Friday, August 25, 2017

Dubai Villa gifted to Shah Rukh Khan not taxable as his professional receipt: Mumbai ITAT

Facts :

a) Shahrukh Khan (SRK) received Signature Villa as gift from a Dubai based public joint stock company. Assessing Officer (AO) was of opinion that said villa was assessable as 'professional receipt' being covered under Section 28(iv).

b) SRK had denied rendering any professional services and attributed the receipt of villa to simply a unilateral gratuitous act of gift by Dubai based Company on its Annual Day on account of natural love and affection which wasn’t taxable.

c) CIT(A) held in favour of SRK. Aggrieved-revenue filed the instant appeal before the tribunal.

Tribunal held in favour of assessee as under :

1) Mr. Shah Rukh Khan was one of the guest honour on the occasion of Annual day celebration of Donor-Company. He was under no obligation to attend such function and undertake any sort of brand endorsements.

2) Mere fact that he had attended annual day celebrations and addressed employees of said company, it could not be concluded that he had indulged in brand endorsement for Donor Company.

3) Further, gift received in kind had been brought to tax w.e.f. 01/10/2009 under section 56(2)(vii)(b). Earlier, only money received as gift in excess of Rs. 50,000 could be brought to tax vide Section 56(2)(vii)(a).

4) This case pertained to AY 2008-09 wherein old provision was applicable. Therefore, Signature Villa received as gift by SRK couldn’t be said to be out of exercise of profession and, thus, not taxable. - [2017] 84 209 (Mumbai - Trib.)

Ind AS 20: EPCG exemption for import duty on capital goods is a Government Grant


A company, say A Ltd. has received exemption of paying custom duty on imported capital goods subject to condition that it has to export the manufactured goods under Export Promotion Capital Goods (EPCG) scheme.

Whether such exemption by the government can be treated as government grant under Ind AS 20, Government Grants and Disclosure of Government Assistance? If yes, then which type of grant it is and how it will be accounted for?


Government grants are defined in para 3 of Ind AS 20 as assistance by government to an entity in the form of transfers of resources subject to past or future compliance with certain conditions which are related with the operating activities of the entity. Therefore, in the present case, the exemption by government to pay custom duty on import of capital goods is a government grant under Ind AS 20.

The classification of government grant as the grant related to asset or grant related to income requires exercise of judgment and careful examination of terms and conditions of the grant. So, if a grant is classified as the grant related to asset then, as per paras 24 & 26 of Ind AS 20, the amount of the grant (fair value in case of non-monetary grant) should be recognised as deferred income and same is transferred to profit or loss over the useful life of the asset.

If the grant is classified as the grant related to income then, as per para 29 of Ind AS 20, the grant should be recognised as income on a systematic basis over the periods in which the entity recognises associated costs as expenses. In the present case, if the grant received is to compensate import cost of capital goods subject to condition of exporting then the grant should be recognised as income on a systematic basis that should be related to the fulfillment of export obligations.

However, if the grant is to compensate import cost of capital goods and condition to export the manufactured goods is secondary in nature then the grant should be recognised as income over the useful life of underlying capital good. 

Wednesday, August 23, 2017

No sec. 14A disallowance if no exempt income earned; CBDT circular can’t override express provision

The issue before the High Court was as under:

Whether the disallowance of the expenditure will be made even where the investment had not resulted in any exempt income during the AY?

High Court held in favour of assessee as under:

1) Section 14A does not clarify whether the disallowance of the expenditure would apply even where no exempt income is earned.

2) The words "in relation to income which does not form part of the total income under the Act for such previous year" in the Rule 8D(1) indicate a correlation between the exempt income earned in the AY and the expenditure incurred to earn it. In other words, the expenditure as claimed by the Assessee had to be in relation to the income earned in 'such previous year'.

3) This implies that if there was no exempt income earned in the relevant AY, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A, read with Rule 8D could not arise.

4) CBDT's Circular No. 5/2014 dated 11-02-2014 does not refer to Rule 8D(1) at all but only refers to the word "includible" occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concluded that it was not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered.

5) For all of the aforementioned reasons, the CBDT Circular (Supra) couldn’t override the express provisions of Section 14A, read with Rule 8D. Therefore, if no exempt income was earned, there could be no disallowance of expenditure in terms of section 14A, read with Rule 8D. [2017] 84 186 (Delhi)

Treatment of Gift and Perquisites under GST

The Goods and Services Tax (GST), the biggest economic reform, has been implemented in India since 01 July 2017. Every new thing comes out with fresh challenges, similar is the case with GST. With the passage of GST in India, there seem to be humongous challenges revolving around Gift and Perquisites provided by an Employer to their Employees.

In terms of GST Laws, CGST and SGST or IGST shall be levied on supply of goods or services or both. Further, the supply includes activities as specified in Schedule I to GST Act even if made without consideration. Accordingly, tax will be levied on all such activities.

Entry 2 of Schedule I states

"Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business" "Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both". Further, as per Section 15 of the GST Laws, employer and employee are considered as "related parties". On reading of the said entry, we understand that gifts provided by an employer to employee exceeding fifty thousand rupees are leviable to tax. However, the term "Gift" has not been defined under the GST Laws. Accordingly, the term gift is open for interpretation

NDTV created a complex structure of subsidiaries to enter into sham dealings; HC affirms reassessment


a) New Delhi Television Ltd (NDTV) had filed writ petition against the notice proposing reassessment proceedings initiated under section 147/148.

b) The Assessing Officer (AO) was of the view that the amount received by NDTV from foreign subsidiaries was actually its unaccounted money and was a sham transaction.

c) Assessee contended that the "reasons to believe" supplied by the AO did not substantiate on how it had failed to disclose all material facts and instead merely repeated the statutory language. It further argued that during regular scrutiny assessment, AO had made requisite inquiries with respect to foreign investments.

The Delhi High Court held in favour of revenue as under:

1. AO had taken into account several specific tax evasion petitions received from shareholder of the NDTV that money introduced in foreign subsidiary through money laundering activities was actually transferred to the NDTV through liquidations and mergers.

2. The Director of the complainant company was part of the team of NDTV at some point of time, which designed the complex corporate structure to route and reroute funds with layering of funds. Further, complaints against NDTV were received from the shareholder wherein details regarding the raising and routing of funds through round tripping were given. 

3. AO took note of information contained in these tax evasion petitions, because the complaints of tax evasion were received from NDTV's shareholders, who were aware of its internal affairs and aim and object of floating complex corporate structure by the NDTV; therefore, the AO had reason to believe that information was credible.

4. The complex and circuitous structure of subsidiaries and the transactions entered into therein were closely connected and provided a live link for the formation of the belief of the AO that there had been escapement of income.

5. Therefore, AO was justified in forming an opinion that prima facie amount so received represented assessee's own unaccounted money which had escaped assessment and, thus, validity of reassessment proceedings initiated by him deserved to be upheld. [2017] 84 136 (Delhi)

Sec. 54F relief allowable even when multiple flats are sold to purchase one big flat: ITAT


a) Assessee had sold 5 house properties during the years 2009-10 to 2011-12 and invested sale consideration in construction of another property, i.e., Mehandi Farms. He claimed deduction under section 54F for investment in Mehandi Farms against the capital gain on sale of house properties.

b) Assessing Officer held that assessee had already availed deduction under section 54F for investment in construction of Mehandi Farms in the year 2009-10 and therefore, he couldn’t be allowed deduction in construction of the same residential property for capital gain arising in succeeding years.

c) On appeal, CIT(A) allowed section 54F relief to assessee. Aggrieved-revenue filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) Section 54F provides that any capital gain arising from the sale of any long term capital asset shall be exempt from tax if the entire sales proceeds is invested in:

i) Purchase of one residential property within 1 year before the date of sale or 2 years after the due date of transfer of the property sold or

ii) Construction of a residential house property within a period of 3 years from the 2) Construction of the house property at Mehandi Farms was not completed and therefore same couldn’t be termed as another residential property for disqualification for deduction under section 54F.

3) There is also no bar in the section 54F for claiming deduction for second time or third time for the same property if the cost of the property is equivalent to or more than the amount of capital gain.

4) In the given case, total capital gain in all the three years 2009-10 to 2011-12 was less than the cost of construction of new residential property. Therefore, assessee was eligible for the deduction under section 54F. [2017] 84 141 (Delhi - Trib.)

Service Permanent Establishment-Changing Landscape?

Old age English proverb "Necessity is the mother of all inventions" is very apt owing to which last century has witnessed tremendous advancement in the field of technology. Technology has enormously impacted the way businesses function or the manner in which corporate transactions are structured.

Today physical presence of personnel is not necessary in order to conduct business in another state. Jobs can be performed over emails, telephones, mobiles, video conferencing etc. Whether, conducting business using technology, which to a large extent eliminates the requirement of physical presence 'on-site (client place)', constitute as the presence of the multinational enterprise in the source state so as to constitute its permanent establishment ('PE') in the source state1?

This question has been answered in negative (i.e. against the taxpayer) by Hon'ble Bangalore Tribunal in a recent judgment in the case of ABB FZ-LLC v. Dy. CIT (International Taxation), Circle-1(1), and Bengaluru.

ICDS IX - Borrowing cost: An Analysis

Deductibility of interest on borrowing cost has been subject matter of litigations in the past on several accounts, viz., deductibility of borrowing cost for purchase of capital asset, deductibility of commitment charges, interest on capital borrowed for earning exempt income, interest on borrowed capital for circular trading, etc.

Income Computation and Disclosure Standard ('ICDS') has been designed to provide clarity on various contentious tax issues at the time of computing taxable income. ICDS IX contains authoritative guidance on situations that require capitalization of borrowing cost. Accordingly, the treatment of not all types of borrowing costs is iterated in ICDS IX. On the contrary, the scope of ICDS IX is limited to the issue of capitalization of borrowing cost in certain cases. The treatment of borrowing cost for the purposes of deductibility from profit and loss account continues to be governed by section 36(1)(iii) and section 57(iii).

Definition of Borrowing cost as per ICDS and section 2(28A) of the Income Tax Act, 1961 The definition of interest as per section 2(28A) of the Act states as follows 'interest payable in any manner in respect of any moneys borrowed or debt incurred'. However, as per ICDS IX, the definition of borrowing cost as contained in para 2(1)(a) is as follows: "Borrowing costs" are interest and other costs incurred by a person in connection with the borrowing of funds and include:

(i) commitment charges on borrowings;

(ii) amortised amount of discounts or premiums relating to borrowings

(iii) amortised amount of ancillary costs incurred in connection with the arrangement of borrowings;

(iv) finance charges in respect of assets acquired under finance leases or under other similar arrangements."

Tuesday, July 25, 2017

Sec. 68 couldn't be applied for sundry creditors arising out of purchase expenses: Patna ITAT


a) Assessee-partnership firm had shown sundry creditors arising out of purchase expenses in its return but failed to establish genuineness of such sundry creditors.

b) Assessing Officer (AO) disallowed provision for such creditors and added it to total income of assessee under section 68.

c) CIT (Appeals) confirmed the order of AO. The aggrieved-assessee filed the instant appeal before the Tribunal.

The ITAT held in favour of assessee as under:

1) The provisions of section 68 are applied to the cash credit which has not been explained by assessee. In the instant case sundry creditors arose out of the purchases as claimed by assessee which had been duly accepted by the authorities.

2) AO had invoked section 68 to tax the sundry creditors whereas the assessee was claiming that the aforesaid amount represented the trade creditors and, therefore, it couldn’t be applied.

3) Admittedly, the creditors were found by the AO and the onus lay on assessee to justify that these were sundry creditors. In order to justify the impugned trade creditors, the assessee had to produce copies of PAN, ledger copies, bills / invoices details of payments, income tax return, mode of payments, etc.

4) In the instant case, assessee had summarily failed to observe the directions issued by the AO. Therefore, issue was restored to AO for fresh adjudication as per law. - [2017] 83 187 (Patna - Trib.)

Compensation paid to clients due to negligence of employees was allowable as business exp.


a) Assessee was engaged in Marketing of Financial products of various companies as distributor. He claimed Rs.1.54 lakh as expenses in its profit and loss account on account of compensation paid to clients for loses occurred due to negligence of on the part of its employees.

b) Assessing officer (AO) held that assessee had not been able to prove as to how the loss was payable by it as the losses were suffered by the clients and, therefore, assessee was not entitled to claim such losses its profit and loss account.

c) CIT (Appeals) also upheld order of AO. Aggrieved-assessee field the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1) Assessee had claimed that the losses which had occurred to its clients due to negligence of employees as the employees of assessee could not square off the positions taken by clients in NIFTY index of National Stock Exchange.

2) Amount paid to these clients was necessarily an exp. which was allowable under section 37 as section 37 clearly states that any expenditure not in the nature of capital expenditure or personal expense laid out or expenditure wholly and exclusively incurred for the purposes of business or profession shall be allowed.

3) Moreover Circular no. 35-DCXLVII-20 of 1965 dated 24-11-1965, clearly states that losses arising due to negligence of employees has to be allowed as expense if loss took place in normal course of business

4) In the instant case, the losses were necessarily incurred in the normal course of business of assessee and therefore, the expenditure was allowable. - [2017] 83 230 (Amritsar - Trib.)

Ind AS: Exposure Draft of revised lease standard Ind AS 116 issued

Exposure Draft on revised lease standard Ind AS 116 has been issued by the Institute of Chartered Accountants of India (ICAI). Ind AS 116 will replace the existing lease standard Ind AS 17. Last year, International Accounting Standards Board (IASB) revised the lease standard and issued new IFRS 16, Leases.

Ind AS 116, Leases sets out the provisions for the recognition, measurement, presentation and disclosures of leases. There are differences between Ind AS 116 and Ind AS 17. The major differences are as follows:

1. Under Ind AS 116, a part of the contract can also be treated as lease if the same conveys the right to use an asset for a period of time for certain consideration.

2. The principles of Ind AS 116 with regards to accounting of lease by the lessee is substantially different from that of Ind AS 17. However, requirements of Ind AS 116 with regard to lessor is substantially similar to Ind AS 17

3. Recognition of leases having lease term less than 12 months or value of underlying asset of the lease is low, by lessee is not mandatory under Ind AS 116. In such cases, lessee have to recognise the lease rentals as expense on a systematic basis considering pattern of benefits from the asset.

4. Ind AS 116 provides for a single accounting model for lessee. Classification of lease as either finance or operating lease by the lessee is not required under Ind AS 116. Initially, lessee should recognise right-of-use assets at cost similarly to other non-financial assets, like property, plant & equipment, intangible assets etc. and lease liabilities at the present value of all future payments.

5. Subsequently, lessee should measure the right-of-use assets either at cost or other specified models like revaluation model. The amount of interest paid on lease liability should be recognised as finance cost.

6. Under Ind AS 116, lessee shall depreciate the right-of-use asset in accordance with Ind AS 16, Property, Plant and Equipment.

Apart from this the Draft also provides principles with regard to transition from Ind AS17 to Ind AS 116. Ind AS 116 will be applicable from April 1, 2019. 

Thursday, July 20, 2017

No TDS on GST paid or payable on services when GST is separately shown in invoice: CBDT

CBDT had issued Circular No.1/2014 wherein it was clarified that TDS had to be deducted on the amount paid/payable without including service tax component. In other words, no TDS would be deducted on service tax component when amount of service tax is shown separately in the invoice.

After implementation of GST across the country with effect from July 1, 2017, CBDT has received various references for treatment of GST component on services. Now the CBDT has clarified (vide Circular 23/2017) that if as per terms of the agreement of the payee and payer ‘GST on services’ component has been indicated seperately in the invoice, then no tax would be deducted on GST component. GST will include CGST, SGST, IGST, UTGST.

Legal consultants working on contractual basis can't be enrolled as Advocates: Gujarat HC

When contract between petitioner law graduate with a company was in nature of full time employment, such employment of petitioner was violative of requirement of rule 49 of Advocacy Act; Bar Councils had rightly refused to grant her enrolment and certificate to practice law

Facts of the case:

i. Petitioner was in her last year of L.L.B. course. During her academic period, Campus placement were started and she was selected in campus interview of Gujarat Industrial Development Corporation as Legal Consultant on contract basis. After that, she had applied for Certificate of practice.

ii. Bar council had put her enrollment form for Certificate of Practice on hold by saying that she was violating the rule of 49 of the Bar Council of India as she is rendering his full time service to the Gujarat Industrial Development Corporation.

iii. Further, she contended that contractual arrangement of her service with the Gujarat Industrial Development Corporation could not be viewed as employment and remuneration of Rs. 25,000/- per month paid to her was not by way of salary, as such, there was no employee-employer relationship between them.

iv. Single Judge of High Court has granted interim relief to the respondent and directed the Bar Council of Gujarat to grant her a temporary enrolment number.

v. Aggrieved by the directions of Single Judge of High Court, Bar council of Gujarat preferred appeal against the directions of Single Judge. The Gujarat High Court held as under:

a) In view of the conditions of service contract of the Gujarat Industrial Development Corporation, it was observed that she was in the office from 11.00 a.m. to 5.00 p.m. which are standard hours of work, prima facie it has to be considered as full-time employment. 

b) Further, there is no provision for grant of temporary certificate by the Bar Council for practicing as an advocate under the Advocates Act, 1961 and the rules framed there under.

c) She could not entitled to practice as advocate so long as she continues such employment - [2017] 83 129 (Gujarat)

Dept. can’t deny PAN correction in TDS return for more than 4 characters: HC


a) CPC-TDS has provided an online facility to correct invalid PAN mentioned in TDS return. The online system of department is programmed to permit correction only in case four digits/characters of PAN are to be changed and no more.

b) In the instant case, entire PAN number of the recipient of the payment was wrongly fed by the assessee-company and the on-line system of the department didn’t permit to carry out changes in PAN in excess of four digits/characters.

c) Assessee challenged the action of the revenue in not permitting it to correct the error in mentioning the PAN before the High Court.

The High Court in favour of assessee as under:

1) Once the department recognizes the possibility of errors and also makes provisions for making corrections, it would be wholly illogical to limit such corrections on arithmetical working out of only two alphabets or two numeric of PAN characters.

2) Error in feeding an entry or a number may have multiple origins from typographical error of Data Entry Operation to mechanical failures or through pure oversight referring to one column of PAN instead of another while filling up and uploading the statement.

3) It is not necessary nor possible for us to envisage different situations under which such errors could crop up and it need not necessarily be confined to limited figures on the letters of the PAN being incorrect. 4) Therefore, decision of department in not permitting the petitioner to correct PAN of the deductee in the statement of tax deducted at source was impermissible. [2017] 83 205 (Gujarat)

Delhi HC provides temporary relief to advocates for noncompliance with GST

There is no clarity on whether all legal services (not restricted to representational services) provided by legal practitioners and firms would be governed by the reverse charge mechanism. If all legal services are to be governed by the reverse charge mechanism, then there would be no requirement for legal practitioners and law firms to compulsorily get registered under the GST Acts.

No coercive action be taken against any lawyer or law firms for non-compliance with any legal requirement under the GST Acts till a clarification is issued by the Central Government and the GNCTD. - [2017] 83 202 (Delhi)

Ind AS 12: Create deferred tax asset on goodwill even if eliminated while consolidating financials


A company, say X Ltd. has two subsidiaries, say Y Ltd. and Z Ltd. Ind AS is applicable on X Ltd. from April 1, 2017. In April, 2016 both subsidiaries got amalgamated and consequently goodwill has been recognised in the books of amalgamated subsidiary. This goodwill is an allowable deduction to the amalgamated entity under Income tax laws. X Ltd. decided to apply Ind AS 103, Business Combinations prospectively.

At the time of consolidation as per Ind AS, X Ltd. has eliminated the goodwill as consolidation adjustments. But, tax base of assets in the consolidated financial statements (CFS) has increased because of eliminated tax deductible goodwill.

Whether X Ltd. should recognise deferred tax asset in CFS on goodwill as the same is deductible under tax laws, even if the goodwill has been eliminated from the CFS?


Tax base of an asset is defines under para 5 of Ind AS 12, Income Taxes as the amount that will be deductible while determining taxable profits.

According to para 9 of Ind AS 12, some assets and liabilities have tax base even if they are not recognised in the books. For example, preliminary expenses, which are allowed as deduction over the years under Income tax laws but while determining accounting profit these are recognised as expense in the year of their incurrence. In such case, in the second year, tax base of preliminary expenses is the amount deductible over the future years even if there is no corresponding entry in the financial statements.

Further, para 24 of Ind AS 12 states that deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available in future years against which the deductible temporary differences can be utilised. But where deductible temporary differences arises on initial recognition of an asset or liability in a business combination or on recognition of a transaction that affectsneither accounting profit nor taxable profit, no deferred tax asset should be recognised. 

From the above paras, X Ltd. should recognise deferred tax asset on the tax base of the eliminated goodwill by crediting consolidated profit or loss to the extent that it is probable that taxable profit will be available in future years against which tax base of the goodwill can be deducted.

- Issue 3 of Ind AS Transition Facilitation Group Clarification Bulletin 10

Sum paid to AAI to operate executive lounge at IGI Airport treated as rent under Sec. 194-I

Facts :

a) Assessee entered into a Licence Agreement (LA) with Airport Authority of India (AAI) in terms of which the premises at the first floor of the IGI Airport was given on license basis to the assessee for the purpose of operating an executive lounge.

b) Assessee was paying monthly royalty and licence fee for space allotted for operating the Lounge Premises.

The issue before the High Court was "Whether amount paid to AAI for use of lounge premises would be deemed as rent within the meaning of Section 194-I?"

The High Court held in favour of revenue as under :

1) Assessee relied on a certificate issued by the AAI wherein it was clarified that the royalty charged was not for the use of building but only for the right to operate the lounge and accordingly it couldn’t be regarded as rent.

2) Assessee was permitted to operate an executive lounge. The payment made to AAI although in two parts, was for operating an executive lounge. Non-payment of even one component, as either of royalty or of the fee for the space, would entail the assessee losing the right to operate the executive lounge.

3) The payment for the use of space was inseparable from the payment of royalty. The question of being able to operate the lounge without the actual use of the space simply did not arise.

4) Thus, sum paid to the AAI under the LA fell within the definition of 'rent' under section 194-I. - [2017] 83 167 (Delhi)

Dept. can levy fee under Sec. 234E even without regulatory provision Sec. 200A for computing fee: HC

Fact of the case :

a) Assessee filed the petition challenging the demand of fee in terms of section 234E raised by Assessing Officer (AO) under section 200A. He argued that section 200A didn’t authorize the AO to make adjustment of the fee to be levied under section 234E. 

b) The provision introduced with effect from 01.03.2016 wasn’t retrospective and therefore, for the period between 01.07.2012 i.e. when section 234E was introduced in the Act and 01.06.2015 when proper mechanism was provided under section 200A of the Act for collection of fee, the department could not have charged such fee. 

The High Court held in favour of revenue as under :

1) Section 200A is a machinery provision providing mechanism for processing a statement of deduction of tax at source and for making adjustments, which are, arithmetical or prima facie in nature.

2) With effect from 1-6-2015, this provision specifically provides for computing the fee payable under section 234E. On the other hand, section 234E is a charging provision creating a charge for levying fee for certain defaults in filing the statements.

3) Under no circumstances a machinery provision can override or overrule a charging provision. Section 200A does not create any charge in any manner. It only provides a mechanism for processing a statement for tax deduction and the method in which the same would be done.

4) Even in absence of section 200A with introduction of section 234E, it was always open for the revenue to demand and collect the fee for late filing of the statements. Section 200A would merely regulate the manner in which the computation of such fee would be made and demand raised.

5) Thus, the view that without a regulatory provision being found for section 200A for computation of fee, the fee prescribed under section 234E couldn’t be levied was unacceptable. - [2017] 83 137 (Gujarat)

Wednesday, July 12, 2017

Paid or Payable – Does it really matter?

Section 40(a)(ia) was inserted by the Finance Act, 2004 w.e.f April 1,2005 with an intent to expand the compliance of TDS provisions. It seeks to disallow 30% of the sum payable to resident on which TDS was deductible, but not deducted or deducted but not paid to credit of Govt. within due date.

The much disputed issue was whether provisions of Section 40(a)(ia) would be limited to expenditure subject to TDS which remains payable as on 31st March of the previous year or it would include expenditure which was payable at any point of time during previous year.

Now finally the Apex Court settled this controversy. It was held by the court that it is a statutory obligation of a person making payment to the resident payee to deduct tax as per TDS Chapter. Further provisions of TDS suggests that TDS needs to be deducted at the time of credit of such sum to the account of the payee or at the time of payment whichever is earlier. Therefore, it is clear that the tax had to be deducted in both possibilities, such as, when the amount is credited to the payee account or when the payment is actually made.

Ind AS 109: Include processing fees for undisbursed loan as well while calculating effective interest rate


A company, say B Ltd. is a first-time adopter of Ind AS from FY 2017-18. In April, 2015 it had taken a 10 year term loan. The processing of loan required upfront payment of loan processing fees which was duly paid. As per the terms of loan, it would be disbursed in 5 equal installments from April 2015. As on transition date, i.e. April 1, 2016 B Ltd. has recognised the term loan at fair value by calculating net present value of disbursed loan by using effective interest rate method. Effective interest rate was calculated after adjusting processing fees related to disbursed loan amount.

What should be the treatment of processing fees related to undisbursed loan amount?


Ind AS 109, Financial Instruments, defines effective interest rate as the rate that exactly discounts estimated future cash flows or contractual cash flows through expected life/contractual term of the financial instrument to the gross carrying amount or amortised cost of the financial instrument. While calculating the effective interest rate of a financial instrument, estimated/contractual cash flows should be adjusted with the fees paid or received between parties to the contract that are integral part of the effective interest rate except in cases where the financial instrument is measured at fair value through profit or loss (FVTPL). As per para B5.4.2 of Ind AS 109, such fees includes transaction costs or processing fees.

Accordingly, in the present case, assuming that balance loan amount will be disbursed in future years, total processing fees whether related to disbursed or undisbursed loan amount, should be included in calculation of effective interest rate as on transition date, i.e. April 1, 2016.


- Issue 2 of Ind AS Transition Facilitation Group Clarification Bulletin 10
--- View

SC turns down Sahara’s request for extension of time for enchasing cheque amount of Rs, 552.21 crore

The Apex Court has denied prayer of Sahara Chief, Subrata Roy for extension of time period for payment of balance amount of Rs. 552.21 crore. Earlier, Mr. Roy had deposited two cheques worth Rs. 2000 crore and promised to honour balance payment by July 15, 2017.

His first cheque worth Rs. 1500.40 crore has been cleared and his second cheque will be honoured by July 15, 2017. He wanted more time to pay his balance amount and requested Apex Court for extension of time for realization of his second cheque. However, the Apex Court denied to entertain his prayer for extension of time and warned him that if the cheque is dishonoured, then appropriate action will be taken - [2017] 83 94 (SC)

CGST Act-Electronic Commerce Operator and Builder

Electronic Commerce Operator

Section 52 contemplates that notwithstanding anything to the contrary contained in this Act [CGST], every electronic commerce operator not being an agent shall collect an amount calculated at such rate not exceeding 1% as may be notified by the Government on the recommendations of the Council of the net value of the taxable supplies made by it through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. Thus electronic commerce operator is a classic example of bending the collection machinery to garner revenue from the earliest possible source saving time and cost.

Section 52(7) affirms that every supplier who has supplied the goods or services or both through the operator shall claim credit in his electronic cash ledger of the amount collected and reflected in the statement of the operator furnished under sub-section (4) in such manner as may be prescribed. Sub-section (8) of Section 52 stipulates that that details of outward supplies furnished by every operator do not match with the corresponding details furnished by the supplier under Section 37, the discrepancy shall be communicated to both persons in such manner and within such time as may be prescribed. Sub-section (10) read with sub-section (11) of Section 52 says that if the value of outward supplies reported by operator exceed the same furnished by supplier then unless rectified either by the operator or supplier the same shall be added to the output tax liability of supplier for the month succeeding the one in which discrepancy was communicated which the supplier shall pay with interest.

GST Issues on Construction of flats by builders

Taxability (indirect taxes) of flats constructed by builders and the like had a chequered history of litigation. Chiefly, the bone of contention was whether sale of immovable property when it is under construction involves any service element. Constitutional competency of enacting sections exacting service tax on construction of flats was challenged largely unsuccessfully and ultimately, it was accepted by all concerned that service tax is imposable on part of consideration constituting sale of flats except where they are transferred after obtaining completion certificate from competent authorities. 

Govt. notifies another set of CGST rules

Earlier, Govt. had notified various CGST rules, 2017 viz., Composition levy, Registration, valuation, Input tax credit, Invoice, Returns, Payment, Refund and Transitional rules, etc. Recently, Govt. has notified three CGST rules through N/N- 15/2017, related to:

Inspection, Search & Seizure

Demands & Recovery

Offences & Penalties

Govt. specifies procedure of intimating Aadhaar No. to Income-tax dept.

Section 139AA(2) of the Income-tax Act provides that every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar, shall intimate his Aadhaar on or before a date to be notified by the Central Government (CG). Now, CBDT has specified the procedure for intimating the Aadhaar number to income tax department and quoting the same in PAN application. Taxpayers can opt for any of the following mode for intimation of Aadhaar number:-

1) SMS mode: Taxpayers can send an SMS in the following predefined format to 567678 or 56161. UIDPAN 12 digit Aadhaar 10 digit PAN

2) On-line mode: Taxpayer can intimate Aadhaar number by visiting and filing required information’s through link provided on the website of either of PAN Service provider, i.e., or

3) Designated PAN Service center: Aadhaar number can be intimated by visiting designated PAN service center of PAN service provider NSDL eGov or UTIITSL.

4) E-filing portal: Taxpayer can intimated Aadhaar no. by visiting e-filing website of income-tax department i.e.

CBDT has also specified procedure for quoting Aadhaar number in PAN application form in compliance with section 139AA. Person seeking for PAN shall attach copy of Aadhaar letter or card along with PAN application form. In case Aadhaar has not been allotted to the person, he need to attach copy of such enrolment ID receipt along with the PAN application form.

Friday, June 30, 2017

10 things to know before GST rollout

GST will be rolled out from July 1, 2017 and just before its implementation the Govt. had issued various notifications on GST.

Key takeaways from such notifications are given here under: 

1. There is a requirement to mention HSN code of items in tax invoice under GST. Now the Govt. has given some relief to small assessees with annual turnover uptoRs 1.5 crores. They are not required to mention HSN code in their tax invoice. Taxpayers having turnover in the range of Rs 1.5-5 crore will be required to mention only two digits of HSN code and taxpayers with turnover more than Rs 5 crore will be required to mention four digits of HSN code.

2. Now the Govt. has given exemption from reverse charge in those cases wherein the value of goods or services does not exceed Rs 5000 and such goods or services are received by registered person from the unregistered person.

GST be made effective from July 1, 2017: Date Notified

Even after the announcement of GST rollout from July 1, 2017 there was doubt on its implementation from said date. Now GST would definitely be implemented from said date as Government has notified date of applicability of the CGST and the IGST Act as July 1, 2017.

Earlier the Govt. had notified two rules, viz, composition and registration under CGST. Now the Govt. has notified remaining rules under CGST Act.

High Court absolves Son in cheque bouncing case as it was issued from his father’s account

Facts of the case:

a) In the recent case law, the accused – Son had issued a cheque in respect of loan outstanding against him. The said cheque was issued by the accused towards outstanding amount from his father’s account. However, the same cheque was dishonored for want of sufficient funds in the account.

b) Lender - bank has issued notice to accused for payment of dishonored cheque. As accused - Son failed to pay outstanding amount, the lender - bank filed a complaint before trial court which was dismissed by the magistrate.

c) Being aggrieved at the judgement of trial court, lender- bank preferred an appeal to the Bombay High Court.

The Bombay High Court held as under:

i. If cheque had been issued by the Son from the account of his father and it bounced, then the lender - bank could not file a criminal case against Son, as one of the ingredients of section 138 of the Negotiable Instrument Act for holding one guilty was not satisfied that cheque must have been issued from an account maintained by the accused. Therefore, the case would not fall within the ambit of Section 138 of the Negotiable Instrument Act. [2017] 82 432 (Bombay)

No denial of sec. 54 relief just because purchase agreement specifies delivery of flat after 3 yrs


a) The assessee had shown long-term capital gains from sale of a residential house. She claimed deduction under section 54 on the ground that a part of said gain had been invested in a flat.

b) The AO noted that as per the purchase agreement flat would be delivered to the assessee within a period of 36 months with a grace period of six months from the date of actual start of construction.

c) The AO concluded that the said flat could not be handed over to the assessee by the builder within a period of 3 years from the date of transfer of the original asset and, therefore, denied the exemption claimed under section 54.

d) The assessee submitted that since full/substantial consideration had been paid by her, she was entitled to benefit of deduction on account of the investment in the flat under section 54. The Commissioner (Appeals) upheld the order of AO. The aggrieved assessee filed the instant appeal.

The ITAT held as under:

1) If substantial amount of capital gain has been invested by the assessee for the purpose of purchasing a new house, deduction under section 54 cannot be denied for the reason that construction was not completed within three years or house was not purchased within two years. In the present case the assessee had invested substantial amount for purchasing the new asset and thus she was entitled to claim deduction under section 54.

2) Even otherwise section 54 gives a window period of three years from the date of transfer of original asset, for the construction of a new house and two years for purchasing a new house. Further as per the section the amount utilized for the said purpose along with the amount deposited in a specified bank account for the purpose, before the date of filing of return of income, is treated as cost of construction of the new asset and exemption granted thereof.

3) Thus, clearly, as per section 54(2), exemption to the extent of amount utilized for construction is to be granted in the year of transfer of asset and the condition of completion of construction is to be looked into only after the window period provided by the Act of three years expires.

4) Therefore, impugned order rejecting assessee's claim for deduction in year of filing return itself, was to be set aside. - [2017] 82 306 (Chandigarh - Trib.) 

Sec. 14A disallowance not to be considered while computing book profits under MAT: ITAT special bench

The issue before the special bench of ITAT was:-

“Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB of the Act” ITAT special bench held in favour of assessee as under:

1) Applicability of provisions of sec. 14A is confined to computation of tax liability under the five heads of income enumerated in sec. 14 under normal provisions contained in Chapter IV of the Act. The said section 14A cannot be extended and read into section 115JB, falling under Chapter XI1-B of the Act.

2) Further, the scope of section 14A and section 115JB is entirely different. Under section 14A, disallowance is made of expenditure in relation to the earning of income not forming part of the total income. Thus, it takes within its sweep both direct and indirect expenditure having proximate connection with earning of exempt income.

3) However, under clause (f) of the Explanation 1 to section 115JB, only those expenditures debited to the profit and loss amount, which are relatable to earning of income exempt u/s 10 (excluding section 10(38) or section 11 or section 12 are added back while computing adjusted book profit. Thus, only direct expenditure associated with the earning of said income would be added back.

4) Therefore, there could not be any room for making adjustment in accordance with any other provision of the Act, except to the extent specified under the Explanation. Therefore, computation under clause (f) of the Explanation 1 to section 115JB(2) was to be made without resorting to the computation as contemplated u/s 14A, read with Rule 8D of the Income-tax Rules, 1962. - [2017] 82 415 (Delhi - Trib.) (SB)

No denial of sec. 54 relief just because construction wasn't completed in 3 years


a) The assessee sold his property and invested capital gains amount in purchase of new property. Capital gain was appropriated within a period of 3 years from the sale of the property.

b) The possession of the new property was handed over to the assessee after 3 years when the construction of the new property got completed.

c) Assessing Officer (AO) disallowed capital gain exemption as the construction of residential property was not completed within 3 years from the transfer of residential capital asset

d) On appeal, CIT (Appeals) upheld the disallowance. Aggrieved-assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1) It was held in by the Karnataka High Court in the case of CIT v. Smt. B.S. Shantha kumari [2015] 60 74/233 Taxman 347 that completion of construction within three years was necessary and not mandatory to claim section 54 exemption.

2) In the instant case, assessee had already appropriated the capital gains for the purpose of construction of residential unit. However, construction was not completed within the stipulated period. Therefore, liberal interpretation was to be considered while granting exemption under section 54, as it was beneficial provision.

3) Since assessee over and above satisfied the conditions laid down by section 54 and demonstrated his intention to invest the capital gains in residential house he was entitled to exemption under section 54. - [2017] 82 284 (Chennai - Trib.)

Friday, June 23, 2017

Timing of India Withholding Tax on Royalty/Technical Service Fees for overseas entities– the Dichotomy continues?

Withholding Tax in India is often perceived to be a challenging matter by many overseas entities having operations/activities in India. This may be on account of various reasons like lock up of funds in India (on account of taxes withheld) where a position of non taxability of income is adopted, mismatch between the year in which taxes are withheld by the Indian payer of income vs. the year in which the income is offered to tax in India, challenges with claiming credit for taxes withheld in India in the home country. 

One of the issues on which there has been some judicial debate is the point of time when withholding tax obligation triggers for an Indian payer of income in relation to a Royalty/Technical Service fee ('Service fee') payment proposed to be made to an overseas entity.

So as to set a context to the issue which is discussed in this article, to start with, it may be relevant to make a quick note of the fact that Sections 5 and 9 of the Income-tax Act, 1961 ('IT Act') are provisions dealing with scope of incomes chargeable to tax in India in principle, whereas, Section 145 of the IT Act governs the timing of taxation of the incomes in India (i.e. based on the cash or mercantile system of accounting regularly followed). Section 195 of the IT Act deals with withholding tax obligations in relation to payments proposed to be made to non-residents which are chargeable to tax in India.

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IFRS Exposure draft: Sales proceeds during testing of fixed asset to be recognised as other income

The International Accounting Standards Board (IASB) has proposed narrow-scope amendments to International Accounting Standards (IAS) 16 Property, Plant and Equipment. IAS 16 provides principles for recognition and measurement (initial & subsequent) of items of Property, Plant and Equipment (PPE) as assets. The proposed amendments include modification to the definition of directly attributable costs as cited in the para 17 of IAS 16.

As per clause (e) of para 17, directly attributable costs include costs of functionality testing of assets after deducting the net sale proceeds from items produced while bringing the asset to the location & condition necessary for it to be capable of operating in the manner as intended by the management.

Now, IASB has proposed amendments to the above component of directly attributable cost. As per the amendment, the net sale proceeds from such items produced should not be deducted from the costs of functionality testing of assets. To establish principle for treatment of such sale proceeds, a new para 20A has been proposed to be added to IAS 16.

According to the proposed new para 20A, the proceeds from selling such items produced while bringing the asset to that location & condition and production costs of such items should be recognised to profit or loss as per respective IAS/IFRS (International Financial Reporting Standards).

The above amendments have been proposed to reduce diversity in application of para 17 of IAS 16. These amendments would be applied both prospectively and retrospectively. An entity shall apply these amendments retrospectively only to the items property, plant & equipment brought to use as intended by the management only in the year in which the entity first applies these amendments. The Exposure Draft of proposed amendments would be open for public comment until October 19, 2017.

Not Really a Seamless Credit Mechanism – The Story of ‘Blocked Credits’

A seamless credit flow is the bedrock of an efficacious GST mechanism whereby cascading effect of taxes is eliminated through a chain of tax credits allowed for set off against output tax liability at each stage. With the introduction of GST regime in India, expectations were high on seamless availability of Input Tax Credits ('ITCs) on various business expenses such as employee insurance, business travel, rent-a-cab etc., that are
currently 'blocked' under the 'existing law'. Strangely enough, expectations were belied as these ITCs continue to be 'blocked' under the imminent GST regime. In brief, the taxpayer cannot avail ITCs on following important categories of expenditure under the GST regime: 

1) Motor vehicles (except for a few taxpayers like transporters, vehicle dealers etc);

2) Food & beverages and outdoor catering etc;

3) Health treatment, membership of fitness club etc;

4) Taxi/cab service, Insurance (except when required by law); and

5) Works contract services;

A perusal of the above list reveals that the situation has remained unchanged or become stricter as regards 'blocked credits' under the GST Regime.

Final notification on Sec. 10(38) brings clarity

Under the existing provisions of the Section 10(38) of the Income-tax Act ('the Act') income arising from a transfer of long-term capital asset, being equity share of a company, is exempt from tax if the sale has been undertaken on or after 1st October, 2004 and is chargeable to Securities Transactions Tax (STT).

It has been noticed that such exemption is being misused by declaring unaccounted income as exempt long-term capital gains (LTCG) after entering into sham transactions. With a view to prevent this abuse, Section 10(38) has been amended to provide that exemption shall be available only if the acquisition of share is chargeable to STT. Further, powers have been given to the CBDT to notify transactions which would be eligible for capital gains exemption even if no STT was paid on purchase of such shares. The CBDT then issued the draft notification and brought out the negative list of transactions on which such exemption would not be available. Now the CBDT has issued the final notification considering the representations of various stakeholders for entitlement to the capital gain exemption in genuine cases.

The final notification is similar to the draft notification in terms of prescribing negative list of transaction. However, relaxation has been given in interest of exemption in genuine cases.

Following three type of transactions will not enjoy capital gain exemption under Section 10(38):

a) Acquisition of listed equity share through a preferential allotment in a company whose equity shares are not frequently traded in stock exchange.

b) Acquisition of listed equity shares not through a recognized stock exchange.

c) Acquisition of equity shares of a company during the period of its delisting.

Ind AS 110: In case of mergers of subsidiaries, book values is to be taken as per standalone books


A company, say P Ltd. is a parent company of two companies, say Q Ltd. & R Ltd. Q Ltd. & R Ltd. are under common control of P Ltd. In case of common control business combination, the assets, liabilities and reserves of the transferor (acquired) company is recognised at their book values in the books of the transferee(acquiree) company in accordance with Appendix C of Ind AS 103, Business Combinations.

Now, CBDT has notified new Rule 10CB which prescribes computation of interest income pursuant to secondary adjustment. Rule 10CB also provides that repatriation of excess money shall be made on or before 90 days from the:-

(A) Whether the book values should be as per the books of the companies merged or as per the consolidated books of parent company in following situations:

1. Q Ltd. merges with R Ltd.

2. Q Ltd. merges with P Ltd.

(B) Further, whether P Ltd. shall require to eliminate the effect of business combination in above two situations in the consolidated financial statement?



Situation 1 : Appendix C, Business Combinations of Entities under Common Control of Ind AS 103 provides that accounting of merger of common control companies should be done as per the pooling of interest method. Under this method, assets, liabilities and reserves of the transfer or should be recognised in the books of the transferee at their carrying amounts without any adjustments except harmonisation of accounting policies of both companies in accordance with para 9 of Appendix C.

Para 11 of Appendix C states that the balance of retained earnings of the transferor is aggregated with that of the transferee. Further, the name of reserves, like general reserve, revaluation reserve etc. of the transferor should remain same in the book of transferee also in accordance with para 12 of Appendix C. Any difference between purchase consideration and share capital of the transferor is recognised as capital reserve separately from other capital reserves.

Accordingly, the book values or carrying amounts of assets, liabilities and reserves should be combined on the basis of standalone books of Q Ltd. and R Ltd., i.e. the merged companies.

Situation 2 : P Ltd. is holding company of Q Ltd. So, merger of P Ltd. with Q Ltd. will not have any effect. The assets, liabilities and reserves which were appearing in the consolidated financial statement of P Ltd. will not be part of standalone financial statement of P Ltd. Therefore, it would be appropriate to take carrying amounts of assets, liabilities and reserves of Q Ltd. as appearing in the consolidated financial statement of P Ltd.


As per para B86 of Ind AS 110, Consolidated Financial Statements, in consolidation procedure intra group assets and liabilities, equity, income, expense and cash flows relating to transactions between group companies should be eliminated in full. So, in the present case in both situations, P Ltd. should eliminate all effects of mergers in its consolidated financial statement.


Issue 2 of Ind AS Transition Facilitation Group Clarification Bulletin 9

Saturday, June 17, 2017

CBDT notifies rule for computing interest income for secondary adjustments under TP

In order to make the actual allocation of funds consistent with that of the primary transfer pricing adjustment, Finance Act, 2017 inserted Section 92CE in the Income-tax Act, 1961 to provide for secondary adjustment by attributing income to the excess money lying in the hands of the associated enterprise.

As a result of primary adjustment, if there is an increase in the total income or reduction in the loss of the assessee, excess money which is available with its AE will have to be repatriated to India and to the extent it is not repatriated, it shall be deemed to be an advance made by the assessee to the AE on which interest will have to be calculated. Now, CBDT has notified new Rule 10CB which prescribes computation of interest income pursuant to secondary adjustment. Rule 10CB also provides that repatriation of excess money shall be made on or before 90 days from the:-

1) Due date of filing of return if primary adjustment to TP has been made suo-moto by assessee;

2) Date of order of AO or appellate authority, if primary adjustment determined in the order has been accepted by assessee;

3) Due date of filing of return in case assessee had entered into Advance Pricing Agreement;

4) Due date of filing of return in case assessee opted for safe harbour rules under section 92CB;

5) Due date of filing of return in case an agreement is made under Mutual Agreement Procedure (MAP).

With regard to the rate of interest to be computed in the case of failure to repatriate the excess money with in the prescribed time limit, rule provides for separate interest rates for international transactions denominated in Indian rupee and those denominated in foreign currency. The rate of interest is on annual basis and shall be computed as follows:-

a) at one year marginal cost of fund lending rate of State Bank of India as on 1st of April of previous year plus 325 basis points in case international transaction is denominated in Indian rupees.

b) at six month London Interbank Offered Rate as on 30th September of previous year plus 300 basis points in the case international transaction is denominated in foreign currency.

Notification No. 52/2017, dated 15-06-2017

Review petition couldn’t be barred when SLP was to be dismissed: HC

Delhi High Court has held that a review petition could be maintainable before High Court after the Special Leave Petition (SLP) has been dismissed by the apex court and the aggrieved party could not be deprived of any statutory right of review. [2017] 82 295 (Delhi)

Land appurtenant to building was entitled to sec. 54F relief even if no construction was done on It


a) Assessee had sold shares and utilised long term capital gains from such sale of shares to purchase property which was comprised of land along with such building. He claimed exemption under section 54F.

b) Assessing Officer (AO) held that as per provisions of section 54F only investment in a residential house property is eligible for deduction. Land in one schedule had no residential building and therefore exemption under section 54F wasn’t available.

c) On appeal, CIT(A) allowed claim of assessee. Aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in the favour of assessee as under:

1) As per Section 54F, exemption is allowable in respect of amount invested in construction of residential house property. Nothing is mentioned in Section 54F that deduction couldn’t be allowed on acquisition on land appurtenant to the building or on the land on which building is being constructed.

2) When the land was purchased and building was constructed thereon, it was not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which was appurtenant to the building and on which no construction was made, there was no denial of exemption on such investment.

3) Contention of revenue that exemption under section 54F was eligible only for construction of house wasn’t tenable. Exemption couldn’t be denied on the land appurtenant to building if all the other conditions of section 54F were satisfied. 

4) Thus, the cost of vacant land appurtenant to and forming part of the residential unit was to be considered for claim of exemption under section 54F even if no construction had been done on the appurtenant land. [2017] 82 93 (Chennai)
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'Whats App’ didn’t abuse dominant position in market for instant messaging services: CCI

The Competition Commission has rejected the allegations of predatory pricing against WhatsApp in the market for instant messaging by stating that even though WhatsApp was in dominant position and it was not the only provider of consumer communication applications and consumer could be able to download other similar applications such as Viber, Snapchat, Hike, Hangouts, Chat On, etc. Therefore, allegations of predatory pricing have no substance and WhatsApp has not contravened any provisions of the Competition Act. - [2017] 82 272 (CCI)

Aadhaar number must for filing tax return and linking PAN; CBDT clarifies effect of SC court verdict

Honorable Supreme Court in its landmark judgement has upheld Section 139AA of the Income Tax Act as constitutionally valid which requires quoting of the Aadhaar number in applying for PAN as well as for filing of income-tax returns.

Section 139AA(2) of the Income-tax Act provides that every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar, shall intimate his Aadhaar on or before a date to be notified by the Central Government. The proviso to section 139AA (2) provides that in case of non-intimation of Aadhaar, the PAN allotted to the person shall be deemed to be invalid from a date to be notified by the Central Government.

The Court also held that the “Parliament was fully competent to enact Section 139AA of the Act and its authority to make this law was not diluted by the orders of this Court.” 

CBDT clarifies the effect of the Apex Courts judgement as follows:

1) From July 1, 2017 onwards every person eligible to obtain Aadhaar must quote his Aadhaar number or Enrolment ID of Aadhaar no. for filing of income-tax returns as well as in applications for PAN;

2) Assessee’s who have been allotted PAN as on 01-07-2017, and who have Aadhaar no. or are eligible to obtain Aadhaar no., shall intimate their Aadhaar number to income-tax authorities.

3) However, for non-compliance of the above point No.(2), only a partial relief by the Court is that PAN of the person will not be cancelled for those who do not have Aadhaar and who do not wish to obtain Aadhaar number.

Ind AS 110: Dividend distribution tax paid by subsidiary is charged to consolidated profit or loss


A wholly- owned subsidiary company, say B Ltd., paid dividend of Rs. 250,000 to its holding company, say A Ltd. Consequently, it paid Dividend Distribution Tax (DDT) of Rs. 25,000. Both companies have adopted Ind AS from April 1, 2017 and the payment ofdividend and DDT was made after the transition to Ind AS. 

The company now has following queries:-

a. How DDT should be accounted for in the consolidated financial statements for the year 2016-17?

b. Would answer in the above case be different if A Ltd, subsequently pays dividend of Rs. 12, 00,000 to its shareholders and DDT thereon of Rs. 95,000 after deducting DDT of Rs. 25,000 paid by B Ltd.?

c. Whether A Ltd. should recognise Deferred Tax Liability (DTL) in the consolidated financial statements on the undistributed profits of B Ltd. which may be distributed in the foreseeable future?


a. At the time of consolidation, dividend income earned by A Ltd. and the corresponding entry in the equity of B Ltd. will get eliminated as consolidation adjustments. DDT of Rs. 25,000 paid by B Ltd. to the taxation authorities shall be debited and reflected in the consolidated statement of profit & loss. 

b. If holding company is allowed to adjust the DDT paid by subsidiary against its DDT liability then the sum of DDT paid by holding and DDT adjusted should be recognized in the consolidated statement of changes in equity. DDT paid by the subsidiary which has been adjusted by holding against its DDT liability, is nothing but a tax on distribution of dividend to the shareholders of holding company. Therefore, A Ltd. should recognize DDT of Rs. 120,000 to the consolidated statement of changes in equity.

c. As per paras 39 & 40 of Ind AS 12, Income Taxes, holding company should create DTL for all taxable temporary differences associated with investment in subsidiary only if it is determined that such temporary differences will be reversed in foreseeable future. Accordingly, A Ltd. is require to recognise DTL on the undistributed profit of B Ltd. ifit is already concluded that the undistributed profits will be distributed in foreseeable future. Such DTL may be reversed by the amount of DDT paid by B Ltd. when it will distribute such profits if such DDT is allowed to be set off against DDT liability of A Ltd. 

- Issue 1 of Ind AS Transition Facilitation Group Clarification Bulletin 9

Saturday, June 10, 2017

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] 82 164 (Chennai - Trib.)

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


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?


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.


- 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


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?


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.


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