CA can't exercise lien over client's documents for nonpayment of fees

As per decision of Ethical Standard Board (ESB) of ICAI, A chartered accountant cannot exercise lien over the client documents/records for non-payment of his fees. In this regards section 170 of the Indian Contract Act, 1872 reads as under: "Bailee's particular lien - Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Illustrations

(A) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.

(B) A gives cloth to B, a tailor, to make into a coat, B promises A to deliver the coat as soon as it is finished, and to give a three months' credit for the price, B is not entitled to retain the coat until he is paid." [Emphasis supplied]

The above view is based on the general principles of law under which any person having lawful possession of someone else's property may retain the property for non-payment of his dues. As section 170 uses the words 'goods' and not the word 'property' and as client's books of account and papers are not 'goods', lien under section 170, will not be available to lawyers/CAs/CWAs/CSs.

Therefore, withholding books and papers of the client for unpaid fees appears to be not legally tenable and even amounts to professional misconduct.

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Tax collection isn’t valid if made from ‘tax illiterate person’ due to ignorance of law: ITAT

Facts

(a) The assessee filed return of income which was picked up for scrutiny where he was required to explain the deposits in his saving bank account. The AO made additions on account of unexplained cash deposits.

(b) The CIA (A) upheld the addition made by AO without considering fresh evidences filed by assessee. Evidences were considered as not admissible by the Commissioner (Appeals). Since as per record, no application seeking admission of fresh evidences under rule 46A was filed. ITAT held as under:

(1) The tax so collected on the foundation of the ignorances of a 'tax illiterate tax payer' could not be termed to be a collection of either 'just' nor 'due' taxes collected by the State in accordance with law. The assessee represented by an equally ignorant counsel, should have been appropriately guided by the First Appellate Authority. The fact that the Commissioner (Appeals) while exercising his discretion refused to admit evidence inspite of sufficient cause being shown as a matter of record was unwarranted and arbitrary.

(2) Since in the facts of the instant case due to his wife's illness the assessee was prevented by sufficient cause from producing the evidences in support of his claim, the impugned order was set aside and the issue to be restored back to the Commissioner (Appeals) with a direction to permit the assessee to produce the evidences in support of his claim.

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Govt. approves ordinance, proposes jail term for people holding old notes

The Union Cabinet has approved an ordinance to impose penalty and a jail term for people holding demonetized notes of Rs 5,00 and 1,000. Only specified category of people will be allowed to keep demonetized notes. However, anyone can possess 10 old notes of Rs 5,00 or Rs 1,000 denominations.

The Government has prescribed penalty equivalent to higher of Rs 50,000 or five times of the amount of demonetized notes. The Union Cabinet has also approved an ordinance to amend RBI Act to extinguish the liability of the Government and Central bank on demonetized notes. The deadline for deposit of demonetized notes in banks is December 30, 2016. Thus, the ordinance should be cleared by the President before December 30, 2016.

(This document is prepared on basis of information gathered from sources.)

Benefit of vacancy allowance would be available even when house is under renovation: Bangalore ITAT

Facts:

a) The Assessing Officer proposed to assess the annual letting value of the flat. The assessee has submitted that flats were vacant and therefore even if Annual Letting Value (ALV) has to be assessed, the vacancy allowance should be allowed. The Assessing Officer before the CIT (Appeals). The CIT (Appeals) confirmed the addition made by the Assessing Officer The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1. The assessee has explained that the house was under renovation and therefore, it could not be let out during the year under consideration. Further it was not intentionally kept vacant by the assessee. Thus, vacancy of the house was beyond the control of the assessee and, therefore, the benefit of vacancy is available to the assessee as per the provisions of section 23(1)(c).

2. The process of letting out may take some time in searching the suitable tenant and for settling the terms and conditions of the letting out. Therefore, even if it is presumed that the house is ready for occupation if it is not intentionally kept vacant by the assessee then it cannot be presumed that the assessee has deliberately not let out the house during the year under consideration.

3. Thus, the addition made by the Assessing Officer was to be deleted. - [2016] 76 taxmann.com 278 (Bangalore - Trib.)

CBDT issues clarifications on ‘Direct Tax Dispute Resolution Scheme, 2016

The Direct Tax Dispute Resolution Scheme, 2016 incorporated as Chapter X of the Finance Act,
2016 provides an opportunity to tax payers who are under litigation to come forward and
settle the dispute. The provisions of the Scheme have been clarified vide Circular No.33 of 2016
dated 12.09.2016. Subsequently, further queries have been received from the field authorities
and other stakeholders. Now the Govt. has considered the queries and decided to clarify the
same in the form of questions and answers.

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Sellers shouldn’t aggregate all cash transactions to consider Rs 2 lakh limit of AIR reporting: CBDT

Provisions of Rule 114E(2) provides that persons liable to tax audit should report transaction of cash sales of goods or services to Income-Tax Department in AIR. Such reporting requirement is there only when receipt of cash payment exceeds two lakh rupees. Doubts were raised whether all cash transactions would be aggregated to consider the aforesaid limit of Rs 2 lakhs.

The CBDT vide Press Release, dated 22-12-2016 has clarified that aforesaid cash transactions did not require aggregation.The reporting requirement in AIR is on receipt of cash payment exceeding Rs 2 lakh for sale of goods or services per transaction.

Editor’s comment:

Seller is required to report details of cash sales in AIR only when transaction value of such sales exceeds Rs 2 lakhs. Suppose, if any seller has made cash sales of 20 transactions at Rs 20 lakhs then he is not required to report such transactions if value of each transaction does not exceed Rs 2 lakhs.

No disallowance of service tax just because it is paid by service provider out of its own pocket

Facts:

a) Assessee was engaged in business of broking in Government and other securities. As clients of assessee did not pay service tax to it, assessee paid service tax out of its own resources and claimed deduction of same under section 37(1).

b) The Assessing Officer disallowed claim for deduction holding that obligation to pay service tax was on customer/client and same could not be shifted to assessee. The High Court held as under:

1) It is undisputed that the obligation under the Finance Act, 1994 to pay the service tax is on the assessee being the service provider. This obligation has to be fulfilled by the service provider whether or not it receives the service tax from its clients/customers.

2) Non-payment of such service tax into the treasury would normally result in demand and penalty proceedings under the Finance Act, 1994. Therefore, the payment is on account of expediency, exclusively and wholly incurred for the purposes of business, therefore, deductible under section 37(1). - [2016] 76 taxmann.com 211 (Bombay)

Small traders accepting e-payments can save 46% tax under new presumptive tax regime: FinMin

If a small trader makes his transactions in cash on a turnover of Rs. 2 Crore, then his income under the presumptive scheme will then be presumed to be Rs. 16 lakhs @ 8% of turnover. After availing of Rs. 1.5 lakhs of deduction under Section 80C, his total tax liability will be Rs. 2, 67,800. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be at Rs. 12 lakhs @ 6% of turnover, and after availing of Rs. 1.5 lakhs under Section 80C, his tax liability now will be only Rs. 1,44,200. Here, digital transactionincludes payment received by Cheque or through any other digital means.

Apart from making a tax saving by migrating to banking mode, the small businesses would be able to build their books which may also help them get bank loans easily. Also, if transactions are carried out through banking channels, then anybody having annual turnover up to Rs. 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of this new rate structure.

No dismissal of cheque bouncing complaint just because it is filed by partner in individual capacity

The Complainant, a partner in a firm has filed the complaint for dishonouring of cheque undersection 138 of the Negotiable Instrument Act. He filled the complaint in his individual capacity/ status without affixing seal or rubber stamp of partnership firm.Trial court dismissed thecomplaint filed by the complainant on the ground that he had not satisfied eligibility criteria and singed the complaint in individual capacity.

The High Court held thatTrial Court erred in holding that complainant had not guilty for offence under section 138 of Negotiable Instrument Act. An opportunity has to be provided to complainant to file unregistered partnership deed and matter has to be remanded to trial court for fresh consideration. [2016] 76 taxmann.com 255 (Madras)

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Govt. aims to reduce Presumptive Tax Rate to 6% for digital receipts during FY 2016-17

Recent demonetization drive of the Government has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payments, no financial transactions would remain undisclosed and, consequently, an enhanced turnover of business might get reflected in the books of account.The existing provisions of section 44AD provide that 8% of turnover would be deemed as presumptive profit in case of certain assesses having a turnover of Rs 2 crore or less.

In order incentivise small traders to proactively accept payments by digital means, Govt. has decided to reduce the existing rate of deemed profit under Section 44AD from 8% to 6% in respect of the turnover or gross receipts through digital means for the Financial Year 2016-17. However, the existing rate of deemed profit of 8% referred to in section 44AD, shall continue to apply in respect of total turnover or gross receipts in cash. Such changes would be effective once amendments are brought to Section 44AD by the Finance Act, 2017.