Sec. 54 relief was available even if investment was made in new property before execution of sale deed

The issue before the Chennai ITAT was as under:

Whether assessee would be eligible for Section 54F relief when he had invested the sale proceeds in construction of new flat even prior to execution of sale deed? 

The Chennai ITAT held as under:

1. Section 54 of the Income-Tax Act (the Act) clearly says that if the assessee, within a period of one year before or two years after the date on which the transaction took place, purchased or within a period of three years after that date, constructed a residential house in India, then the assessee is eligible for deduction under Section 54 of the Act.

2. In this case, the investment was admittedly made one year before the date of sale of property. In view of language employed by Parliament in Section 54 of the Act, it is not the requirement that the sale consideration has to be invested in purchase of property. It is immaterial whether the assessee invested the sale consideration in purchasing of new flat after the date of sale or one year before the sale of property.

3. In this case, the assessee invested the sale consideration one year before the sale of property, therefore, the assessee is eligible for deduction under Section 54 of the Act. - [2017] 82 taxmann.com 164 (Chennai - Trib.)

Ind AS Transition: Govt. grant in the nature of promoters’ contribution to be transferred to Other Equity

Query

A company, B Ltd. is a first-time adopter of Ind AS from April 1, 2017. One year ago, it received a contribution from the government (which holds 100% shareholding in B Ltd.) in the nature of promoters’ contribution. As per the previous GAAP, the contribution was recognized as capital reserve in accordance with AS 12, Accounting for Government Grants. 

The company has following queries:-

1) How the contribution shall be treated on transition to Ind AS?

2) How the contribution shall be treated under Ind AS if the same has been received after transition to Ind AS?

Response

Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance deals with the contributions made by the government. Ind AS 20 does not cover contributions made by a government in the capacity of shareholder. So, Ind AS 20 is applicable only when the contribution is provided as a government, not as a shareholder. Where the contribution is in the nature of government grant then as per Ind AS 101, Firsttime Adoption of Indian Accounting Standards, Ind AS 20 shall apply retrospectively to the grant. Ind AS 20 requires the government grant to be recognised as income over the periods in which related expenditure is recognised as expense to profit or loss.

Where the contribution is in the nature of shareholder contribution which is recognised in capital reserve under previous GAAP, such contributions (i.e. capital reserve) should be transferred to any appropriate category under “Other Equity” at the transition date in accordance with para 10 of Ind AS 101.

Accordingly, in the present case,

1) B Ltd. is required to transfer the balance of contribution received from the government in the nature of promoters’ contribution to appropriate category under “Other Equity” at the transition date.

2) There will be no change on treatment of the contribution even of it is received subsequent to the transition date.

Reference

- Issue 3 of Ind AS Transition Facilitation Group Clarification Bulletin 9

10 Key Takeaways of Draft Rules on Credit Transfer Document

There were lots of rumors afloat that Indian Companies planned to scale down their inventories ahead of GST rollout to limit their losses. Dealers were afraid of paying high GST rate without any claim to credit of excise in absence of duty paying document. The all-powerful GST council intends to introduce “Credit Transfer Document” which will allow them to take credit of duty paid under earlier law subject to some conditions. Moreover, it has also been decided to bring amendment to CCR Rules, 2004 to make Credit transfer document as eligible document for claiming credit.

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Replace this SLD ITAT lays down new mechanism to computer value of Rent Free Accommodation with this SLD ITAT lays down new mechanism to compute value of Rent Free Accommodation

Query

A company, say D Ltd. has adopted Ind AS voluntarily w.e.f April 1, 2015. In April, 2017, it purchased debentures of another company, E Ltd.

D Ltd. wants to know how interest on investment in debt of E Ltd. will be treated under Ind AS?

Response

The treatment of interest from investment in debt instrument depends upon the basis of subsequent measurement of investment, i.e. amortized cost, fair value through other comprehensive income or fair value through profit or loss.

(i) When the investment is measured at amortized cost, firstly interest revenue, calculated using the effective interest rate, should be added to the gross carrying amount of the investment. Subsequently, on receipt of interest from issuer of debt instrument, the amount of interest received shall be deducted from the gross carrying amount of the investment.

(ii) When the investment is measured at fair value through other comprehensive income, interest revenue from the investment should be recognized in the statement of profit & loss in accordance with paras 5.7.10 and 5.7.11 of Ind AS 109, Financial Instruments. In this case also, interest amount is calculated using effective interest rate.

(iii) When the investment is measured at fair value through profit or loss, an entity has the option either to adjust interest income with the fair value gains/losses or to recognize as income separately in accordance with para B5 (e) Ind AS 107, Financial Instruments: Disclosures.

Reference

- Issue 9 of Ind AS Transition Facilitation Group Clarification Bulletin 8

GST Council clears remaining two rules and all States agreeing for roll out of GST from July 1, 2017

The 15th GST council meeting held in New Delhi has cleared the two remaining rules, pertaining to transitions and returns. All the States has also agreed for roll-out of Goods and Service Tax (GST) from July 1, 2017. The Council has released the copy of return rules, return formats, mismatch formats and practitioner formats. Following are the download links:-

1) Click here to download copy of GST Returns Rules

2) Click here to download copy of GST Return Formats

3) Click here to download copy of GST Mismatch Formats

4) Click here to download copy of GST Practitioner Formats

ITAT allowed sec. 54F relief to trust created for sole beneficiary of individual

The issue before the Tribunal was:

Whether a trust which was for the sole benefit of an individual was entitled to deduction under section 54F or not, when its status was that of AOP?

The Tribunal held in favour of trust as under:

1) As per section 54F the benefit of this section is available to individual or Hindu undivided family (HUF).The jurisdictional High Court in the case of Mrs. Amy F. Cama v. CIT [1994] 237 ITR 82 (Bom.) had elaborately considered the same issue. The High Court was dealing with trust's claim for deduction of purchase price of the flat from capital gain as per section 54. It was held that the trust was entitled to the same.

2) The High Court had held that section 161, makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction was created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161.

3) The above decision of the High Court would squarely apply in the present case, when one was concerned with the issue of exemption under section 54F as Section 54 was also applicable to individuals and HUF.

4) In the instant case, the issue was benefit of investment made in purchase of flat for deduction under section 54F by the trustees and the sole beneficiary of the trust was the individual 'V'. Hence, the ratio emanating from the above jurisdictional High Courts decision was squarely applicable to the facts of the case.

5) Hence, It was clear that it was only by virtue of section 161 that trust had been assessed for the income that was for benefit of sole beneficiary. Accordingly, following the precedent, trust was principally entitled to deduction under section 54F. - [2017] 81 taxmann.com 367 (Mumbai - Trib.)

Trust not hit by proviso to sec. 2(15) due to selling cow's milk if main object of trust was to take care of cows

DIT (Exemptions) v. Shree Nashik Panchvati Panjrapole [2017] 81 taxmann.com 375 (Bombay)

Facts:

a) The object of assessee-trust was to run, inter alia, a Panjrapole, i.e., protection of cow and oxen. It also used to sell mil procured from the cows to the general public at nominal rate.

b) DIT (E) cancelled assessee-trust's registration by invoking section 12AA(3) on the ground that its income by way of sale of milk, interest and dividend was in excess of Rs. 10 lakhs and, therefore, would casese to be a charitable trust.

c) The Tribunal held that the activity of selling milk by a Panjarapole would not by itself make the proviso to section 2(15) applicable. Further, it held that selling milk would be incidental in running a Panjarapole.

d) Aggrieved-revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under:-

1. The dominant function of the Trust was to provide an asylum to old, maimed, sick and stray cows. Further, only 25 per cent of the cows being looked after yielded milk and if the milk was not procured, it could be detrimental to the health of the cows. Therefore, the milk obtained and sold by the trust was an activity incidental to its primary/principal activity.

2. In the instant case, the activity of milking the cows and selling the milk was almost binding on the trust, in the process of giving asylum to the cows. The activity to be considered in the nature of trade, commerce or business would in most cases have to be carried out on a regular basis with a view to earn the profit.

3. The presence of the profit intent would normally be a sine qua non for the activity to be considered as trade, commerce or business. Therefore, in the present facts, it was not as though the keeping of the cows and milking them was with a view to carry out an activity in the nature of trade, commerce or business to earn profits.

4. Admittedly, the dominant activity carried out by the trust was to take care of old, sick and disabled cows. In these circumstances, an incidental activity of selling milk which might have resulted in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to section 2(15) - [2017] 81 taxmann.com 375 (Bombay)

Form 15G/15H to be filed once in a year and not every time when payment is due; CBDT clarifies

Section 197A of the Income-tax Act provides that tax shall not be deducted, if the recipient of certain payment on which tax is deductible furnishes to the payer a selfdeclaration in Form No. 15G/15H in accordance with provisions of the said section. The manner of filing such declarations and the particulars have been given in Rule 29C of the Income-tax Rules, 1962.

The Central Board of Direct Taxes (CBDT) had received various representations seeking clarifications on the issue as to whether a depositor should submit only one declaration in respect of the income each year or whether Form 15G/15H has to be submitted each time the payment is due to be received from the deductor.

CBDT has now settled the issue and clarified that it will be sufficient if only one declaration is made in respect of the income each year before each deductor.

Notification no. 6 of 2017, dated 30-05-2017

Black money in third party bank account can be subject to search and seizure: Delhi HC

The issue before the High Court was:

Whether the undisclosed money in third party bank account can be subject to search and seizure?

Delhi High Court held as under:

1) Section 132(1)(c) permits search to be under taken by the Department if there is reason to believe that a person is in possession "of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed" for the purposes of the Act, referred to as "the undisclosed income or property".

2) The second proviso to Section 132(1) read with Section 132(3) permits the Department to ask bank to freeze bank account that is subject to search and seizure since it may not be possible "to take physical possession" immediately of such "valuable article or thing and remove it to a safe place.

3) Therefore, a sum in a bank account is not outside ambit of section 132(1) and can be subject to search and seizure as a person can be in possession of undisclosed income not only in his or her own account but in someone else's account. [2017] 81 taxmann.com 408 (Delhi)

ITAT condoned delay in filing of appeal as delay occurred due to death of assessee’s counsels

Facts:

a) Assessee filed his appeal before the ITAT with a considerable delay beyond the time limit prescribed under section 253(3).

b) He requested for condonation of delay on ground that there were various casualties/deaths and medical contingencies of the persons connected with the him to represent his case.

Tribunal held in favour of assessee as under:

1) The relevant averments of the assessee as contained in application for condonation of delay duly supported by an affidavit that the CA who was representing the Income-tax matters unfortunately got expired. Then the matter was being looked after by assessee's younger brother.

2) Unfortunately even his younger brother got expired. Subsequently, the papers were handed over to an advocate who he did not file the appeals and at the same time he also got expired. Besides, during the aforesaid period the assessee was suffering from heart diseases and ultimately he underwent angiography, in-between, the assessee's mother got expired.

3) Then assessee appointed a new CA in November 2016, unfortunately he met with an accident and was bedridden for three months. He was able to walk only sometime in February, 2017 end and then the matter was pursued by him and the appeal was ultimately filed.

4) Assessee had sufficiently explained that the he was prevented by sufficient and bona fide cause in filing this appeal within time prescribed by law. 

5) Since delay in filing appeal took place due to consecutive casualties/deaths and medical contingencies of assessee's counsels, delay was to be condoned. [2017] 81 taxmann.com 298 (Mumbai - Trib.)