relating to allocation andmonitoring of limits will be issued by the Securitiesand Exchange Board of India (SEBI).



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contd. from page 35 FEMA Updates


66th Annual General Meeting1 thAt the 66th Annual General Meeting of the members of the Association held on Saturday, 6 May,

2017 at ICAI Bhavan, 123, Sardar Patel Colony, Naranpura, Ahmedabad, following Office Bearersand Executive Committee Members have been declared elected for the year 2017-2018.

Office Bearers

1 CA. Kunal A Shah President2 CA. Chintan M Doshi Vice - President3 CA. Riken J Patel Hon. Secretary4 CA. Maulik S Desai Hon. Secretary

Executive Committee Members

1 CA. Anjali N Choksi 2. CA. Atul R Shah 3. CA. Darshan A Shah4. CA. Ketul R Patel 5. CA. Nesal H Shah 6. CA. Pathik B Shah7. CA. Rakesh G Gupta 8. CA. Tushar D Shah 9. CA. Vartik R Choksi

Imm. Past President CA. Raju C Shah

List of Sub Committees Sr. Name of Sub Chairman Convener Members No. Committee

1 Journal CA. Ashok C Kataria CA. Nirav R Choksi CA. Darshan A ShahCA. Jayesh C SharedalalCA. Shailesh C ShahCA. Gaurang M ChoksiCA. Rajni M Shah

2 Residential CA. Nirav R Choksi CA. Shivang R Choksi CA. Darshan A ShahRefresher Course CA. Mukesh M Khandwala

CA. Atul R ShahCA. Ashok C Kataria

3 Brain Trust CA. Jignesh J Shah CA. Manthan S Khokhani CA. Darshan A Shahcum Workshop CA. Jayesh C Sharedalal

CA Vikash G JainCA Rutvij P ShahCA Shivang R ChoksiCA Devang A Doctor

4 Legal And CA. Rajni M Shah CA. Manthan S Khokani CA. Vartik R ChoksiRepresentation CA. Sunil Talati(Direct Taxes) CA. Uday I Shah

CA S K Sadhwani

Association News

CA. Maulik S. DesaiHon. Secretary

CA Ashok C Kataria

CA. Riken J. PatelHon. Secretary


Sr. Name of Sub Chairman Convener Members No. Committee

5 Legal And Dr. CA Nilesh V CA. Punit R Prajapati CA. Pathik B ShahRepresentation Suchak CA. Shailesh C Shah(Indirect Taxes) CA. Bishan Shah

CA. Rahul PatelCA. Jigar ShahCA. Sandesh MundraCA. Nitesh JainCA. Rashmin VajaCA. Hardik P Modh

6 Information CA. Anuj J Sharedalal CA. Vijay M Valiya CA. Tushar D ShahTechnology CA. Gaurang M Choksi

CA. Pathik B ShahCA. Ashok C Kataria

7 Publication CA. Shailesh C Shah CA. Abhishek J Jain CA. Atul R ShahCA. Mukesh M KhandwalaCA. Ashok C KatariaCA. Rajni M ShahCA. Punit R PrajapatiCA. Nirav Choksi

8 Cultural and CA. Chandrakant H CA. Uday I Shah CA. Nesal H ShahEntertainment Pamnani CA. Ashwin H Shah

CA. Ketul R. PatelCA. Krunal A ShahCA. Yamal A VyasCA. Devang A Doctor

9 Membership CA. Vikash G Jain CA. Deep K Thakkar CA. Anjali N ChoksiDevelopment CA. Yamal A Vyas

CA. Tanay V MohtaCA. Vinod T Agrawal

10 Sports CA. Abhishek J Jain CA. Rushabh M Shah CA. Ketul R PatelCA. Ajit C ShahCA. Saurabh Patel

11 Constitution CA. Gaurang M CA. Ashok C Kataria CA. Chintan M DoshiAmendment Choksi CA. Jayesh C Sharedalal

CA. Rajesh C Shah

12 Study Circle CA. Anand S Sharma CA. Nitesh K Thakkar CA. Pathik B Shah(Direct Taxes) CA. Prakash B Sheth

CA. Bhavik P KhatriCA. Ashit N ShahCA. Bhavesh Ponkiya

13 Study Circle CA. Punit R Prajapati CA. Jagdish V Ghodasara CA. Pathik B Shah(Indirect Taxes) CA. Ashwin H Shah

CA. Abhishek J JainCA. Anuj J Sharedalal

Association News


Sr. Name of Sub Chairman Convener Members No. Committee

14 Mutual Benefit CA. Prakash B Sheth CA. Samir D Shah CA. Atul R ShahScheme CA. Gaurang M Choksi

CA. Vikash Jain 15 Memorial Lecture CA. Satyapal K CA. Ajit C Shah CA. Ashutosh C Nanavaty

(Late Shri K T Sadhwani CA. Nesal H ShahThakor & CA. Bipin M ShahC F Patel) CA. Jayesh C Sharedalal

CA. Ganesh T Nadar 16 Professional CA. Mukesh M CA. Nirav R Choksi CA. Ketul R Patel

Development Khandwala CA. Ashutosh C NanavatyCA. Durgesh S PandeyCA. Jinand V ShahCA. Pratik D Joshi

17 Forum of Past CA. Ajit C Shah CA. Chandrakant H CA. Kaushik C PatelPresidents Pamnani CA. Deepak R Shah

CA. Ashwin H. ShahCA. Gaurang M ChoksiCA. Mukesh M KhandwalaCA. Prakash B ShethCA. Shailesh C Shah

18 Accountant Plus CA. Monish S Shah CA. Rushabh M Shah CA. Chintan M DoshiCA. Shailesh C ShahCA. Abhishek J Jain

The following prizes and Medals were distributed:

Best Article in Ahmedabad Chartered Accountants Journal

Sr. Name of the Trophy Name of the Recipient Name of the Article published in No. the Journal

1 Shri Gatorbhai Patel Shiva Pharma CA. Jignesh Parikh A deeming fiction – Section 50CFoudation Trophy for Best Article Controversies and probableon Direct Taxes 2016-17 solutions

2 Shri U. R. Shah Memorial Late CA. Jagdish Financial Restructuring ThroughFunds Trophy for Best Article on Joshipura Buyback of SharesAllied Law 2016-17

3 Champaben Chandulal Shah CA. Biharibhai B Shah Works Contract Services underMemorial Trophy for Best Article GST Regimeon Corporate Law 2016-17

Best Study Circle Meeting Leader

Sr. Name of the Trophy Name of the Recipient Name of the Study Circle Meeting No.

1 Shri Dwarkadas B. Shah CA. Mehul Thakkar Amendments Applicable for filingMemorial Trophy for the Best Lead ITR 2016-17Study Circle Meeting 2016-17

Association News


List of Students who have been Awarded MedalS/Prizes for the Year 2016

Sr. Medal Highest Marks PCC / Final Name of thein C.A. Examination Recipent Student

1 Avinash J. Budhdev Final Year Final/May 2016 Yash Manojkumar GoyalMemorial CA Student Topper (Gujarat)Award (Cash Prize of Final/Nov 2016 Jyoti M MaheshwariRs.11000/- each)

2 Kantilal V. Patel Best Student of the Final/May 2016 Yash Manojkumar GoyalMemorial Medal year 2016 (A'bad)

3 H. V. Vasa Best Student Final/May 2016 Yash Manojkumar GoyalMemorial Medal (Ahmedabad)

4 A. M. Thaker Best Lady Student Final/May 2016 Sakshi Bharat JainMemorial Medal (Ahmedabad) Final/Nov 2016 Jyoti M Maheshwari

5 Chandulal M. Shah Paper 1 Final/May 2016 Pankaj Kanhiyalal SahewalMemorial Medal Financial Reporting Final/Nov 2016 Anamika Jitendra Jain

6 VNS & BNS Social Paper 2 Final/May 2016 Akil Murtuza PulavwalaWelfare Medal Strategic Financial

Management Final/Nov 2016 Anuja Haribhai Mistry

7 Dhirubhai B. Shah Paper 3 Final/May 2016 Vedant Amitbhai ParikhMemorial Medal Advanced Auditing

and Professional Final/Nov 2016 Anuja Haribhai MistryEthics

8 Mansukhbhai J. Shah Paper 4 Final/May 2016 Jaladhi Jitendra AcharyaMedal Corporate and Allied

Laws Final/Nov 2016 Jyoti M Maheshwari

9 Madhuben Prafulbhai Paper 5 Final/May 2016 Moiz Shabbirbhai DaruwalaTrivedi Memorial AdvanceMedal Management Final/Nov 2016 Jyoti M Maheshwari

Accounting

10 VNS & BNS Social Paper 6 Final/May 2016 Shaishav Shirish ShethWelfare Medal Information Systems

Control & Audit Final/Nov 2016 Sachin V. Jain

11 A. M. Garg Paper 7 Final/May 2016 Yash Manojbhai GoyalMemorial Medal Direct Taxes laws Final/Nov 2016 Jyoti M Maheshwari

12 C. F. Patel Paper 7 Final/May 2016 Yash Manojbhai GoyalMemorial Medal Direct Taxes laws Final/Nov 2016 Jyoti M Maheshwari

13 Jagrutiben K. Shah Paper 8 Final / May 2016 Pankaj Kanhiyalal SahewalMemorial Medal Indirect Taxes Laws Final /Nov 2016 Jyoti M Maheshwari

14 Shri K. T. Thakore Best Student of IPCE / Nov 2016 Darshan M ShahMemorial Medal the year 2016

(Gujarat)

15 B. S. Soni Best Student IPCE / May 2016 Shimoni Dipak ThakkarMemorial Medal (Ahmedabad) IPCE / Nov 2016 Darshan Mukeshbhai Shah

Association News


Sr. Medal Highest Marks PCC / Final Name of thein C.A. Examination Recipent Student

16 Hasmukhbhai J. Patel Paper -1 IPCE / May 2016 Brij Sanjay ShahMemorial Medal Accounting IPCE / Nov 2016 Kishore Girdharilal Khatri

17 Shri V. R. Shah Paper -2 IPCE / May-Nov 2016 Pasandkumari J GurjarMemorial Medal Best Student for the

year 16 in A'bad forBusiness Law Ethicsand Communication

18 Lalita Khanchand Paper 3 IPCE / May 2016 Shimoni Dipak ThakkarTekwani Memorial Cost Accounting &Medal Financial IPCE / Nov 2016 Saloni Maheshwari

Management

19 VNS & BNS Social Paper - 4 IPCE / May 2016 Anand Hitehkumar ShahWelfare Medal Taxation IPCE / Nov 2016 Twinkle Rajkumar Patra

20 Rameshchandra S. Shah Paper -5 IPCE / May 2016 Kirti BangMemorial Medal Advance Accounting IPCE / Nov 2016 Darshan Mukeshbhai Shah

21 Akshay Trivedi Paper 6 IPCE / May 2016 Sayanika RoyMemorial Medal Auditing &

Assurance IPCE / Nov 2016 Hunny M Khatnani

22 Mansukhbhai S. Shah Paper 7 IPCE / May 2016 Sayanika RoyMemorial Medal Information Tech-

nology & Strategic IPCE / Nov 2016 Rahul Paragbhai MalviManagement

3 M/s A. R. Gaudana & Associates, Chartered Accountants , were appointed as Auditors of theAssociation for the financial year 2017-18.

4 th thAt the 29 Annual General Meeting of the members of the Mutual Benefit Scheme held on Saturday, 6May 2017 at ICAI Bhavan, 123 Sardar Patel Colony, Naranpura, Ahmedabad. M/s A. R. Gaudana &Associates, Chartered Accountants, were appointed as Auditors of the Association for the financialyear 2017-18.

st1 Executive Committee Meeting

1 st thAt the 1 Executive Committee Meeting held on 6 May, 2017, three senior members of the Associationnamely (a) CA. Ajit C. Shah, (b) CA. Jayesh C. Sharedalal, and (c) CA. Kaushik C. Patel have been Co-opted as the members of the Executive Committee for the year 2017-18.

2 Forthcoming ProgrammesDate/Day Time Programmes Speaker Venue16.05.2017 5.00 p.m. to GST Series - Time and Adv. Hardik ModhTuesday 7.00 p.m. Value of Supply18.05.2017 5.00 p.m. to GST Series-Place of Supply, CA Abhay Desai H. K. CollegeThursday 7.00 p.m. Inter State Transaction and (from Boroda) Conference Hall,

Intra State Transaction Ashram Road, A’bad.19.05.2017 5.00 p.m. to GST Series- Registration CA Divyang ShahFriday 7.00 p.m.23.05.2017 5.30 p.m. to Income Tax Amendments CA. Manish Baxi, H T ParekhTuesday 7.30 p.m. applicable for AY 2017-18 Baroda and Auditorium, AMA,

and Changes in Income CA. Manthan AhmedabadTax Return Forms Khokhani, A'bad

Association News


Date/Day Time Programmes Speaker Venue24.05.2017 5.00 p.m. to Accountant Plus - Basic and CA. Priyam R. Shah Office of CA.Wednesday 7.00 p.m Transitional Provisions (GST) Association

CU Shah Building,Ashram Road, A’bad.

25.05.2017 5.00 p.m. to Accountant Plus - CA. Pathik B. Shah Office of CA.Thursday 7.00 p.m Registrations and Input Association

Tax Credit (GST) CU Shah Building,Ashram Road, A’bad.

26.05.2017 5.00 p.m. to GST Series - Input CA Rahul Patel H. K. CollegeFriday 7.00 p.m. Tax Credit, Eligibility of Conference Hall,

Input Tax Credit, Matching Ashram Road, A’bad.of Credit, ISD, Conditions

for Taking Credit27.05.2017 5.00 p.m. to Accountant Plus - Tax Mr. Amit C. Shah Office of CA.Saturday 7.00 p.m Returns and Mismatch (GST) Association

CU Shah Building,Ashram Road, A’bad.

29.05.2017 5.00 p.m. to Accountant Plus - Accounts, CA. Punit R. Office of CA.Monday 7.00 p.m Audit, Invoice and e-way Prajapati Association

bills (GST) CU Shah Building,Ashram Road, A’bad.

30.05.2017 5.00 p.m. to GST Series - Payment, CA. Bishan Shah H. K. CollegeTuesday 7.00 p.m. Invoices, Debit/Credit Notes, Conference Hall,

Accounts, Audit, Records etc. Ashram Road, A’bad.02.06.2017 5.00 p.m. to GST Series - Returns CA. Sandesh Mundra H. K. CollegeFriday 7.00 p.m. Conference Hall,

Ashram Road, A’bad.06.06.2017 5.00 p.m. to GST Series - Transitional CA. Rashmin Vaja H. K. CollegeTuesday 7.00 p.m. Provisions Conference Hall,

Ashram Road, A’bad.09.06.2017 5.00 p.m. to GST Series - Issues CA. Punit Prajapati H. K. CollegeFriday 7.00 p.m. in GST – A Look Back Conference Hall,

Ashram Road, A’bad.13.06.2017 5.00 p.m. to GST Series - Questions CA. Avinash Poddar H. K. CollegeTuesday 7.00 p.m. & Answers under GST (from Surat) Conference Hall,

Ashram Road, A’bad.st17.06.2017 9.00 a.m. to 1 Brain trust Meeting cum CA. Jayesh C. ATMA Hall,

Saturday 1.30 p.m. workshop on Practical Sharedalal Ashram Road, A’bad.Aspects and intricacies

of Income Computation andDisclosure Standards (ICDS)

30.06.2017 8.00 p.m. to Musical Programme Tagore Hall, Paldi,Friday 12.00 p.m. Ahmedabad.02.08.2017 th44 Residential Refresher Various Speakers Jaypee Greens Golfto Course & Spa Resort,05.08.2017 Greater Noida, UP

Association News


Glimpses of events gone by:th1. On 7 May 2017, CAA Cricket team Participated in Yes Bank Premier League Cricket Match organised

at Parth Party Plot, Nr. Vaishnodevi Circle, S. G. Highway, Ahmedabad.

th st2. On 12 May 2017, 1 Meeting of GST Study Series was held at H.K. College Conference Hall, AshramRoad, Ahmedabad. The Speaker of the meeting was Dr. CA. Nilesh Suchak.

Annual General Meeting

Association News


Across1. While interpreting the statues, _____ must be

considered in relation to the principal matter towhich it stands.

2. There is no explicit provision in the CENVATcredit rules to restrict credit on input services,if ________ is claimed.

3. The requirement to quote Aadhaar as persection 139AA of the Income Tax Act shallnot apply to individual who is not _______ as

Down4. Every supplier shall be liable to be registered

per the Aadhaar Act, 2016.

under GST, if his aggregate turnover of supplyin a financial year exceed ______ lakh rupees.5. If on the date of the cheque, liability or debt

exists or the amount has become legally________, then only section 138 of As perNegotiable Instruments Act is attracted.

6. If a person is bound to pay tax on the sameincome which he had earned in more thanone jurisdiction, then it leads to _______

ACAJ Crossword Contest # 36

taxation.

Notes:

1. The Crossword puzzle is based on previousissue of ACA Journal.

2. Two lucky winners on the basis of a draw willbe awarded prizes.

3. The contest is open only for the members ofChartered Accountants Association and nomember is allowed to submit more than oneentry.

4. Members may submit their reply eitherphysically at the office of the Association orby email at [email protected] on orbefore 03/06/2017.

5. The decision of Journal Committee shall be final

ACAJ Crossword Contest # 35 - Solution

and binding.

Across1. Application 2. Enemy3. Installed

Down4. love 5. cashsales

Winners of ACAJ Crossword Contest # 35

1.

6. Sixty

❉ ❉ ❉

CA. Arvind Gaudana

2. CA. Priyank Dave

1 5

4

6

2

3

Shri Vijaybhai Rupani Hon. Chief Minister,

Gujarat

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

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

estates and MSME Units. GIDC’s constant focus on providing world class infrastructure facilities comes for

its visionary outlook for the future.”

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

quality industrial infrastructure with easy, quick and transparent delivery mechanism at competitive pricing and

without losing sight of its social responsibilities.”

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

Board

Nodal agency of the Government of Gujarat for providing Industrial backbone of the state

Identifies and develops locations suited for Industrial purposes

GIDC has an inventory of 202 Estates comprising

of over 63,000 Units across the State

GIDC offers developed industrial zone/estates ,

approved & well developed chemical estate, speedy land aggregation, clear land titles, cluster

benefits, flexible payment options, waste disposal

system & up-gradation of industrial estates

1 Identification & Aggregation of land 3 Allotment of

Industrial Plots

2 Development of Core & Support Infrastructure

202 GIDC Estates across Gujarat

Gujarat Industrial Development Corporation (GIDC) (A Government of Gujarat Undertaking) 2nd Floor, Block No.4 Udyog Bhavan, Sector 11 Gandhinagar 382 017 Gujarat, India Phone: +91 79 23250636/37 Fax: +91 79 23250705 [email protected] www.gidc.gov.in

Developed Industrial Plots Water Supply Power Supply Corridor for amenities-gas, telecom, pipeline etc. Effluent collection conveyance, treatment & disposal

Skill Up-gradation Centers Environmental Conservation Initiatives-green space, parks, etc. Space for public amenities-banks, hospitals, school, police station, etc. Housing Plots Commercial spaces

Core Infrastructure Support Infrastructure

Development of MSME Industrial Park

Development of Women Industrial Park

Development of Multi-Storeyed Sheds

Training & Skill up-gradation programs

Key Initiatives Education

Health Care Women & Child

Development

Skill Development

GIDC’s Inclusive Development

Participative Policy for development of New Industrial Estate

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