BUSINESS DISALLOWANCE – CASH PAYMENT EXCEEDING PRESCRIBED LIMITS

SECTION 40A(3)

[2016] 74 taxmann.com 87 (Madras)

 

Where assessee did not offer any explanation as to why expenditure in cash had been incurred for first time during relevant year, while similar expenditure was not reflected at all in preceding four years, particularly, when there was no change in line of business activity of assessee, all these years, Assessing Officer rightly discredited expenditure incurred in cash -

During course of international voyage traffic between Indian ports deemed as 'international traffic'

CIT v. Taurus Shipping Services [2015] 64 taxmann.com 64 (Gujarat High Court)

Journey of a vessel between two Indian ports deemed as "international traffic" under Article 8 of India-Singapore DTAA as same was part of a larger journey between two foreign ports


Facts

• Assessee-company had acted as an agent of three vessels which had transported goods from Kandla Port to Vizag. The vessels had undertaken such freight transportation during the journey from Singapore to Dubai.
• The freight beneficiary was one M/s. Jaldhi Overseas Pte Limited, who claimed benefit under Article 8 of India-Singapore DTAA.
• The Assessing Officer (AO) contended that transportation between Kandla to Vizag cannot be considered as international traffic in terms of India-Singapore DTAA.
• The tribunal set aside the order of AO. Aggrieved by the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

• The word ‘international traffic' is defined in Article 3 of DTAA between India and Singapore as under:

"the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State."

• The term 'international traffic', as noted above, is defined to mean any transport by a ship or aircraft operated by an enterprise of a contracting state. This definition, however, has an exceptional clause which excludes the transport when the ship or aircraft is operated solely between the places in the other contracting state.
• Hence, it is only when a ship or aircraft is operating 'solely' between places in other contracting state that the transport is excluded from scope of "international traffic".
• In the instant case, the transportation between two Indian ports was undertaking during a larger journey of the vessels from Singapore to Dubai. Therefore, the requirement of such journey being solely between places in the other contracting state was not satisfied.
• Thus, journey of a vessel between two Indian ports would be deemed as "international traffic" under Article 8 of India-Singapore DTAA if the same was part of a larger journey between two foreign ports.

The Income Declaration Scheme, 2016 - Reserve Bank of India(RBI) requested to issue instructions to banks to allow payment of tax under the Scheme in cash and to allow deposit of cash over the counter.

The Income Declaration Scheme, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets. The Scheme has come into effect from 1.6.2016 and is open for declarations upto 30.9.2016.

In respect of the issue of deposit of cash declared under the Scheme, the Central Board of Direct Taxes (CBDT) vide Circular No.29 of 2016 dated 18.8.2016 clarified that Reserve Bank of India (RBI) has been requested to issue instructions to banks to allow payment of tax under the Scheme in cash and to allow deposit of cash over the counter.

The RBI has vide its circular dated 08.09.2016 instructed the banks to invariably accept cash deposits from all the declarants under the Scheme and to accept cash deposits, irrespective of amount, over the counters, for making payment under the Scheme through challan ITNS-286.

The relevant circular of RBI is available on the departmental website www.incometaxindia.gov.in

Income initially disclosed before SetCom couldn't be said to be concealed if additions were made due to TP provisions

CIT v. Income Tax Settlement Commission [2016] 65 taxmann.com 40 (Bombay High Court)

Where correct determination of income was dependent upon application of appropriate transfer pricing rule and, consequently, assessee made a revision in income initially disclosed before SetCom after considerable debate during the course of hearing, it could not be said that full and true disclosure of undisclosed income was not made in original application filed before SetCom.

Issue:

Whether income initially disclosed before SetCom could be said to be concealed if additions were made due to transfer pricing provisions?

The High Court held in favour of assessee as under-

• Normally, income offered for tax in an application made before settlement commission binds the parties concerned and any revision thereof, would prima facie, is deemed as evidence of the fact that full and true disclosure of undisclosed income was not made in original application. However, this is not cast in stone and depends upon the factual context of each case.
• In the instant case, the correct determination of income was dependent upon the application of the appropriate transfer pricing rule which to an extent is subjective and, consequently, additional income was declared by assessee after a considerable debate over the transfer pricing provisions during the course of hearing before SetCom.
• Therefore, assessee found to be made a bonafide disclosure in original application and it could not be said that income was not truly and fully disclosed by assessee

Penalty levied on company as its directors tried to evade service tax with help of internal auditors

ITL Tours & Travels (P.) Ltd. v. Commissioner of Service Tax, Mumbai [2016] 65 taxmann.com 25 (Mumbai - CESTAT) 

Where internal auditor of company perpetrated fraud by booking 'service tax due' as 'income'/'commission' in books of account and it was found that directors of company were aware thereof, company was liable to evasion penalty for consequent non-payment of service tax 

FACTS 

• Assessee was engaged in the activity of issuing Air Tickets for Domestic as well as International routes to its customers. It discharged Service Tax liability based on the basic fare charged by the Airlines.
• Department noticed that assessee had failed to discharge the Service Tax at appropriate rate and has also failed to file ST-3 returns correctly. It issued show-cause notice to assessee after invoking extended period and imposing interest and penalties.
• Assessee argued that its Consultant and internal auditor Shri P.K. Agarwal mis-guided and cheated it while discharging the Service Tax liability. Therefore, waiver of penalty was sought before CESTAT. 

CESTAT HELD IN FAVOUR OF REVENUE AS UNDER : 

• It is undisputed that the assessee has discharged the Service Tax liability and interest thereof on being pointed out. But their consultant submitted that it was duly informed to the management or the Managing Partner about the liability towards Service Tax and said amount was transferred to Commission Account because otherwise company's profit would be in minus.
• He also submitted before department that it was done with the consent of the management and I had not personally effected any changes. Therefore, as per given circumstances and facts of the case, penalty has to be levied on company.

Sale of 100% shareholding in subsidiary company could not be treated as 'Slump Sale'

Facts

• The assessee-company sold its entire shareholding in its subsidiary comapany 'UHEL' to a third party.
• Assessee worked out capital gains under section 48 on such transaction.
• The Assessing Officer(‘AO’) opined that the said transaction would amount to slump sale of an undertaking and capital gains had to be computed under section 50B.
• The Commissioner (Appeals) upheld the order of Assessing Officer.
• Aggrieved-assessee filed the instant appeal before the Tribunal.

Held

• As per section 2(42C),transfer of shares will not result into transfer of undertaking making it a slump sale for section 50B.
• If impugned transaction would be regarded as slump sale, the consideration should have been received by UHEL, and not by the assessee because it was UHEL which had been transferred and being a distinct legal entity it was entitled for the sale consideration on its transfer. However, this was not the case since the sales consideration was received by assessee on transfer of shares of UHEL.
• What the assessee had transferred was the shares in UHEL and this transfer of shares could not be considered as slump sale of an undertaking within the provisions of section 2(42C).

[2016] 65 taxmann.com 161 (Mumbai - Tribunal)

Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)

Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)

Following are the answers to the various frequently asked questions relating to GST:

Question 1.What is GST? How does it work?

Answer: GST is one indirect tax for the whole nation, which will make India one unified common market.

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Question 2. What are the benefits of GST?

Answer: The benefits of GST can be summarized as under:

• For business and industry
• Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.
• Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.
• Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
• Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
• Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

• For Central and State Governments
• Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
• Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
• Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

• For the consumer
• Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
• Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.

Question 3. Which taxes at the Centre and State level are being subsumed into GST?

Answer:

At the Central level, the following taxes are being subsumed:

• Central Excise Duty,
• Additional Excise Duty,
• Service Tax,
• Additional Customs Duty commonly known as Countervailing Duty, and
• Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

• Subsuming of State Value Added Tax/Sales Tax,
• Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
• Octroi and Entry tax,
• Purchase Tax,
• Luxury tax, and
• Taxes on lottery, betting and gambling.

Question 4. What are the major chronological events that have led to the introduction of GST?

Answer: GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:

• In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
• A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
• Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
• Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.
• In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted in September, 2009.
• In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
• Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.
• This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January, 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.
• The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-
(a) Committee on Place of Supply Rules and Revenue Neutral Rates;


(b) Committee on dual control, threshold and exemptions;


(c) Committee on IGST and GST on imports.


• The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
• The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration in September 2013.
• The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March, 2014.
• The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
• In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
• Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.

Question 5.How would GST be administered in India?

Answer: Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

Question 6. How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

Answer : The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.

A diagrammatic representation of the working of the Dual GST model within a State is shown in Figure 1 below.

Figure 1: GST within State

Question 7. Will cross utilization of credits between goods and services be allowed under GST regime?

Answer: Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

Question 8. How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

Answer: In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

A diagrammatic representation of the working of the IGST model for inter-State transactions is shown in Figure 2 below.

Figure 2

Question 9. How will IT be used for the implementation of GST?

Answer: For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.

GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.

There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto-generated, and there would be no need for manual interventions. Most returns would be self-assessed.

Question 10. How will imports be taxed under GST?

Answer: The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.

Question 11. What are the major features of the Constitution (122nd Amendment) Bill, 2014?

Answer: The salient features of the Bill are as follows:

• Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
• Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
• Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
• Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
• Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
• GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
• Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
• Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

Question 12. What are the major features of the proposed registration procedures under GST?

Answer: The major features of the proposed registration procedures under GST are as follows:

• Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
• New dealers: Single application to be filed online for registration under GST.
• The registration number will be PAN based and will serve the purpose for Centre and State.
• Unified application to both tax authorities.
• Each dealer to be given unique ID GSTIN.
• Deemed approval within three days.
• Post registration verification in risk based cases only.

Question 13. What are the major features of the proposed returns filing procedures under GST?

Answer: The major features of the proposed returns filing procedures under GST are as follows:

• Common return would serve the purpose of both Centre and State Government.
• There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
• Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
• Filing of returns shall be completely online. All taxes can also be paid online.

Question 14. What are the major features of the proposed payment procedures under GST?

Answer: The major features of the proposed payments procedures under GST are as follows:

• Electronic payment process- no generation of paper at any stage
• Single point interface for challan generation- GSTN
• Ease of payment – payment can be made through online banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
• Common challan form with auto-population features
• Use of single challan and single payment instrument
• Common set of authorized banks
• Common Accounting Codes