Insolvency and Bankruptcy Code 2016

Insolvency and Bankruptcy Code 2016 is welcome step and need of hour being part of ease of doing business in India. This Code has been passed by both Houses and got President assent on 28-05-2016 whereby Sick Industries Companies Act, 1985 (SICA), Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 have been repealed, winding up provisions of Companies Act, 2013 have been restructured and laws relating to winding up has been consolidated in single code. This Code offers a uniform, comprehensive insolvency legislation encompassing all Companies, LLPs, partnerships and individuals. This code will facilitate a formal and time bound insolvency resolution process and liquidation. This code is a special Act and its provisions have overriding effect over other laws. This Code has two parts i.e. Part II for Corporate Debtors (applicable for Companies and LLPs) and Part III, IV and V applicable to individuals and partnership firms. Company Law Tribunal is the Adjudicating Authority for Corporate debtors and whereas Debt Recovery Tribunal is the Authority for individuals and partnership firms. The Author would like to discuss provisions applicable to Individuals and partnership firms in this Article.

Destruction of invoices in fire incident won't lead to denial of credit when all invoices recorded in ledger

Facts:

a)   During the course of audit of the assessee’s record, audit officers observed that original invoices were not available. Assessee submitted that original invoices were lost/destroyed in an accident of fire.

b)  Therefore, department contended that Cenvat credit was availed in respect of non-existing invoices as assessee was not having original input invoices to be produced for verification. The Adjudicating authority demanded interest and imposed penalty. The assessee filed appeal before the Commissioner (Appeals) which was allowed. Aggrieved by the impugned order, revenue filed the instant appeal.

The CESTAT held as under:

Model GST law - Feast after a decade long fast

Indian Indirect tax payers have been greeted with a bouquet of complexities from the time immemorial. These taxpayers were in need of a single flower as antidote, which they now see budding in form of Model GST law released by the Union Government. The proposed scheme of GST aims to reduce the existing intricacies in administration of multiple indirect taxes. The much debated beauty and barriers of GST as a unified tax on goods and services has finally come to the rescue of taxpayers in the form of model GST law, framed by the Empowered Committee of State Finance Ministers.

The model law is designed in a manner that it can also be used by the states as blue print for state GST. At the outset, the model law proposes its applicability to whole of India and provides that different dates may be appointed for different provisions of the Act. The draft law appears to be largely premised on the existing state VAT laws and an attempt has been made to reconcile the philosophies of existing Central Excise, VAT and Service tax laws.

Golden chance to declare domestic black money at e􀁹ective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the ‘Income Declaration Scheme’ (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is e ective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016.

However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the e ective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration.

Cash payments to liquor dealers to maintain su􀁹icient quantity of stock doesn't call for sec. 40A(3) disallowance

Facts:

a) Assessee engaged in the business of country liquor had made cash purchases from two parties 'A' and 'P'.

b) Since, the payments for the purchases were exceeding Rs. 20,000, Assessing Officer (AO) disallowed said payments by invoking provisions of section 40A(3).

c) Commissioner (Appeals) confirmed the action of the AO and upheld the disallowance. Aggrieved assessee filed the instant appeal before the tribunal. 

The tribunal held in favour of assessee as under:

1) The primary object of enacting section 40A(3) is two folds, firstly, putting a check on trading transactions with an intent to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community.

2) Apparently, this provision is directly related to curbing of the evasion of tax and inculcating the banking habits in business community.

3) In the instant case, assessee was the only authorized dealer in the area for the supply of country liquor to authorized Excise vendors. He was to keep sufficient stock of country liquor as prescribed by the Excise Department and in case stock fell short of the prescribed limit, the department used to impose penalty.

Even 'Quoted Prices' may be accepted for comparability analysis under CUP method

Facts:

The issue before the Tribunal was as under:

Whether the 'quotations' in the form of external CUP and custom data of third party shipping bills, brokers rates, SOPA rates etc., can be considered as the reliable comparable data or not.?

Tribunal held in favour of assessee as under:

1.  Gujarat High Court in case of CIT v. Adani Wilmar Ltd. [2014] 45 taxmann.com 365 (Gujarat) has held that the price publication as long as same are authentic and reliable would be relevant material for the purpose of rule 10D(3)(c).

2.  Even 'Quoted Prices' may be used if they are authentic for comparability analysis in CUP method. For this one may refer to the release of new guidance on cross border commodity transactions by OECD on its Base Erosion and Profit Shi ing (BEPS) plan actions 8 and 10, 2015 Final Reports, wherein there is an addition to Chapter II of the Transfer Pricing Guidelines relating to commodity transactions.

How can NRs escape from higher TDS without furnishing PAN

The existing provision of section 206AA, inter alia, provides that any person who is entitled to receive income on which tax is deductible shall furnish his PAN to the payer, failing which tax shall be deducted at higher rates. Such provision is also applicable for non-residents.

Section 90 provides that non-resident taxpayers (to whom provisions of DTAA are applicable) shall apply provisions of the Income-tax Act or DTAA, whichever is more beneficial. However, due to application of Section 206AA such non-residents are taxed at higher rate of 20% even if tax rates under treaty are more beneficial.

The Finance Minister in his budget Speech had proposed to provide that on furnishing of alternative documents instead of PAN, the higher rate of TDS under Section 206AA will not apply to non-residents. Thus, in order to reduce compliance burden for the non-residents the Finance Act, 2016 provided exemption from applicability of Section 206AA in case of nonresidents subject to conditions as may be prescribed.

Now the CBDT has notified new Rule 37BC to prescribe such conditions. It has been provided that the provisions of Section 206AA shall not apply even if the nonresident payee does not have PAN subject to satisfaction of following conditions:

CLB ends family feud by dismissing oppression plea filed by mother against her three daughters

Facts:

a) The petitioner (mother) alleged acts of oppression and mismanagement in the a airs of the company by her 3 daughters.

b)  The relief was sought on various matters such as: - To declare the illegal board meetings

- Removal of director from the directorship of the Company - To declare all illegal transfers of shares

c)  Disposing the petition the HC directed to constitute an adhoc board with the mother and her three daughters for managing day-to-day a airs of the company and to carry out the statutory obligations under the Act.

No TCS if cash receipts don’t exceed Rs 2 lakhs even if consideration exceeds Rs 2 lakhs: CBDT

TCS is to be collected by the seller from the buyer on sale of specified category of goods at rates in force. Initially, only specified items (such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, etc.) were within the TCS net. Subsequently, the Finance Act, 2012 provided for collection of TCS on sale of bullion and jewellery where the sale consideration received in cash–

a) for bullion, exceed Rs 2,00,000; or

b) for jewellery, exceed Rs 5,00,000.

The Finance Act, 2016 amended Section 206C to provide that seller is also required to collect TCS on sale of any goods (other than bullion or jewellery) or services where the sale consideration received in cash exceeds Rs 2,00,000.

RBI approved royalty rate has only persuasive value, it isn't conclusive to determine ALP

The issue before the Delhi ITAT was as under:

Whether rate of Royalty/FTS approved by RBI is always at ALP?

The Delhi ITAT held as under:

1) The jurisdictional High Court in case of CIT v. Nestle India Ltd. [2011] 11 taxmann.com 106 made following observation:

‘The Tribunal is not correct in observing that since the permission is given by the RBI, the reasonableness and genuineness of the expenditure could not have been gone into by the AO. The purpose for which such permission is given by the RBI is totally di erent. The RBI is only concerned with the foreign exchange and, therefore, would look into the matter from that point of view. The RBI, at the time of giving such permission would not keep in mind the provisions of the IT Act and that is the function of the IT authorities and, therefore, they can validly go into such an issue'

2) It is explicitly clear from the enunciation of law by the Delhi High Court that the grant of permission by the RBI to payment of royalty is not sacrosanct for the purposes of the Act and, can be examined by the Assessing O icer to ascertain its excessiveness.