India gets taxation rights on investments routed via Korea; CBDT notifies revised India-Korea DTAA

The existing Double Taxation Avoidance Agreement (‘DTAA’) between India and Korea was signed on 19th July, 1985 and notified on 26th September 1986. A revised DTAA between India and Korea signed on 18th May 2015 during the visit of the Hon’ble PM to Seoul has entered into force on 12th September 2016, on completion of procedural requirements by both the countries. Provisions of new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017.

Some of the salient features of new DTAA are as under:

a) The existing DTAA provided for residence based taxation of capital gains on shares. In line with India’s policy of taxation of capital gains on shares, the revised DTAA provides for source based taxation of capital gains arising from alienation of shares comprising more than 5% of share capital.

b) In order to promote cross border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates from 15% to 10% on royalties or fees for technical services and from 15% to 10% on interest income.

No capital gain tax if capital contribution by partner is current asset and not capital asset: ITAT

Facts:

The issue before the ITAT was as under:

Whether the CIT(A) has erred in deleting the addition of Short Term Capital Gains earned by the assessee on transfer of land to the Partnership firm as their Capital Contribution, by holding that the provisions of section 45(3) was not applicable?

The ITAT held as under:

1) Section 45(3) is applicable only in respect of a capital asset. The said provision has no application in the instant case since what was transferred by the partners was a current asset and not a capital asset.

2) Section 45(3) did not come into operation for the assessment year 2008-09 by reason of conversion of the developed land and building into fixed assets by the said firm or due to revaluation by the said firm of the asset so converted during the previous year ended March 31, 2008.

3) Section 45(3) of the Act is applicable in the year of transfer by the partner of his capital asset to the partnership firm by way of capital contribution. In the instant case, the year of transfer was the financial year ended March 31, 2006. The ITO was wholly unjustified in invoking section 45(3) which had no application in the assessment year 2008-09 or for that matter in the assessment year 2006-07. - [2016] 74 taxmann.com 187 (Kolkata - Trib.)

Date of dispatch or service of order isn’t relevant for maintainability of settlement application

The disputed issue before the High Court was as under:

Whether the order of assessment would be deemed to be pending for purpose of maintainability of settlement application just because such order was not dispatched or served?

The High Court held as under:

1) There has been divergent views of Bombay High Court and Delhi High Court on this impugned issue. In case of CIT v. Income tax settlement commission[2015] 58 taxmann.com 264 (Bombay) the Bombay High Court held that the date of service of assessment order is the crucial date only after which application for settlement could not be filed. However, in case of Qualimax Electronics (P.) Ltd. v. Union of India [2010] 27 STT 231 (Delhi) the Delhi High Court held that the crucial date would be the date of dispatch of the order and not the date of its service.

Sum paid to brothers for vacating house held as cost of improvement of house

Facts:

a) The assessee had shown income from long-term capital gain from sale of house property.

b) It claimed deduction of certain amount paid to brothers for vacating the house as expenditure incurred for improvement of asset.

c) The Assessing Officer declined such claim on the ground that the assessees were the sole occupant of their property and brothers were neither living in capacity of a tenant nor were paying any rent.

d) On appeal, the CIT (Appeals) affirmed the findings of the Assessing Officer. The aggrievedassessee filed the instant appeal.

The Tribunal held as under:

1) In the present appeals, situation was required to be appreciated, keeping in mind social circumstances and the relationship of the brothers. What was their settlement while residing together? What was feeling of elder brother towards their younger brother, when they displaced them from a property where they were residing for last more than 24 years?

No decision on GST rates–Key takeaways from Third Meeting of GST council

The GST Council headed by Union Finance Minister, Shri Arun Jaitley, has to recommend various issues related to GST, viz., GST rates, administrative control over assessee, compensation to States, etc., in its third Meeting scheduled on 18-20 October, 2016. However, the third meeting of GST council concluded abruptly on October 19, 2016, a day ahead of its schedule. Key takeaways from such meeting are given hereunder:

1. The Centre has proposed four-tiered rate structure, i.e., 6%, 12%, 18% and 26%.Such proposal also includes tax rate of 4% on gold. Maximum rate of 26% has been proposed on demerit or luxuries goods. However, the GST meeting was concluded without any final decision on GST rates. Decision on GST rates will be decided in next meeting of GST council to be held in November, 2016.

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CBDT notifies final rules on buy back of shares

Section 115-O provides for levy of Dividend Distribution Tax(‘DDT’) on the company at the time when company distributes, declares or pays any dividend to its shareholders. Consequent to the levy of DDT the amount of dividend received by the shareholders is not included in the total income of the shareholder.

However, the consideration received by a shareholder on buy-back of shares by the company is not treated as dividend but is taxable as capital gains under section 46A. 

Unlisted Companies, as part of tax avoidance scheme, were resorting to buy-back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders were either not chargeable to tax or were taxable at a lower rate.

HC pulls up tax dept. for issuing unlawful block assessment notice; imposed costs on dept.

Facts:

This Petition challenges a notice issued by the AO under Section 158BC calling upon the Petitioner to file his return of income within a period of 15 days of service of the notice.

The High Court held as under:

1) It was clear that no incriminating documents were found during the course of search. In any case the appraisal report would indicate that no notice under Section 158BC of the Act could be issued to the Petitioner as the condition precedent to issue such notice (viz, undisclosed income found during the search proceedings) was not satisfied.

2) This action on the part of the Respondents-revenue to issue the impugned notice ignoring the appraisal report was highly deplorable. We live in a Country governed by laws. The Officers of the Income Tax Department are obliged to proceed in accordance with the statutory provisions and not on their whim and fancy.

3) The Officers hold power in trust and must ensure that no citizen is harassed by sending him notices, when on the basis on its own record, such notices are not sustainable. We trust that the Income Tax Department would adopt a standard operating procedure which would provide for appropriate safeguards before issuing notices under Chapter XIVB of the Act. This alone would ensure that Officers of the Revenue act in terms of the mandate provided in the Act.

4) Thus, the Respondent-revenue was directed to pay the costs of Rs. 20,000 to the Petitioner within four weeks from today. - [2016] 74 taxmann.com 128 (Bombay) 

Taxable Event under GST

1) Taxable event means an event on happening of which the charge is fixed. Supply is taxable event under GST.

2) GST is a tax on supply of goods and services. Supply includes all forms of supply where goods and/or services are supplied by a person for a consideration.

3) Earlier, excise duty is levied on manufacturing of goods, service tax is levied on provision of services and sales tax or VAT is levied on sale of goods. Under GST regime, all these existing concepts will be irrelevant.

4) The term “Supply” is not properly defined under Model GST law. An inclusive definition is given without defining meaning of supply.

5) To levy GST, these six conditions have to be satisfied:

a) There is supply of goods and / or services

b) Supply is for a consideration

c) Supply is made in the course or furtherance of business

d) Supply is made in the taxable territory

Trust intending to carry out charitable activities outside India entitled to sec. 12AA registration

Facts:

a) The assessee-institution was formed vide a trust deed. It sought registration under section 12AA.

b) The DIT rejected the registration application as he was of view that the trust intended to carry out activities outside India.

c) The aggrieved-assessee filed the instant appeal.

The ITAT held as under:

1) Registration as per section 12AA by itself will not automatically confer the benefits of sections 11 and 12 to a trust, but the trust will get the benefit only on complying with the requirements of sections 11 & 12, which compliance can be examined by the assessing authority while processing the return filed by the trust. So long as the trust has objects which are charitable in nature, it is eligible for registration under section 12AA, unless there is a finding that the trust is not genuine.

24 things you should know about Draft GST Rules and Forms

With enactment of 101st Constitution Amendment Act, the road to GST is clear. The Govt. had already unveiled draft model law on GST. On 26th September, 2016 CBEC released draft rules and forms under GST on Registration, Invoice and Payment. GST council has also approved of draft rules in its meeting on 30th September, 2016. Key takeaways of draft rules and forms are given hereunder:

Registration
1.	The application for GST registration will be made online either directly on the GSTN Portal or through Facilitation Centres.
2.	The proper officer will examine registration application and grant registration within 3 common working days.
3.	If the application is found deficient, then applicant will be intimated within 3 common working days. Thereafter, applicant has to furnish information or documents sought within 7 working days electronically. If the proper officer is satisfied with such details, then he will grant registration within 7 common working days from date of receipt of such details.
4.	The person obtaining registration as casual dealer is required to make advance deposit for estimated tax liability for the period for which registration is sought.
5.	The registration certificate must be displayed at principal place of business and at every additional place of business. GSTIN (i.e. registration number) must be displayed in the name board at the entry point of business premises.
	Invoice
6.	Supplier needs to mention following details in invoice if recipient is unregistered and taxable value of supply is Rs 50,000 or more:
	♦   Name and address of recipient;
	♦   Delivery address along with the name of State.
7.	Every invoice should contain place of supply if supply is in course of inter-State trade or commerce.
8.	Three copies of invoice should be prepared in case of goods and only two copies of invoice are needed in case of services.
9.	In case of taxable supply of services, the invoice shall be issued within 30 days from date of supply of services. However, no time-period is specified for issuance of invoice in case of supply of goods.
Returns
10.	The registered taxable person is required to file details of outward supplies in Form GSTR-1 electronically. The recipient will receive GSTR 2A on the basis of details furnished by supplier in GSTR 1.
11.	The recipient will file details of inward supplies in GSTR 2 electronically on basis of details contained in GSTR 2A. The recipient shall specify the details of inward supplies for which he is not eligible for input tax credit and quantum of such ineligible input credit.
12.	The registered taxable person (other than composition dealer) shall file monthly return in GSTR-3. Part of this return will be electronically generated from GSTR 1, GSTR 2, electronic credit ledger, electronic cash ledger and electronic liability register.
13.	A notice in Form GSTR 3A will be sent electronically to a registered taxable person who fails to file returns.
Payments
14.	The electronic tax liability register, electronic credit ledger and electronic cash ledger will be maintained on the common portal for every registered person.
15.	The electronic tax liability register shall be debited with amount of tax, interest, late fee, mismatch in credits, etc. It shall be credited with amount paid through electronic cash register or electronic credit register.
16.	The electronic credit ledger of taxpayer will show the details of invoice and amount of credit. It will also show details of credit matchingor mismatching.
17.	The electronic cash ledger shall be credited with the amount deposited and debiting with the payment therefrom towards tax interest, penalty, fee or any other amount.
18.	The final acceptance of input credit will be made available to registered taxable person through Form GST ITC 1 electronically.
Refund
19.	The refund claimed in Part B of GSTR-3 shall be deemed to be an application filed for refund.
20.	The provisional refund, i.e., 80% of refund claimed shall be granted on satisfaction of following conditions:-
	♦   Person claiming refund has not been prosecuted for any offence under GST during any 5 preceding years. If he has been prosecuted under an earlier law, the amount of tax evaded should not exceed Rs.2,50,000.
	♦   GST compliance rating of the applicant is not less than 5 on a scale of 10.
	♦   No proceeding for any appeal, review or revision is pending on issues which form the basis of the refund andif pending, the same has not been stayed by the appropriate authority or court.
21.	Refund shall be granted after adjusting any outstanding demand payable by the applicant.
22.	If Proper Officer is satisfied that refund is not payable then he shall issue a notice requiring applicant to furnish a reply within 15 days.
23.	Any amount rejected as refund shall be re-credited to the electronic credit ledger.
24.	Person claiming refund of tax paid on inward supplies shall apply for refund in FORM GST RFD-10 once in every quarter.