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.

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

Query

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?

Response

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.

Reference

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

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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 taxmann.com 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. 

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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

Click here to view full notification

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.,www.tin-nsdl.com or www.utiitsl.com.

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. www.incometaxindiaefiling.gov.in.

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.

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.

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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.

Click here to view Notification No. 9/2017

Click here to view Notification No. 10/2017

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 taxmann.com 432 (Bombay)

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

Facts:

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 taxmann.com 306 (Chandigarh - Trib.)