Tax Scout NL Jan-March 2019 new - Cyril Amarchand Mangaldas · • Supply of technical designs and...

FOREWORDWe are delighted to present to you, the latest issue of the Tax Scout, our quarterly update on recent developments in the eld of direct and indirect tax laws for the quarter ending March 2019.

In this issue, we have analysed some of the important rulings by the Indian judiciary and certain key changes brought about by way of circulars and notications in the direct and indirect tax regimes during the March quarter.

We have bifurcated our case law updates into broader themes relating to such updates, for ease of reference and simplicity. The direct tax case law updates have been bifurcated into three sections; namely international tax, transactional advisory, and miscellaneous, while indirect tax case laws have been bifurcated into; specic rulings by AAR and other judicial pronouncements.

We hope you nd the newsletter informative and insightful. Please do send us your comments and feedback at [email protected].

Regards,

Cyril Shroff

Managing Partner

Cyril Amarchand Mangaldas

Email: [email protected]

TAX SCOUTA quarterly update on recent developments in Taxation Law

JANUARY 2019 - MARCH 2019

© 2019 Cyril Amarchand Mangaldas

Tax Scout | JAN - MAR, 2019


INDEX

02

Case Law Updates - Direct Tax

Case Law Updates - International Tax

• Delhi HC upholds existence of permanent establishment for 24 GE group entities based on the activities of Liaison ofce ...............................................................................................................................................................................04

• Supply of technical designs and drawings does not amount to 'making available' technical knowledge .......................09

• Agency commission earned outside India not taxable in absence of territorial nexus....................................................11

Case Law Updates - Transactional Advisory

• Waiver of loan not taxable if allowance or deduction was not claimed...........................................................................14

• ITAT rejects DCF valuation adopted by the taxpayer .....................................................................................................16

• HC upholds slump sale despite segregated valuation of individual assets ....................................................................18

• Transfer of subsidiary's shares not slump-sale ..............................................................................................................20

Case Law Updates - Miscellaneous

• Mumbai ITAT allows setting of capital losses against long term capital gains, dismissing colorable device allegations of the IRA............................................................................................................................................................................23

• Claricatory amendments should be made applicable retrospectively, despite the language used by the legislature...26

• AO cannot impose a pre-condition to deposit 20% of the disputed demand without considering stay application on merits..............................................................................................................................................................................29

• SC upholds receipt of grant-in-aid as capital receipt not taxable under IT Act ...............................................................31

Featured Article

• Tax recovery proceedings vis-à-vis secured creditors....................................................................................................34

Case Law Updates - Indirect Tax

AAR Rulings

• Shifting of existing utilities including installation of new goods is works contract service...............................................39

Other judicial pronouncements

• Ancillary services provided in connection with transmission and distribution of electricity are exempt..........................42

• Section 174 of the Kerala GST Act, 2017 is constitutionally vires ..................................................................................45

• Pre-import condition on inputs imported under Advance Authorization scheme is ultra vires the FTP ..........................47

• No actual user condition or restriction on variety can be imposed on import of inputs under DFIA license ...................50

• Increase of price over and above the denied ITC amounts to proteering.....................................................................52

Regulatory Updates - Direct Tax

• CBDT extends due date for ling of CbC reports of constituent entities having USA parent entities .............................57

• DPIIT modies the angel tax exemption regime.............................................................................................................57

Regulatory Updates - Indirect Tax

• Creation of the National Bench of the GST Appellate Tribunal (GSTAT) at New Delhi ..................................................60

• Extension of exemption on levy of IGST and Compensation Cess on goods imported under Advance Authorisation, EPCG scheme and Export Oriented Unit (“EOU”) schemes, up to March 31, 2020 ......................................................60

• CBIC imposed new conditions on exemption of IGST on imports of goods after discharge of full export obligation under advance authorization and advance authorization for annual requirement..........................................................60

• CBIC imposed condition on treating supply of goods as deemed export by a registered person against Advance Authorization...................................................................................................................................................................60

• Increase in threshold limit for availing composition levy scheme ...................................................................................60

• Increase in threshold for registration under GST legislations.........................................................................................60

• New composition scheme for supplier of both goods and/or services............................................................................61

• Clarication regarding rate of GST applicable on supply of food and beverage services by an educational institution .....................................................................................................................................................61

• DGFT inserted Import policy for electronics and IT Goods ............................................................................................61

• DGFT claries that capital goods cannot be imported under the EPCG scheme for distribution of electricity ...............61

• DGFT has imposed new conditions on clubbing of authorisations.................................................................................61

• Trust can set up SEZ......................................................................................................................................................61



CASE LAW UPDATES

- DIRECT TAX

- INTERNATIONAL TAX

CASE LAW UPDATES

03



DELHI HC UPHOLDS EXISTENCE OF PERMANENT

ESTABLISHMENT FOR 24 GE GROUP ENTITIES BASED

04

ON THE ACTIVITIES OF LIAISON OFFICE

1In the case of GE Energy Parts, the Delhi HC has

upheld constitution of xed place PE and dependent

agent PE (“DAPE”) of 24 entities belonging to the

General Electronic Group. The HC concluded that the

aforesaid PEs were constituted as a result of the

activities carried on at the Liaison Ofce (“LO”) of one

of the group entities in India.

FACTS

The General Electronics (“GE”)

group is engaged in offshore sale of

its products on a principal to principal

basis, to customers across the

globe, including in India, whereby the

title to the goods sold to Indian

customers is generally passed from

outside India. Following are some of

the representative entities belonging

to the GE group, which have been

considered relevant to the factual matrix of the dispute

before the Delhi HC:

I. General Electronic Energy Parts Inc. (“GEP”) -

tax-resident in USA, and engaged in the

manufacture and offshore sale of highly

sophisticated equipment such as gas turbine

parts and sub-assemblies.

ii. General Electronic International Operations

Company Inc. (“GEIOC”) - tax-resident in USA

and had set up an LO in India in 1991 with the

object ive of the LO acting as a mere

communication channel, forbidden from

undertaking any business activity.

iii. General Electronic India Industrial Pvt. Ltd.

(“GEIIPL”) - tax-resident in India and party to the

Global Services Agreement (“GSA”) with

GEIOC for providing limited market support

services to GE group companies. GEIIPL was to

be remunerated on a cost-plus basis as per the

GSA.

iv. General Electronic International Incorporation

(“GEII”) - tax-resident in USA and deals with the

payroll responsibility for the expatriates who

work in India to support the businesses of the

GE group.

On March 2 , 2007 , t he IRA

conducted a survey on the premises

of the LO of GEIOC under Section

133A of the IT Act. The ndings of the

survey revealed that the LO was

operational from July 1, 1987 to

under take l i a i son ac t i v i t i es .

However, it was alleged that the LO

was also carrying out commercial

and trading activit ies and the

premises of the LO was used by several GE entities

incorporated in India and abroad for conducting their

operations.

Thereafter, the AO framed assessment against 24

entities of GE (“Assessee Companies”) and

concluded that marketing and sales activities took

place in India, predominantly from the premises of the

LO. Expatriates from GEII along with the employees of

the group entities constituting the India team

(collectively referred to as “GE India”) were always

involved and participated in the negotiation of prices

with customers in India. Accordingly, the AO

concluded that GEP constitutes a xed place PE and

Dependent Agent PE (“DAPE”) in India, as per the

provisions of India-USA DTAA. The AO deemed 10%

value of supplies made to Indian customers as prots

arising from such supplies and 35% of such prot was

“”

GE Group of companies had Fixed Place PEs as well as DAPEs

in India. Merely because the documents were signed in the US,

it will not lead to the conclusion that they did not have a

PE in India.

1 GE Energy Parts Inc. & others v. CIT, [2019] 101 taxmann.com 142 (Delhi).


© 2019 Cyril Amarchand Mangaldas05

attributed to the PE in India. The order of the AO was

later upheld by the CIT(A).

The Assessee Companies led an appeal before the

ITAT. However, the ITAT dismissed the appeal based

on the following reasons:

I. The premises of the LO was permanently used

by the expatriates from GEII as well as by

employees who were under direct control and

supervision of such expatriates.

ii. The job descriptions and appraisal reports

indicated that the expatriates were either India

Country Heads or working at senior positions

and managing the business in India, including

securing of orders and engaging in negotiations.

iii. Part of the sales function was carried out in India

through expatriates which was not preparatory

and auxiliary in nature, therefore, the ofce

space occupied by such expatriates along with

the employees of GE India constituted a xed

place PE.

iv. Having considered the nature of activities

undertaken by GE India and establishing that

GE India also had authority to conclude

contracts on behalf of GE group entities, the

ITAT also held that GE India constituted DAPE

of the Assessee Companies in India.

v. Lastly, the ITAT reduced the prot attribution to

26% of the total prot (on 10% of sales) in India

from the 35% made by the AO.

Thereafter, the Assessee Companies led an appeal

before the Delhi HC.

ISSUES

Before the Delhi HC, there were three primary issues

to be decided:

I. Whether the Assessee Companies have a xed

place PE in India?

ii. Whether the Assessee Companies have a

DAPE in India?

iii. Whether prot attribution of 26% is justied?

ARGUMENTS

First, the Assessee Companies argued that a foreign

enterprise cannot be alleged to have a xed place of

business in India if the activities carried on by the

foreign enterprise are preparatory and auxiliary in

nature. Further, as per the ratio of the SC in the case of 2

Formula One, to conclude that a foreign entity has a

xed place PE in India, disposal test as well as

business function test shall have to be cumulatively

satised. Since, the LO was only performing activities

that are preparatory and auxiliary in nature, it not only

falls in the exception to xed place PE clause under

India-USA DTAA but also does not clear the business

function test laid down by the SC in the Formula One

case.

Second, the Assessee Companies argued that while

the LO did engage in negotiations of contracts, they

did not play any role in nalization or conclusion of the

contracts. In this regard, the Assessee Companies

relied on the OECD Commentary on Model Tax

Convention (“OECD Commentary”), especially on

Paragraph 33 of Article 5, which provides that mere

participation in negotiation does not result in either a

xed place PE or DAPE. The same position has also

been articulated in Para 24 of the UN Model Tax

Convention on Article 5. The Assessee companies

also relied upon principles of Indian Contract law to

state that negotiation and conclusion of contract are

two different concepts and since the LO is only

negotiating contracts, it does not form a PE in India. In

arguendo, the Assessee Companies also argued that

where the activities of the LO are only preparatory and

auxiliary in nature then even authority to conclude

contracts also does not form a DAPE in India.

Third, the IRA had alleged that the entities of GE India

rendered services to more than 24 entities belonging

to the GE group and, therefore, are dependent agents

of such entities. The Assessee Companies also

pointed out that the argument of the IRA is self-

defeating. Also observing that apart from rendering

services to these 24 entities, GEIIPL itself had 12

business divisions, it was argued that it cannot be

contended that GEIIPL was dependent on any of the

24 entities of the GE group.

2 Formula One World Championship v. CIT, (2017) 394 ITR 80 (SC).



The Assessee Companies also relied on the TPO

orders and contended that they established that the

activities of GEIIPL never exceeded the GSA. For the

services rendered by GEIIPL under the GSA, it was

already remunerated at Arm's Length Price (“ALP”)

and hence, no further attribution is required to be

made. The Assessee Companies also relied upon the 3

rulings in the case of E-funds IT Solutions, and 4

Honda Motor Company Ltd.

Notwithstanding the above, it was also argued that the

attribution as high as 26% is unjustied, given the fact

that all the R&D, design, fabrication and manufacture

of equipment as well as the passing of title over the

goods occurred outside India. Relying on the rulings in 5 the case of Galileo International Inc., and Anglo-

6French Textile Company Ltd., the Assessee

Companies contended that at best 10-15% of the

overall prots could have been attributed to the PE in

India.

On the other hand, the IRA contended that business

connection has been established on account of the

fact that the sales were made to Indian customers on a

regular basis and there were several GE entities who

were physically present in India and played a

signicant role in sales made to customers in India. It

was also argued that since the Assessee Companies

did not appeal against the taxability under the IT Act.

Further, the IRA contended that the activities carried

out by the LO were not preparatory and auxiliary in

nature. The activities carried out by the expatriate

employees were also related to marketing and sales,

which constituted core business activity. The IRA also

relied on Para 26 of the OECD Commentary on Article

5 and afrmed that the services rendered by the LO

are not preparatory and auxiliary in nature.

The IRA also contended that the expatriates of the

overseas GE entities, functioning from the LO, were

performing core business activities. These expatriates

were not just engaging in mere negotiations, but in

many more activities such as price adjustments etc.

and only the formal approval was given by the

overseas GE entities. Thus, signicant part of the

negotiation took place in India and hence, it can be

presumed that the overseas GE entities had

established DAPEs in India. In contending so, the IRA

relied on the judgements in the case of Brown and 7 8Sharpe Inc., and Rolls Royce Plc.

DECISION

On presence of xed place PE

l Relying on the decision of National Petroleum 9Construction Company, the HC decided that

activities that are remote from the actual

realization of prots are typically considered as

preparatory and auxiliary. Accordingly, basis the

substantive documentation collated during the

course of survey and assessment proceedings

and further relying upon the ruling of the

Karna taka HC in the case o f Jebon 10

Corporation, the HC held the activities

undertaken by GE India cannot be considered

as preparatory and auxiliary.

l The HC dismissed the contention of the

Assessee Companies that the business

activities in India must include the authority to

conclude contracts for such activities to not be

auxiliary or preparatory in nature. It was

observed by the HC that Article 5(3) of the India-

USA DTAA makes no mention of the authority to

conclude contracts which is explicitly used in

Article 5(4)(a) of the India-USA DTAA. Article

5(3) contains exceptions to the general rule of

Article 5(1) and lists a number of activities which

may be carried on through a xed place PE but

which, nevertheless, will not result in the

establishment of a PE while Article 5(4) species

when the use of an agent will constitute a PE.

Accordingly, the HC held that reading the

conditions under Article 5(3) and Article 5(4) as

equivalent would erode a key distinction

between a xed place PE and an agency PE.

l The HC also interpreted the term “through

which” as it appears in Article 5.1 of the India-

USA DTAA. As per the said Article, PE means a

3 DIT v. E-funds IT Solutions Inc., (2014) 399 ITR 34 (SC).4 Honda Motor Company Ltd. v. CIT, 2018 (6) SCC 70.5 DIT v. Galileo International Inc., (2011) 336 ITR 264 (Del).6 Anglo-French Textile Company Ltd. v. CIT, (1954) 25 ITR 27 (SC).7 Brown & Sharpe Inc. v. CIT, (2014) 369 ITR 704 (All).8 Rolls Royce Plc. v. DIT, (2011) 339 ITR 147 (Del).9 NPCC v. DIT, (2016) 383 ITR 648 (Del).10 Jebon Corporation India v. CIT, (2012) 2016 Taxmann 7 (Kar).

06



xed place of business through which the

business of the enterprise is carried on wholly or

partly. According to the HC, the term through

which had to be given a wider interpretation to

state that when a business is carried out in a

particular location which is at the disposal of the

enterprise, it would be sufcient to consider the

“through which” threshold as met.

On presence of DAPE

l On the aspect of agency PE, the HC dismissed

the reliance placed by the Assessee Companies

on Paragraph 33 of the OECD Commentary.

The IRA had already intimated during their

submissions that India had already expressed

her reservation regarding Paragraph 33 of the

OECD commentary. The position of India is that

even attending or participating in negotiations

with a client can be interpreted as authority to

conclude contracts. Further, in this regard, the

HC also observed that Paragraph 32.1 of the

OECD Commentary runs contrary to Paragraph

33, which states that lack of active involvement

of the non-resident enterprise may be indicative

of the grant of authority to the agent to conclude

contracts. Given the above contradictions, the

OECD Commentary cannot be relied on wholly

to conclude that mere part icipation in

negotiation does not lead to either a xed place

PE or a DAPE.

l The HC also placed reliance on an Italian court 11

rul ing wherein i t was held that mere

participation of employees of foreign entity in a

phase of conclusion of contract may fall within

the concept of authority to conclude contracts in

the name of foreign company even in the

absence of a formal power of representation.

Accordingly, the activities of the taxpayer in

India would constitute activities that would

establish a DAPE in India.

l Applying the above principles in the facts of the

case, the HC observed that the Assessee

Companies had organized their affairs with an

intent to minimize tax incidence in India.

Technical ofcials having varying degree of

authority had involved themselves, along with

local managerial and technical employees, in

(1) contract negotiation; (2) modication of

technical specications; and (3) negotiations for

it to fulll local needs, local regulatory

requirements etc. The intricate nature of

activities which the Assessee Companies had

carefully designed clearly shows that the

Assessee Companies carried out these

activities through PE in India. These activities

also intersected with the principles of DAPE,

which was evident by virtue of the fact that GE

India worked solely for the overseas companies,

to support them in their core activities. Basis the

above, HC held that the taxpayer also

constituted DAPE in India.

Attribution of prots

l The HC relying on the decisions in the case of 12

Galileo International Inc., and Hukum 13

Chand, upheld the attribution of 10% of

income from sales to India. With respect to

attribution of prots, the HC upheld 35%

attribution stating that the same was done by the

ITAT. However, the ITAT had determined an

attribution of 26% as against 35%, and the same

appears to be a mistake on record by the HC.

SIGNIFICANT TAKEAWAYS

The debate on the presence of an LO constituting a PE

is a recurring one. There have been several decisions

by the Courts over a period of time and there are still

pending disputes with the judicial authorities at all

levels including the SC on this issue. While the

judgement in each case would depend on the

activities carried on by the LO, the Delhi HC has made

some important observations in this case that might be

relevant to the entire debate.

On the limited point of India's reservation on Article 33

of the OECD Commentary, it may be pertinent to note

that in 2013 the ITAT Kolkata bench, in the case of 14

Right Florist, had taken an approach contrary to that

of the HC in this case. The ITAT had interpreted the

11 Ministry of Finance (Tax Ofce) v. Philip Morris (GmBH), Corte Suprema di Cassazione No.7682/02 of May 25 2002.12 Galileo International Inc. v. DCIT, (2008) 19 SOT 257 (Del-Trib.).13 Hukum Chand v. Union of India, (1976) 103 ITR 548 (SC).14 ITO v. Rights Florist Pvt. Ltd., (2013) 32 taxmann.com 99 (Kolkata-Trib.).

07



reservations in the OECD Commentary as having no

relevance in any form of judicial analysis and as not

constituting any actionable element. They only

reserve a right to set out the circumstances in which an

entity can be treated as a PE. While, as of today,

India's reservation to Paragraph 33 of OECD

Commentary may have materialized through the

amendment made to the denition of 'business

connection' under IT Act, the observation of the

Kolkata ITAT on the binding value of reservations to

the OECD commentary could still be of relevance to

the Courts in India.

Further, the Delhi HC also held that activities listed

under Article 5(3) are only an exception to the general

rule under Article 5(1) in relation to xed place PE.

According to the HC, Article 5(3) cannot be an

exception for the purposes of Article 5(4)(a) of the

DTAA, dealing with DAPE, as that would erode the

difference between xed place PE and DAPE. In doing

so, the HC ignored the language of Article 5(4)(a) of

the India-USA DTAA, which states that a non-resident

enterprise would form a DAPE in other contracting

state, if it has an agent in India (not of independent

nature) who habitually exercises an authority to

conclude contracts on behalf of the non-resident

enterprise in the other contracting state “unless his

(agent's) activities are limited to those mentioned

paragraph 3”. The aforesaid phrase clearly provides

for reading of exceptions under Article 5(3) into Article

5(4)(a). However, no consideration has been given by

the HC to the aforesaid language, while concluding

that exceptions of Article 5(3) cannot be read into

5(4)(a).

That said, the ruling of the HC in this case is a signal to

the MNCs on the movement of the judicial authorities

in India, from form to substance based approach. This

is highlighted at the point when the HC alleged that the

GE group companies had structured their sales in

India through the LO in a manner to reduce their tax

liabilities. Several MNCs, for the ease of carrying out

their business in India, function through an LO.

However, given the conservative approach taken by

the Delhi HC, an increased monitoring of the activities

of the LO would be required to avoid exposure to PE

implications.

08



SUPPLY OF TECHNICAL DESIGNS AND DRAWINGS

DOES NOT AMOUNT TO 'MAKING AVAILABLE'

TECHNICAL KNOWLEDGE

15 Buro Happold Limited v. DCIT, (2019) 103 taxmann.com 344 (Mum-Trib.).

09

15In the case of Buro Happold Ltd., the Mumbai ITAT

held that no technical knowledge / experience / skill /

knowhow had been 'made available' through

development and supply of technical drawings /

designs / plans so as to attract taxation of the income

gained from such supply under Article 13 of the India-

UK DTAA as FTS.

FACTS

Buro Happold Ltd. (“Assessee”), a resident of UK,

was engaged in the business of providing engineering

design and consultancy services. During the

assessment year in question, the Assessee had

received over INR 2.1 crores from Buro Happold

Eng ineers Ind ia Pv t . L td .

(“BHEI”) for providing consulting

eng ineer ing serv ices and

towards cost reimbursement

towards head ofce expenses.

The AO sought to tax such

payments made to the Assessee

under section 9 of the IT Act read

with Article 13(4) of the India-UK DTAA. The Assessee

submitted that it had not 'made available' any technical

knowledge, skill, etc., and accordingly, the income

cannot be taxed as FTS under Article 13 of the India-

UK DTAA. Further, it was submitted that since the

reimbursement towards head ofce expenses was

done on an actual cost basis without any prot, the

same would not be taxable under the IT Act. The AO

rejected the submission of the Assessee on the

premise that for income to fall under Article 13(4)(c) of

the India-UK DTAA, the payee must have either:

I. made technical knowledge, etc., available; or

ii. must have transferred a technical plan or

technical design.

The case of the AO was that the words “make

available” do not qualify for the second limb of Article

13(4)(c), and consequently a mere transfer of

technical plan for the payment can also be taxed as

FTS. Fur ther, the AO considered that the

reimbursement of expenses related to and was

ancillary to the consulting engineering services and

was, therefore, taxable as FTS. The Assessee's

appeal before the CIT(A) was unsuccessful.

Aggrieved by the order of the CIT(A), the Assessee,

moved the ITAT.

ISSUES

Whether the transfer of technical design / plan must

also 'make available' technical knowledge, skill, etc.,

under Article 13(4)(c) of the India-UK DTAA, and if so,

whether the Assessee had

made any technical knowledge,

skill, etc., available to BHEI?

ARGUMENTS

The Assessee argued that the

words “consists of the development and transfer of

technical plan or technical design” in Article 13(4)(c)

must be read conjunctively with the rst limb of the

prov is ion , i .e . , “make ava i lab le techn ica l

knowledge…” Accordingly, it was contended that

unless the development and transfer of a technical

plan made available technical knowledge, skill, etc.,

the amount received in consideration for such

development and transfer cannot be treated as FTS.

Since the technical services rendered by the

Assessee were project specic, incapable of being

used in a subsequent project, the Assessee had not

made available any technical knowledge.

With respect to the cost reimbursements, the

Assessee submitted that even if the amounts were

treated as taxable, they must be treated as business

“”

Mere transfer of technical planor design should not be construed

as “making available technicalknowledge.



16 Gera Developments Pvt. Ltd v. DCIT, (2016) 160 ITD 439 (Pune-Trib.).17 Sargent & Lundy LLC v. DIT, 145 ITD 85 (Mum-Trib.).

10

prot that was not taxable in India in the absence of a

permanent establishment.

The IRA on the other hand, in addition to supplying its

interpretation of Article 13(4)(c) of the India-UK DTAA,

also contended that the Assessee had not by itself

executed BHEI's project but had provided technical

design to enable BHEI to apply and re-apply the

technology. Under the agreement between the

Assessee and BHEI, there was no bar against BHEI's

future usage of the technical knowledge. Relying upon

the ndings of the CIT(A), the IRA argued that an

entire expert team of the Assessee had arrived from

London for a month to assist in the execution of every

project through discussion, guidance and instructions.

Therefore, such overseeing of implementation of the

projects amounted to 'making available' technical

services.

DECISION

The ITAT engaged in a 'careful reading' of Article

13(4)(c) of the India-UK DTAA and concluded that the

second limb of the sentence must be read in

conjunction with the rst limb, as per the principle of

ejusdem generis for interpretation of statutes. The

ITAT noted that technical knowledge is said to have

been 'made available' if the recipient of the technology

is competent and authorized to apply the technology

independently without the assistance of the service

provider, for his own benet, even after the rendering

of services by the provider has come to an end.

However, as the plans and designs supplied by the

Assessee to BHEI were found to be project specic,

and unt for use in any future project, the ITAT held in

favour of the Assessee that the Assessee had not

'made available' any technical knowledge, skill, etc.

Further relying upon the order of the ITAT Pune bench 16in Gera Developments Pvt. Ltd., the ITAT held that

mere passing off project specic drawings and

designs did not amount to 'making available' technical

knowledge, skill, etc.

With respect to the cost reimbursement, the ITAT held

that it will also not be taxable, given that the IRA had

treated such costs as ancillary and incidental to the

consulting engineering services, which were held to

be not taxable.


The 'make available' clause incorporated in several

Indian tax treaties, viz., the US, Canada and the UK

DTAAs inter alia, is targeted towards taxation of

provision of only those services that enable the

recipient to apply the technology in the future in its own

right without recourse to the service provider, i.e.,

where the recipient acquires some continuing

enduring benet after the completion of provision of

services by the service provider.

In the current multinational corporate setup, it is

commonplace for group entities to share technical

knowledge and know-how, often in the form of transfer

of plans or designs intended to assist in the

implementation of a group project. This judgment

reinforces that the consideration for such services, if

made for the purpose of specic projects, and in such

a way that the knowledge cannot be reused for other

future projects, would not be brought to tax as FTS in

India where the applicable DTAA envisages a

restrictive scope of taxation of FTS on source basis,

based on the concept of 'make available'. The ITAT

Mumbai Bench had earlier held similarly in context of

transfer of blueprints in the case of Sargent & Lundy 17

LLC. However, the ITAT Pune Bench, while dealing

with architectural drawings, in Gera Developments

distinguished Sargent based on facts. Evidently, the

jurisprudence on this issue is contrasting and any

reliance on the Buro Happold decision must be

measured based on the facts of each case. Further,

one could contend that the reliance of the ITAT in Buro

Happold on Gera Developments may be misplaced,

since the Pune bench in Gera Developments had

ruled that architectural drawings did not amount to

provision or supply of any technical knowledge in the

rst place, and not that the transferor had not 'made

available' such technical expertise to the service

recipient. Thus, any structuring around the taxation of

FTS, would need to be undertaken after careful

analysis of relevant precedents and facts of each

case. In this regard, one would also need to be mindful

of the changing landscape of international taxation in

light of the impact of the MLI on the existing network of

bilateral tax treaties and GAAR.



AGENCY COMMISSION EARNED OUTSIDE INDIA NOT

TAXABLE IN ABSENCE OF TERRITORIAL NEXUS

18 Fox International Channel Asia Pacic ltd. v. DCIT, (2019) 103 taxmann.com 1 (Mum-Trib.).

11

In the case of Fox International Channel Asia 18

Pacic Ltd., the ITAT Mumbai bench held that only

the amount of income reasonably attributable to

operations carried out in India or having a territorial

nexus would be deemed to accrue or arise in India.

FACTS

Fox Internat ional Channel Asia Pacic Ltd

(“Assessee”) is a tax resident in Hong Kong, which

was engaged in the business of distribution of satellite

TV channels and sale of advertisement air time for

channel companies at global level. As per the ndings

of the TPO, the Assessee was not a channel owner but

a service provider to group companies owning TV

channels. Thus, the Assessee acts as an agent to sell

advertisement air time on the channels, to distribute

the channels in the territories where the channels are

being broadcast and to procure

syndication revenue in respect of the

contents of the channels.

For the relevant AY 2010-11, the

Assessee had earned income in the

nature of agency commission,

management fees and other income

in the nature of royalty. Since the Assessee is a non-

resident, it did not maintain India specic nancial

statements. For the relevant AY, the Assessee

declared an income of INR 229 crores as taxable in

India, basis its audited global nancial statements.

Considering that the Assessee had earned revenue

from international transactions with AEs, the AO

referred the matter to TPO for determining the Arm's

Length Price (“ALP”) of the international transactions.

The TPO accepted that the Prot Split Method

(“PSM”) adopted by the Assessee to determine the

ALP was the most appropriate method. However, the

TPO observed that the Assessee had determined ALP

prot at INR 252 crores under PSM, while the income

offered to tax in India was INR 229 crores which gave

rise to a differential amount of INR 23 crores which

was treated as adjustment to ALP and the same was

proposed in the draft assessment order passed by the

AO.

The Assessee led its objections before the DRP

stating that the differential amount was on account of

the agency commission fee received towards services

rendered outside India and which was received

outside. Therefore, such amounts were not

chargeable to tax in India. Further, the Assessee also

submitted that agency commission is not an income

chargeable to tax under the provisions of the Act, and it

cannot be considered as an international transaction

under Section 92B(1) of the IT Act. Therefore, the TPO

lacked jurisdiction to take cognizance of such

transactions and carry out adjustment. However, the

DRP upheld the adjustment made by the TPO for the

reason that the Assessee had itself admitted that prot

attributable to India is INR 252

crores and hence, the TPO was

correct in making the said

adjustment. The DRP also

o b s e r v e d t h a t u n d e r t h e

Explanation to Section 9(2) of the

IT Act, income of a non-resident

shall be deemed to accrue or arise in India whether or

not the non-resident has a residence or place of

business or business connection in India or has

rendered services in India. The Assessee led an

appeal against the order before the ITAT.

ISSUE

Whether the agency commission earned by the

Assesse was subject to tax in India?

ARGUMENTS

Before the ITAT, the Assessee submitted that once the

TPO concluded that the margin calculated by the

“”

The income reasonablyattributable to the operations

carried out in India canonly be taxable in India.



Assessee was at arm's length, no further adjustment

was required on the basis of global income. Second,

the observation of the DRP that the Assessee had

admitted that the amount of INR 252 crores is prot

attributable to India was based on a wrong reading of

the Transfer Pricing report. Third, the IRA has not

disputed the fact that the agency commission of INR

24 crores was towards services rendered outside

India. Since such payment received was also outside

India and it cannot be brought to tax in India. Lastly, the

Assessee submitted that the authority of the TPO is

limited to determining ALP.

In response to this, the IRA argued that, rst, the TPO

had made adjustments only after considering

Assessee's own calculations and taking note of the

submissions of the Assessee. Second, the TPO is

empowered under the IT Act to look into all aspects for

determining the ALP of the international transactions.

Subsequently, the Assessee led a rejoinder to the

submissions of IRA stating that a co-ordinate bench of

the ITAT in Assessee's own matter had held that PSM

will apply to India sourced income only.

DECISION

The ITAT observed that the provisions of Explanation

1 to Section 9(1)(i) of the IT Act are clear that for non-

residents whose operations are not exclusively

carried out in India, there has to be a territorial nexus

for the income which is deemed to accrue or arise in

India. Further, the provision contained in the

Explanation to Section 9(2) of the IT Act is very clear

that it will not be applicable to agency commission

earned by the Assessee.


This judgment again lays emphasis on the principle

that a non-resident taxpayer would only be subject to

tax in India on income which accrues or arises or is

deemed to accrue or arise in India. Further, the

importance of a clear and unambiguous transfer

pricing report is also highlighted. Presenting a clear

picture before the IRA is an important step in mitigating

the litigation risk.



CASE LAW UPDATES

- DIRECT TAX

- TRANSACTIONAL ADVISORY

CASE LAW UPDATES

13



WAIVER OF LOAN NOT TAXABLE IF ALLOWANCE OR

DEDUCTION WAS NOT CLAIMED

19 CIT. v. M/s Compaq Electric Ltd., (2019) 101 taxmann.com 400 (SC).20 CIT v. Mahindra and Mahindra Ltd., (2018) 93 taxmann.com 32 (SC).

14

19 The SC in the case of M/s Compaq Electric Ltd.,

dismissed the SLP led by the IRA against the order of

the Karnataka HC, where it held that the waiver of

amount towards loan, in respect of which no deduction

was claimed by the taxpayer, was in the nature of

capital receipt and hence not taxable under section

41(1) of the IT Act.

FACTS

Compaq Electric Ltd. (“Assessee”) had obtained

certain loans from its parent company. Subsequently,

owing to the huge losses suffered by the Assessee,

the parent company agreed to convert certain portion

of the loan amount into equity and write off loans

amounting to approx. INR 2.6 crores. The AO held that

the amount of loans written off were in nature of a

trading liability as these loans were received during

the course of Assessee's business with its parent,

accordingly, such amount was

taxable under section 41(1) of the IT

Act. On appeal, the CIT(A) accepted

the Assessee's claim and held that

the amount representing waiver

constituted capital receipt, and

therefore, not liable to tax. This order

was then upheld by the ITAT.

Subsequently, the IRA moved the HC

where the court held that, the condition precedent for

the application of section 41(1) of the IT is that there

should be an allowance or deduction in the respect of

loss, expenditure or trading liability incurred by the

taxpayer. Since no deduction was claimed by the

Assessee the trigger for tax liability under section

41(1) tax did not arise. The IRA led a SLP before the

SC aggrieved by this order.

ISSUE

Whether the waiver of loan was taxable under section

41(1) of the IT Act?

ARGUMENTS

The IRA argued that the section 41(1) specically

provides for taxation of benet arising from the

remission or cessation of a trading liability, therefore,

the waiver of loan would constitute revenue receipt in

the hands of the Assessee. The Assessee on the other

hand, argued that unsecured loan was in nature of a

capital receipt and, therefore, not subject to tax under

section 41(1) of the IT Act.

DECISION

The SC held that the instant case was covered by its

earlier judgment in the case of Mahindra and 2 0

Mahindra , and acco rd ing l y

dismissed the SLP of the IRA. In the

said case, SC while dealing with a

similar facts and circumstances held

that the sine qua non for invoking

section 41 of the IT Act is that there

should have been an allowance or

deduction claimed by the taxpayer in

respect of the loan which was

waived. Further, the SC also pointed out that section

41 of the IT Act could only apply where there is a

cessation of a trading liability and not otherwise. Thus,

the SC concluded that unless the taxpayer had

claimed any deduction with respect to a loan and such

loan is in nature of a trading liability, waiver of loans

cannot be bought to tax under section 41(1) of the IT

Act.

“”

Where no deduction has beenclaimed with regards to a loan,the waiver of such loan would

not be subject to tax under section 41(1) of the IT Act.



21 JSW Steel Ltd. v. ACIT, (2017) 82 taxmann.com 210 (Mum-Trib.).

15


The taxability of a loan or advance waived/written off

had been a subject of discussions before various

courts and there had been contradictory views.

However, the SC judgment in the Mahindra and

Mahindra brought some clarity in this regard.

Interestingly, while the Mahindra and Mahindra

judgment claried the taxation of waiver of loans under

the normal provisions of the IT Act, the taxability of

such waivers under MAT provisions remains

ambiguous.

The Indian Accounting Standard stipulates that upon

waiver of a loan, the difference between the carrying

amount of the loan and the consideration actually paid

towards such waiver would be routed through prot

and loss account. Thus, such amount would form a

part of the book prots on which MAT is levied.

Interestingly, the Mumbai ITAT in the case of JSW 21

Steel Ltd., while dealing with the issue of whether

MAT is payable on waiver of loans, held that if the

waiver of a loan is regarded as a 'capital receipt' which

is not chargeable to tax at all under any heads of

income under the IT Act, then such waiver of loan

cannot be held to be taxable as 'book prot' under MAT

in terms of section 115JB.

It will be appreciated that this decision is also going to

assist a number of taxpayers who might have acquired

a number of assets or taxpayers who have gone

through an internal reorganization by writing back

certain amount of loans, especially under the recently

introduced Insolvency and Bankruptcy Code, 2016.



ITAT REJECTS DCF VALUATION ADOPTED BY

THE TAXPAYER

22 TUV Rheinland NIFE v. ITO, (ITA No. 3160/Bang/2018) (Bang-Trib.).23 Agro Portfolio Pvt. Ltd. v. ITO, (2018) 94 taxmann.com 112 (Del-Trib.).

16

22In the case of TUV Rheinland NIFE, the Bangalore

ITAT upheld the order of the AO, rejecting the

Discounted Cash Value (“DCF”) method of valuation

adopted by the taxpayer and accordingly upheld AO's

addition made under section 56(2)(viib) of the IT Act

on the basis of the Net Asset Value (“NAV”) method for

valuation of the FMV.

FACTS

TUV Rheinland NIFE Pvt. Ltd. (“Assessee”) had

issued shares to its parent company at a premium

relying on the DCF method to determine the FMV for

justifying the premium under section 56(2)(viib) of the

IT Act. The AO, upon examination of the valuation

report concluded that the report had solely relied on

the values provided by the management of the

Assessee, which were adopted to arrive at an FMV

that would justify the high premium. Subsequently, the

AO recomputed the FMV of the shares issued using

the NAV method and concluded that the high premium

charged by the Assessee was not justied.

Accordingly, the AO made additions under section

56(2)(viib) of the IT Act, as the value at which the

shares were issued exceeded the

FMV o f such shares . The

assessment was subsequently

upheld by the CIT(A). Aggrieved

by the said order the Assessee

approached the ITAT in appeal.

ISSUE

Whether the AO was justied in rejecting the DCF

valuation adopted by the Assessee for the purposes of

section 56(2)(viib) of the IT Act?

ARGUMENTS

The IRA argued that the estimates and projections

adopted by the Assessee for the purpose of computing

the FMV of shares in accordance with the DCF

method were without any basis and had been adopted

merely to justify the high premium charged by the

Assessee.

On the other hand, the Assessee argued that it is

vested with the statutory right to choose one of the two

methods prescribed for the purposes of section

56(2)(viib) and the authority of an AO was limited to

verifying the arithmetical accuracy of the method

selected by the Assessee. Further, the Assessee also

argued that the DCF method was based on future

projections which could not be predicted accurately,

therefore, adopting projections given by the

management could not be a ground for rejecting the

method of valuation.

DECISION

The ITAT while addressing the argument of the

Assessee, claried that the AO had not questioned the

right of the Assessee to choose the method of

valuation, however, after examining the projections,

he had merely questioned the basis of the

projections/numbers. The ITAT

noted that the estimates and

projections used by the Assessee

were a long distance from reality

and the Assessee, despi te

repeated requests, had failed to

substantiate the basis for such

estimates and projections. The

ITAT relied upon the case of Agro Portfolio Pvt. 23Ltd., where the ITAT held that in the event the tax

ofcer has any inhibition or doubt regarding the

valuation adopted by the taxpayer, he may make a

reference to the valuation ofcer to verify the

veracity/accuracy of such valuation. However, where

the taxpayer fails to substantiate the projection

adopted to determine the FMV under DCF method, it

may not be possible even for the department valuation

”“Even though the AO has to accept

the valuation methodology adopted by the taxpayers, he may still question

the basis on which the projections and estimates adopted.



ofcer to verify the correctness of such valuation.

Accordingly, the ITAT added that in such cases, the tax

ofcers may be forced to reject the DCF method, since

the same cannot be veried and adopt the NAV

method to determine the liability of the taxpayer under

section 56(2)(viib) of the IT Act.

Thus, following the judgement in the case of Agro

Portfolio, the ITAT in the present case upheld the

decision of the AO to adopt the NAV method, in

absence of any justications for the projections used

by the Assessee in determining FMV under DCF

method.


After introduction of these deeming provisions in the IT

Act, manner of valuation and the methodology used

for the same has been a matter of signicant debate

and dispute. While it has been broadly accepted by the

IRA as well as the Courts that the taxpayers have the

ability to identify the most appropriate methodology,

the IRA's ability to question the basis of such valuation

has also been upheld. Thus, if the AO is not satised

with the valuation report provided by the taxpayer, he

may make additions basis his own estimates, but he

would have to follow the same method which has been

chosen by the taxpayer for the purpose of such

valuation.

With increasing litigation on the taxability of the

method of valuation, it is important for the taxpayers to

ensure that not only they identify a proper

methodology, but also the manner of justifying the

value at which the investment was done. However, so

many cases being litigated regarding the basis of

valuation adopted by an entity does not augur too well

about the litigation environment in India. It will,

therefore, be advisable for the tax authorities to come

up with certain acceptable valuation criteria so that

such litigations can be avoided altogether.



HC UPHOLDS SLUMP SALE DESPITE SEGREGATED

VALUATION OF INDIVIDUAL ASSETS

24 PCIT v. Jindal Steel & Alloys Ltd., (ITA No. 1723/2016) (Bom).

18

24In the case of Jindal Steel & Alloys Ltd., the

Bombay HC held that the valuation of individual assets

and liabilities transferred to the buyer shall not be a

ground for rejection of characterisation of sale of a

division as a slump sale.

FACTS

During AY 2008-09, Jindal Steel & Alloys Ltd.

(“Assessee”) sold its CRM division to JSW Limited

(“Purchaser”) by way of slump sale. The valuation of

the CRM division by the independent valuer was on

the basis of segregated valuation of individual assets.

Basis this, the AO concluded that that the sale cannot

be treated as slump sale. The ITAT reversed the

assessment and found in favour of

the Assessee.

The re levant agreement was

executed between the parties on

June 11, 2007 and was registered on

September 04, 2007. Under the

agreement , the t ransfer was

effective from May 31, 2007. The unit had already

been in possession of the Purchaser, which was

operating the same by paying conducting charges of

INR 50 lacs per month to the Assessee. The Assessee

stopped crediting such amount from May 31, 2007

contending that the unit stood transferred from such

date to the Purchaser. However the AO took the date

of registration as the effective date on which the unit

stood transferred to the Purchaser. In appeal, the

CIT(A) gave partial relief holding that transfer was

effected on the date of receipt of payment for sale. The

ITAT gave full relief to the Assessee holding that the

unit stood transferred on May 31, 2007 since both

parties had interpreted the agreement in such manner.

Aggrieved by the order of the ITAT, the IRA preferred

an appeal before the HC.

ISSUES

I. Whether the valuation of individual assets and

liabilities for the Purchaser invalidates the

characterization of the transfer of assets and

liabilities as slump sale?

ii. What shall be the effective date of sale of unit –

date of transfer as per the agreement or the date

on which the agreement was registered?

ARGUMENTS

Before the ITAT, the IRA had contended that since the

valuation of the CRM division by the independent

valuer was on the basis of segregated valuation of

individual assets, the sale under

consideration could not be treated as

s lump sale. Fur ther, the IRA

contended that the effective date of

transfer should be the date on which

the agreement was registered.

DECISION

The HC agreed with the ITAT's views on whether the

transaction constituted a slump sale. The ITAT had

allowed the appeal of the Assessee based on the fact

that the assets and liabilities of the CRM division

involved tangible and intangible assets transferred as

a going concern. The ITAT had noted that the meaning

of slump sale under section 2(42C) of IT Act involves

transfer of one or more undertakings as a result of sale

for lump sum consideration without values being

assigned to individual assets and liabilities. As per the

terms of the agreement for sale of CRM division

between the Assessee and the Purchaser of the unit,

the meaning of the term “unit” for the purpose of deed

of transfer was dened as “all the tangible and

intangible assets and liabilities of the entire unit”.

”“Valuation of individual assets and liabilities by purchaser would not take away the characteristics

of a slump sale.



The HC further held that merely asking the valuer to

assign separate valuation to different parts of unit in

the valuation report for the purpose of arriving at

proper valuation of transfer of entire unit, would not

take away the fact that the transfer was of entire unit as

a going concern and thus, is a slump sale.

Regarding the second issue, the HC held that the ITAT

has rightly considered May 31, 2007 as the date of

transfer. The HC commented that on the day the

Assessee stopped crediting the conducting charges,

the Purchaser would have also stopped claiming

expenditure for such charges. Accordingly, the HC

held that if both sides have accordingly acted in terms

of clear understanding, the IRA had no reason or

power to shift such date.


The judgment by Bombay HC is on the lines of the

various judgments on slump sale, viz., CIT v. Equinox 25 26

Solution Pvt. Ltd., Duchem Laboratories Ltd.,

which have held that transfer of assets and liabilities of

the undertaking on a going concern basis is to be

considered as slump sale. Even if the purchaser

subsequently undertakes an independent valuation

for recording individual assets and liabilities, it

reiterates the principle that the transfer of undertaking

shall still be considered as a slump sale.

It is surprising and somewhat disappointing to note

that in spite of a number of precedents which have

very clearly stated what constitutes a slump sale and

how the values can be apportioned by the buyer, the

IRA continues to litigate on some of those aspects. It is

highly recommended that the CBDT comes up with a

clarication and makes it mandatory for all tax

authorities to follow the same so that unnecessary

litigations can be avoided / mitigated.

25 CIT v. Equinox Solution Pvt. Ltd., (2017) 393 ITR 566 (SC).26 Duchem Laboratories Ltd v. ACIT, (2009) 32 SOT 183 (Mum-Trib.).

19



TRANSFER OF SUBSIDIARY'S SHARES NOT

SLUMP- SALE

27 PCIT v. UTV Software Communication, (2019) 103 taxmann.com 12 (Bom).28 Bacha F. Guzdar v. CIT, (1955) 27 ITR 1 (SC).29 Vodafone International Holdings B.V v. Union of India, (2013) 341 ITR 1 (SC).

20

The Bombay HC in the case of UTV Software 27Communication Ltd., has held that the transfer of

entire shareholding in a subsidiary company by the

taxpayer to a third party was a mere transfer of shares

and did not amount to a slump sale within the meaning

of Section 2(42C) of the IT Act.

FACTS

UTV Software Communication Pvt. Ltd. (“Assessee”)

was engaged in the business of inter alia production of

TV programs. In the assessment year in question, the

Assessee declared long term capital gains in respect

of the sale of the entirety of its 49% shareholding in its

joint venture company, United Home Entertainment

Ltd. (“UHEL or JV Company”), to Walt Disney

Company (“Buyer”). The AO was of the view that

since all the shareholders of UHEL had sold their

respective shareholding to the

Buyer, the transaction resulted in a

slump sale of an undertaking of

U H E L . T h e A O a c c o r d i n g l y

computed the capital gains tax under

section 50B of the IT Act. The

Assessee appealed before the

CIT(A) without success. The ITAT,

however, considered the denition of

'slump sale' and the meaning of the term 'undertaking'

under the IT Act and proceeded to hold that transfer of

shares did not result in transfer of an undertaking so as

to render the transaction a slump sale within the

meaning of section 2(42C) of the IT Act.

ISSUES

Whether the transfer of all shares of a company to a

third party constitutes a 'slump sale' for computing

capital gains tax under section 50B of the IT Act?

ARGUMENTS

The Assessee claimed that acquisition of shares in a

company does not imply the acquisition of any assets

of the company. The Assessee placed reliance on the

landmark judgment of the SC in the case of Bacha F. 28

Guzdar, to contend that it is the JV Company, being a

separate juristic person than its shareholders, which

owns its property, and not its shareholders.

Contrastingly, the IRA argued that the sale of the entire

shareholding of a company had resulted in a change in

ownership/management, and the same change in

ownership/management would have also been

expected through a slump sale.

DECISION

The ITAT upon consideration of section 2(42C) of the

IT Act held that by no stretch of imagination would a

transfer of shares result in a slump

sale. The ITAT further observed that

even if that were the case, the

consideration for the slump sale

would have been received by

U H E L / t h e J V C o m p a n y, t h e

transferred undertaking, being a

distinct legal entity, and not by the

Assessee being the shareholder of the JV Company.

The ITAT further referred to the observations of the SC 29in Vodafone International Holdings B.V., to infer

that a controlling interest in a company is not an

identiable capital asset independent of the

shareholding, and the shares and the rights

emanating therefrom cannot be dissected. The ITAT

thus held that section 50B of the IT Act would be

inapplicable to a mere transfer of shares, even if the

entire shareholding of the subsidiary company

changed pursuant to the transaction. The HC

concurred with the ndings of the ITAT and saw no

merit in the appeal of the IRA.

”“Transfer of entire shareholding

in a subsidiary / joint venture entity cannot be regarded

as slump sale.




The statutory denition of 'slump sale' within the IT Act

clearly requires the transfer of 'undertakings'. The

denition of 'undertaking' in turn refers to a 'unit or

division' or a 'business activity taken as a whole'.

While it may be accurate that both a slump sale and a

100% change in shareholding would result in a

change in management and ownership, the subject of

the transfer is widely different in both cases. No

'undertaking' changes hands in a share acquisition

transaction. Through their decisions, the ITAT and the

HC have rightfully upheld the rudimentary legal

principle of distinct corporate legal personality, i.e.,

that transfer of shares does not inuence nature of

ownership of the company's assets, including its

undertakings. Further clarity on these aspects is a

welcome step.

Having said the above, it is pertinent to note that the

facts of this case have not been tested on the

touchstone of GAAR as to whether the views of the

Court would have been the same if the predominant

objective of the proposed transaction was to avail the

tax benet. Therefore, any such transaction

contemplated now, would need to be mindful of such

considerations.

21



- MISCELLANEOUS

CASE LAW UPDATES

22



MUMBAI ITAT ALLOWS SETTING OF CAPITAL LOSSES

AGAINST LONG TERM CAPITAL GAINS, DISMISSING

30 Asianet TV Holdings Pvt. Ltd. v. ACIT, (ITA No. 4790/Mum/2017) (Mum-Trib.).

23

COLORABLE DEVICE ALLEGATIONS OF THE IRA

30In the case of Asianet TV Holdings, the Mumbai

ITAT has upheld the setting off of capital losses

incurred by a company against its long term capital

gains incurred in a series of transactions undertaken

by it in a particular nancial year. The ITAT gave

precedence to commercial viability of the transactions

as against the allegations regarding the presence of

colorable device, by the IRA.

FACTS

M/s Asianet TV Holdings Pvt. Ltd. (“Assessee”), had

entered into a MoU followed by a series of

transactions resulting in the Assessee incurring Long

Term Capital Gains (“LTCG”) and Short Term Capital

Loss (“STCL”) in the same year. The sequence of

such transactions is produced below:

i. Star group & Vijaya TV (collectively known as

“SVJ”) signed a MoU with the Assessee,

pursuant to which the Assessee proposed to sell

its shareholding in its subsidiaries for a specied

consideration.

ii. Later, SVJ also expressed interest in

exploring further investments in other

companies held by the Assessee, particularly

Asianet Communications Ltd. (“Asianet

Communications”).

iii. Given the same, since there was possibility

of sel l ing the entire company to SVJ,

the Assessee made further investments into

other companies, including certain shares of

Asianet Communications. Subsequently, the

Assessee sold off its entire stake in Asianet

Communications to SVJ and earned LTCG

amounting to INR 911.84 crores.

iv. However, owing to certain regulatory and

commercial issues SVJ expressed disinterest in

acquiring the Hospitality and Real Estate News,

Radio and Infrastructure companies of the

Assessee.

v. Despite this, the Assessee went ahead with its

completion of purchase of shares in other

companies from the monies received from the

sale of its stake in Asianet Communications.

vi. Since more than 90% of the business of the

Assessee was transferred in the form of sale of

its shareholding in Asianet Communication Ltd

to SVJ and the Assessee was only left with its

investments in other companies done for the

purpose of business expansion, the Assessee,

decided to sell these investments to associate

companies at face value thereby incurring a

short term capital loss (“STCL”) of approx. INR

81.6 crores.

vii. Thus, the cumulative gain that the Assessee

made from this entire series of transaction

amounted to INR 830.15 crores, after deducting

its STCL from the LTCG on sale of Asianet

Communications.

In the return of income led for AY 2009-10, the

Assessee declared its STCL from the aforesaid

transactions and this was set off against short term/

long term capital gains made by the Assessee in the

same AY. Further, the Assessee also claimed an

expense of approx. INR 2.4 crores towards software

consultancy charges paid to M/s. Axis Aerospace and

Technologies Pvt. Ltd. in return for turnkey solutions

for upgrading the broadcasting software and

integration of other software. This expense was made

in lieu of business expansion undertaken by the

Assessee with respect to the proposed sale to SVJ.



However, the AO rejected the claim of STCL on the

pretext that it was created as an afterthought to reduce

the tax incidence arising from the capital gains on the

sale of shares of Asianet Communications Ltd by the

Assessee. The AO also disallowed the expense in the

nature of software consultancy charges for the reason

that it was not revenue expenditure but personal

expenditure.

The CIT(A) upheld the AO's disallowance of STCL on

the ground that the genuineness of the transaction

could not be established. The reservations of the AO

and CIT(A) were further supported by the fact that

transactions were happening within group entities

and, therefore, there was a greater onus on the

Assessee to justify the valuation of shares acquired

and sold under Section 40A(2)(b) of IT Act. The CIT(A)

also upheld the position of the AO with respect to

software consultancy charges.

ISSUES

Whether the IRA was justied in imputing the motive of

tax avoidance of the Assessee and thereby

disallowing the set off of STCL with LTCG and the

software expense?

ARGUMENTS

The Assessee argued that the all

the transactions carried out by the

Assessee in the relevant AY were

genuine and documented. Further,

there was also circumstantial

evidence to support the commercial

viability of selling the shareholding

in other companies that was purchased solely for the

purpose of business expansion. The Assessee

contended that it had only acted as a prudent

businessman in the entire transaction. Therefore, the

IRA had erred in imputing a motive of tax avoidance for

the transaction. With respect to disallowance of

software consultancy expense, the Assessee argued

the expense was incurred in lieu of expansion of

business and, therefore, had been claimed as

revenue of expenditure under Section 37(1) of the IT

Act.

On the contrary, the IRA argued that the STCL

generated after the sale of shares was not genuine

and the AO was correct in adding the same to the

income of the Assessee. Further, the IRA relied on

Section 106 of the Indian Evidence Act, 1872 to state

that the burden of proving the genuineness of the

transaction was on the Assessee as the facts were

well within the knowledge of the Assessee. The IRA

also argued that the Assessee did not pay the

purchase consideration for the shares bought in other

companies, immediately. This was indicative of the

intent of the Assessee to structure the transaction

solely to minimize tax liability. In relation to software

consultancy expenditure, the IRA relied on the orders

of the AO and CIT(A) and stated that the expenses

were not for the business of the Assessee and

therefore not allowable as revenue expense.

DECISION

The ITAT examined all the documentation produced

by the Assessee including the MoU as well as the

orders of the lower authorities dismissing the said

documentation to question the genuineness of the

entire series of transactions. The ITAT disposed the

appeal in favour of the Assessee by dismissing the

allegations of the IRA. According to

the ITAT, the investment in other

companies made by the Assessee

to expand its business was a

prudent commercial decision.

Alternatively, once SVJ withdrew

from purchasing the entire business

of the Assessee, it was only

commerc ia l l y v iab le fo r the

Assessee to sell the shares it

acquired in various entities in lieu of increasing its

business valuation.

In dismissing the orders of the lower authorities, the

ITAT relied upon the interpretation of McDowell 31 32 case, by the Apex Court in the Vodafone case, to

hold that where the transactions are carried out within

the framework of law and between two separate legal

entities, it cannot be termed as sham simply because

there is a lower outow of taxes. The ITAT used a

catena of judgements to establish that the claim of the

”

“It is a fundamental principle underthe Income Tax Act that the contract

between the parties is to beunderstood as is understood by

the parties and AO cannotsubstitute his interpretation.

31 McDowell & Co. v. Commercial Tax Ofcer, (1984) 154 ITR 148 (SC).32 Vodafone International B.V. v. Union of India, (2012) 341 ITR 1(SC).



IRA cannot be based on suspicion which is not

supported by sufcient evidence. Therefore, the onus

was on the IRA to establish that the transaction was

illegitimate or was done solely with the intention to

reduce or evade tax liability. The focus of the ITAT

remained on the commercial prudence behind the

investments made by Assessee and the subsequent

sale of the stakes acquired upon refusal of SVJ. The

ITAT held that the intent of the Assessee cannot be

that of tax avoidance as only very small portion of the

cumulative capital gains was set off by the capital

losses. If the intent of the Assessee was to reduce its

tax liability on the massive quantum of capital gains of

INR 911.84 crores made by it, a meagre capital loss of

INR 81.6 crores would not serve the purpose. Further,

once Asianet Communication was sold off, which

constituted more than 90% of the business of the

Assessee, it would not have been expedient on the

part of the Assessee to retain the stakes of other

companies.

With respect to the software consultancy charges, the

ITAT held the said expense was a revenue

expenditure and, therefore, must be allowed under

Section 37(1) of the IT Act. The ITAT relied on multiple

judgements holding upgradation of software

technology as revenue expenditure even if the

projects were abandoned.


A prominent part of analysis of the ITAT was based on

examination of the documents produced by the

Assessee. The ITAT followed the approach adopted 33

by its jurisdictional HC in the case of F.E. Dinshaw,

which had adopted the test of commercial expediency

to honest and prudent businessman. Thus, so long as

the transaction was commercially viable and the

assessee has acted in a manner in which an honest

and prudent businessman would act, the intention

behind the transaction should be considered as

genuine. The onus placed by the ITAT on the IRA to

substantiate its suspicions was also crucial. The ITAT

gave preference to the commercial intent behind the

contracts entered into by Assessee, as against the

interpretation of such contracts by the IRA.

The ruling could be perceived as a relief for taxpayers

especially in the era of GAAR, wherein a particular

transaction or part of that transaction or series of

t ransact ions could be construed to be an

Impermissible Avoidance Arrangement (“IAA”), if the

ingredients mentioned in section 96 of the IT Act are

said to be satised. The instant decision could be of

use to the taxpayers in defending their cases under

the GAAR regime as well to contend that when the

transaction is said to be commercially viable and

prudent, the IRA cannot declare a transaction to be an

IAA under the GAAR regime.

In this regard, it is pertinent to note that as per the

GAAR regime, the onus is on the IRA to prove that an

arrangement is an IAA. According to section 144BA of

the IT Act, the AO has to rst refer the case to his

superior ofcers, i.e. the PCIT or a CIT, in case he is of

the view that it is necessary to declare an arrangement

as an IAA. Further, in case the said PCIT/CIT is

satised that the GAAR regime has to be invoked after

hearing the arguments of the taxpayer, he/she shall

have to refer it to the Approving Panel which will, in

turn, decide the case on merits based on the

arguments put forth by the IRA and the taxpayer.

These provisions are intended to restrain the IRA from

assigning unsubstantiated intent to certain

transactions as that would only add to the growing

amount of tax litigation.

Thus, this decision has also come up with a shot in the

arm for the taxpayers who can continue to do

transactions so long as they are in a position to justify

the commercial exigency of the transaction.

33 F.E. Dinshaw v. CIT, (1959) 36 ITR 114 (Bom).

25



CLARIFICATORY AMENDMENTS SHOULD BE MADE

APPLICABLE RETROSPECTIVELY, DESPITE THE

LANGUAGE USED BY THE LEGISLATURE

26

34In the case of Ram Kishan Dass, the SC had held

that the amendment in section 142(2C) of the IT Act,

despite being made effective prospectively by the

legislature, should be given retrospective effect in

order to carry out the original legislative intent.

FACTS

A search was carried out in the

premises of Ram Kishan Dass

(“Assessee”), on the basis of

which a notice under section 153A

of the IT Act was issued on May 16,

2005. In response thereto, the

Assessee led its return of income.

On December 12, 2006, the AO

ordered a special audit under

section 142(2A) of the IT Act to be conducted in

respect of the Assessee's affairs and provided a 90

days' time period (i.e. up to March 12, 2007) to submit

the report. Upon the auditor seeking extension of time

for completion of audit, the AO extended the deadline

from March 12, 2007 to April 21, 2007 and

subsequently to June 5, 2007. The audit report was

nally submitted by the auditor on June 04, 2007. The

AO completed the assessment under section 153 of

the IT Act on August 03, 2007.

Aggrieved by the order passed by the AO, the

Assessee preferred an appeal before the CIT(A) on

the grounds inter alia that the assessment was time-

barred under section 153B of the IT Act, if one does not

take into consideration the suo motu extension given

by the AO to submit the audit report. It was submitted

by the Assessee that the AO was authorized to provide

suo motu extension under section 142(2C) of the IT

Act with effect from April 01, 2008 (“Amendment”)

and since the instant assessment was pertaining to a

period prior to April 2018, the suo motu extension time

period should be excluded while computing the

limitation period under section 153B of the IT Act.

The CIT(A) allowed the appeal of the Assessee by

holding that the AO was not authorized to suo motu

extend the time for submitting the audit report prior to

the Amendment. Accordingly, it was held by the CIT(A)

that the assessment made under

section 153A of the IT Act in respect

of the assessment years in

question is barred by limitation.

Being aggrieved by the order, the

IRA led appeals which were

rejected by the ITAT and the HC

pu rsuan t t o wh ich the IRA

approached the SC.

ISSUES

Whether the HC was justied in holding that the AO did

not have the power to provide suo motu extension to

submit the audit report under section 142(2C) of the IT

Act in 2017, in view of the Amendment being

applicable with effect from April 01, 2008?

ARGUMENTS

It was the contention of the Assessee that the

assessment order passed under section 153A on

August 03, 2007 was barred by limitation since the

order of special audit was made by the AO on

December 12, 2006 and the special audit was to be

conducted on or before March 12, 2007. It submitted

that the AO did not have the power to extend time

under sub-section (2A) or (2C) of section 142 of the IT

Act and that the time could only be extended at the

request of the Assessee, but not suo motu.

“”

The assessing officer is empoweredto extend the time period grantedto the special auditor to complete

his special audit u/s 142(2C),subject to the overall

limit of 180 days.

34 CIT v. Ram Kishan Dass, (2019) 103 taxmann.com 414 (SC).



It further submitted that the power to suo motu extend

the period for special audit under Section 142(2A) was

provided by way of the Amendment with effect from

April 1, 2008 and the Amendment being prospective in

nature, the AO was not empowered to extend the time

for audit report on his own prior to the Amendment.

The Assessee also relied on Circular No. 1 of 2009

dated March 27, 2009 which clearly stipulated that the

Amendment was made prospectively with effect from

April 01, 2008, as well as the Notes on Clauses to

F inance B i l l , 2008 and the Memorandum

accompanying the Finance Bill, 2008. Accordingly, the

Assessee urged that the power to extend the time suo

motu was not available with the AO prior to April 01,

2008 and therefore, such extension should have to be

ignored while computing the period of limitation under

section 153B of the IT Act.

The IRA adopted a contrary position by submitting that

even before April 01, 2008, the AO had the jurisdiction

to extend the time for the submission of audit report

even where the taxpayer had not made an application

for extension. It further submitted that the Amendment

with effect from April 01, 2008 was only intended to

remove any ambiguity, i.e., it was claricatory in

na tu re and the re fo re , shou ld be app l i ed

retrospectively.

The IRA further substantiated its argument by stating

that section 153B of the IT Act prescribed time limits

for the completion of assessments under section 153A

and Explanation (ii) which provided that while

computing the period of limitation, “the period

commencing from the day on which the Assessing

Ofcer directs the assessee to get his accounts

audited under sub-section (2A) of Section 142 and

ending on the day on which the assessee is required to

furnish a report of such audit under that sub-section”,

should be excluded.

While issuing a direction under sub section (2A) of

Section 142, the AO is vested with the authority to

require the Assessee to furnish an audit report as may

be prescribed. Sub section (2C) mandates that the

report under sub section (2A) shall be furnished by the

Assessee to the AO within the period that is specied

by the AO under the proviso. The AO is further

empowered, on an application made by the taxpayer

or for any good and sufcient reason, to extend the

period further, subject to the stipulation that it shall not

exceed an aggregate of 180 days.

Therefore, according to the IRA, the AO, who issues a

direction to the taxpayer under sub-section (2A) to get

his accounts audited, is vested with the authority to

specify the period for the submission of the report, and

within the overall limit of 180 days, it is open to the AO

to extend the time which has been xed in the rst

instance. The IRA submitted that the authority

conferred upon the AO to extend time, on an

application made by the Assessee, does not take

away the authority of the AO to extend time, subject to

the overall ceiling of 180 days. It was also submitted by

the IRA that the expression “and for any good and

sufcient reason” must be construed logically to mean

“or for any good and sufcient reason” so as to infer

that the AO has suo motu powers to extend the time

period for submitting the audit report.

DECISION

The SC held that Section 142(2A) empowers the AO to

direct the Assessee to get the accounts audited by an

accountant, on the formation of an opinion that the

conditions specied in the provision for recourse to the

power are fullled. The power to order an audit is

vested with the AO. As a necessary incident of this

power, sub-section (2C) imposes an obligation on the

special auditor appointed for this purpose to furnish

the report to the AO within the period specied by him.

The substantive part of sub-section (2C) places an

obligation on the taxpayer to comply with the time

schedule which is prescribed by the AO. The overall

ceiling of time appears in the proviso to sub-section

(2C), which mandates that the aggregate of the time

xed and the extended period cannot exceed 180

days, after which there can be no further extension of

time.

It further held that the proviso was intended to deal

with a situation where the taxpayer, for valid reasons,

is not able to furnish the audit report within the

prescribed period. The enactment of the proviso was

necessary to avoid invalidation of the special remedy

in case of a taxpayer who, for genuine reasons, is

unable to comply with the directions of the AO. Hence,

the proviso stipulates that for good and sufcient



reason, the AO may extend time on an application

submitted by the taxpayer. The “good and sufcient

reason” requirement is intended to ensure that an

extension of time cannot be demanded by a taxpayer

as a matter of right. Indeed, the use of the expression

'may' indicates that whether or not time should be

extended is subject to the discretion of the AO.

Therefore, the AO can provide extension as many

times as possible at his discretion, subject to an

overall limit of 180 days.

Based on the above rationale, the SC overruled the

decision of the HC and held that the arguments of the

Assessee cannot be accepted since such an

interpretation of the Amendment would lead to absurd

consequences, which would be patently contrary to its

language, purpose and intendment.

The mere fact that the Amendment was made from

April 1, 2008 does not detract the fundamental

proposition that it was a claricatory amendment

which was designed to obviate an ambiguity. The SC

also relied on the decisions in the case of Gold Coin ,35

Health Food Pvt. Ltd. and Vatika Township Pvt. 36

Ltd., to hold that claricatory amendments are

retrospective in nature.

The SC also concluded that since the purpose of the

Amendment was to remove this ambiguity, it is of clear

view that through the Finance Act, Parliament

essentially claried the position as it existed prior to

the Amendment. Therefore, the AO had suo motu

powers to extend the time period to submit the audit

report, even prior to the Amendment.


In the instant case, it was evident that from the

language adopted by the legislature that the

Amendment was applicable only with effect from April

01, 2008. The same was also fortied by Notes on

Clauses and the Memorandum to the Finance Bill,

2008. However, the SC has approached the case with

a different perspective. It appears that the SC was of

the view that the term “good and sufcient reason” has

to be looked at from an overall context and if the AO

believes that there was enough ground for the special

auditor to be granted additional time, then he / she

was empowered to grant such time even prior to

the Amendment. The Amendment was merely

claricatory in nature.

It was very clear that the legislature, through the

Amendment, aimed to overrule the decisions of

various courts which had held that the AO cannot

extend the time limit suo motu under section 142(2C)

of the IT Act. The order of the SC in the instant case is

of such a tone that it will encourage the IRA to pursue

certain taxpayers who have tried to argue differently.

However, since the position of law post the

Amendment is very clear, there may not be any scope

left for further litigation.

35 CIT v. Gold Coin Health Food Pvt. Ltd., 2008 (9) SCC 622.36 CIT v. Vatika Township Pvt. Ltd., (2014) 31 ITR 166 (SC).



AO CANNOT IMPOSE A PRE-CONDITION TO DEPOSIT

20% OF THE DISPUTED DEMAND WITHOUT

29

CONSIDERING STAY APPLICATION ON MERITS

In Turner General Entertainment Networks Pvt. 37 Ltd., the Delhi HC held that the AO cannot rely on the

Ofce Memorandum of the CBDT dated July 31, 2017

in F.No. 404/72/93-ITCC (“CBDT OM”) and impose a

per se condition that 20% of the disputed demand

should be deposited by the Assessee so as to keep the

recovery proceedings in abeyance. The HC ruled that

the IRA is required to apply its mind and decide the

application for stay of demand.

FACTS

An assessment was concluded against the Turner

General Entertainment Networks

(“Assessee”), against which an

appeal was pending before the

CIT(A). Further, the Assessee had

led an application for stay of

recovery of demand under section

220(6) of the IT Act. The AO rejected

the stay application of the Assessee

on the sole ground that it had failed to deposit 20% of

disputed demand as prescribed by the CBDT OM. The

Assessee led a writ petition contending that its

application was not considered on merits and there

cannot be a blanket prerequisite to deposit a sum of

20% of the disputed demand for considering the

application of stay of demand.

ISSUE

Whether the order of the AO requiring the Assessee to

deposit 20% of disputed demand as a pre-condition

for consideration of the application for stay of demand

is valid?

ARGUMENTS

The Assessee relied on the Instruction No.1914 dated

December 02, 1993 issued by the CBDT (“CBDT

Instruction”) and contended that the IRA is required to

follow the broad principles outlined in the CBDT

Instruction while considering the each application for

stay of demand. The CBDT Instruction was later

amended by a circular which also provided that the

IRA could require the taxpayers to pay lesser than the

standard amount (i.e. 15% or 20% of the disputed

demand) in appropriate cases. Therefore, the IRA

erred in disposing-off the application of the stay of

demand without examining the

merits of the case.

The IRA on the other hand, relied on

the CBDT OM and contended that

the Assessee should deposit a sum

of 20% prior to consideration of the

application for stay of demand.

DECISION

The HC held that the IRA is required to apply its mind

before disposing off stay applications led by

taxpayers, having regard to the extant directions and

circulars including the CBDT Instruction and the

CBDT OM. It categorically held that the AO could not

impose a pre-condition that 20% of the disputed

demand should be deposited by the Assessee for

considering the stay application.

On this premise, the HC directed the IRA to pass

appropriate orders consistent with the observations of

the HC, within 3 weeks. Further, the HC also directed

the IRA to not take coercive action against the

Assessee if its stay application was appropriately

dealt with.

37 Turner General Entertainment Networks Pvt. Ltd. v. ITO, W.P.(C) 682/2019 & CM APPL. 3018/2019 (Del).

”“Payment of 20% of the disputeddemand is not compulsory and the

tax authorities should examinethe facts and circumstances of

each case independently.




The order of the HC is yet another welcome decision

on interpretation of the stay guidelines contained in

various the CBDT instructions / circulars. While the

guidelines have provided for a standard payment of

20% of the disputed tax demand for the purposes of

granting a stay on recovery proceedings, the Courts,

including the SC in the recent case of LG Electronics 38

India Pvt. Ltd., are increasingly taking a stance that

the IRA shall have to examine the facts on merits while

disposing off stay applications and reserves the

discretion to demand a lower sum in deserving cases.

Further, the Madras HC has also held in the recent 39case of Mrs. Kannammal, that the CBDT OM had

granted ample discretion to the IRA to increase or

decrease the standard 20% of quantum demanded

and that it shall address stay applications based on

three vital factors viz., (i) the existence of prima facie

case; (ii) nancial constraints of the tax payer; and (iii)

the balance of convenience.

These decisions come as a relief for taxpayers

undergoing high-pitched assessments. Taxpayers

who are able to present a convincing case on their

inabil ity to pay such high amounts or their

disinclination to pay any demand on account of the

merits of their cases, should be able to rely on these

judgments and benet from the Court’s benecial

interpretation of the CBDT OM.

38 PCIT v. LG Electronics Pvt. Ltd., Civil Appeal No. 6850 of 2013 (SC).39 Mrs. Kannammal v. ITO, (2019) 103 taxmann.com 364 (Mad).



SC UPHOLDS RECEIPT OF GRANT-IN-AID AS CAPITAL

RECEIPT NOT TAXABLE UNDER IT ACT

31

In the case of The State Fisheries Development 40

Corporation Ltd., the SC dismissed an SLP led by

the IRA against the decision of the Calcutta HC, which

held that receipt of grant-in-aid from the Government

for payment of salaries of employees, provident fund

dues and ood relief was capital receipt and thus, not

taxable under the IT Act.

FACTS

The State Fisheries Development Corporation Ltd.

(“Assessee”), a company wholly owned by the

Government of West Bengal, is engaged in the

business of pisciculture. During AY 2006-07, the

Assessee received INR 4.6 crores as grant-in-aid from

the Government for payment of salary to its

employees, provident fund dues and for the purpose of

ood relief. The Assessee treated the same as 'capital

receipt' not liable to income tax. However, the AO held

that the nature of these payments was that of a

revenue receipt since the amounts were applied for

items which were revenue in nature and were also

treated similarly by the Assessee in

the past. Hence, the AO added the

same in the income of the

Assessee. The CIT(A) also upheld

the addition made by the AO and

hence, the Assessee led an

appeal before the ITAT.

The ITAT examined the character of the Assessee as a

Government company as well as the character of the

grantor, being the State Government itself, the

nancial status of the Assessee and certain other

factors. Relying on a judgment of the Delhi HC in the

case of Handicrafts & Handlooms Export 41Corporation of India Ltd., and looking at the facts

and circumstances under which the grant-in-aid was

given, the ITAT allowed the appeal of the Assessee

treating the same as capital receipt. Against the

decision of the ITAT, the IRA appealed before the HC.

The Calcutta HC held in favour of the Assessee. The

IRA had further led an SLP before the SC, which was

dismissed by the SC in its non-speaking order dated

January 07, 2019. Therefore, we have discussed the

HC judgment in the ensuing paragraphs.

ISSUE BEFORE THE HC

Whether the grant-in-aid received by the Assessee

from the State Government ought to be treated as

revenue receipt, on the basis that the funds so

received were applied for revenue expenditure i.e.,

payment of salary, provident fund dues and ood

relief?

ARGUMENTS

The IRA placed reliance on various HC judgments i.e., 42

Ratna Sugar Mills Co. Ltd., V.S. Sv. Meenakshi 43

Achi, and Ludhiana Central Co-op. Consumers 44

Store, in which the Courts had

examined the character of the

receipt and held that if the receipt

was to recoup the revenue

expenditure, it would take the same

colour and shall be deemed to be

revenue receipt in the hands of the

taxpayer.

The HC noted that the fundamental principle for

distinguishing capital receipt from revenue receipt for

government grant was laid down by the SC in the case 45

of Sahney Steel and Press Works Ltd, wherein it

was held that incentives and facilities to enable the

taxpayer to acquire new plant or machinery for

expansion of manufacturing capacity or set up new

industrial undertaking could constitute capital receipt.

”“Grant-in-aid given by Government

to wholly owned company torecoup its losses is a

capital receipt.

40 PCIT v. The State Fisheries Development Corporation Ltd., (2019) 102 taxmann.com 221 (SC).41 CIT v. Handicrafts & Handlooms Export Corporation of India Ltd., (2014) 360 ITR 130 (Del).42 Ratna Sugar Mills Co. Ltd. v. CIT, (1958) 33 ITR 644 (All).43 V.S. Sv. Meenakshi Achi v. CIT, (1963) 50 ITR 206 (Mad).44 Ludhiana Central Co-op. Consumers Store v. CIT, (1979) 122 ITR 942 (P&H).45 Sahney Steel and Press Works Ltd. v. CIT, (1997) 228 ITR 253 (SC).



However, if the scheme provides for refund of sales tax

on purchase of machinery and raw materials, subsidy

or power consumption and certain other exemptions

on utilities consumed, such subsidy could only be

treated as assistance given for the purpose of carrying

on the business of the taxpayer and thus, would be

taxable as business income.

The HC also examined other judgments like Siemens 46

Public Communication Network Pvt. Ltd., where

the amount received by taxpayer from principal

shareholder (termed as subvention payment) was held

by the SC to be a capital receipt as the same was made

in order to protect the capital investment. Reliance was

also placed on the case of Handicrafts & Handloom 47Export Corporation of India, wherein the Delhi HC

opined that in case a company agrees to pay specic

amounts to enable its subsidiary to recoup losses and

meet its liabilities, the same may be equated with a

father - son relationship where the amounts given by

father to recoup the losses incurred by son will be only

in the nature of gifts or voluntary payments motivated

by affection or personal relationship and not stemming

from any business consideration.

DECISION

The HC, as well as the SC by dismissing the SLP, have

held that in the present case, even though the grant is

not from a parent company to subsidiary company, the

grant is from State Government, which was in-effect, a

100% shareholder of the Assessee. The Assessee has

been considered as an extended arm of the State and

the assistance is a measure to keep the company

aoat. The object of the extension of assistance is to

ensure survival of the company. Thus, the grant-in-aid

extended to the Assessee for payment of salary and

provident fund dues was capital receipt. Further, ood

relief doesn't constitute part of business of Assessee.

Hence, the same was also held to be a capital receipt.


The dismissal of the IRA's SLP by SC lends nality to

the judgment of the HC in the present case. The HC, in

its order, had dealt with leading judgments on taxability

of grant-in-aid and had issued a well-reasoned order.

In addition to determining the taxability based on the

purpose for which the grant is given, the decision of the

SC has now conrmed that it is also relevant to

examine the fundamental factual background under

which the grant has been given.

That said, this proposition is valid only for past cases,

since the IT Act has undergone amendment by way of

Finance Act, 2015 which explicitly provides for

taxability of government grants. Under section

2(24)(xviii) of the IT Act, any assistance in form of

subsidy or grant received from Central or State

Government or any agency in cash or kind will be

considered as income in the hands of the taxpayer

subject to two specic exclusions – (1) where the

subsidy or grant is taken into account for determination

of actual cost of the asset; and (2) where the subsidy or

grant by the Central Government is for the purpose of

corpus of trust or institution established by the Central

or State Government.

It can therefore, be concluded that the taxability of

Government grants is no longer determined by their

nature and purpose. However, the judgment may be

relevant for past years the assessments in relation to

which are still under litigation.

46 Siemens Public Communication Network Pvt. Ltd. v. CIT, (2017) 390 ITR 1 (SC).47 Handicrafts & Handloom Export Corporation of India v. CIT, (1982) 140 ITR 532 (Del).



FEATURED ARTICLE

33



TAX RECOVERY PROCEEDINGS VIS-À-VIS SECURED

CREDITORS

34

Background

The IT Act contains within itself an exhaustive

mechanism for recovery of pending tax dues.

However, it has been observed that such mechanism

and powers entrusted with the IRA often come in the

way of claims of secured creditors. Hence, it results in

secured creditors challenging the right of IRA to

forcibly recover its dues over their own dues, in turn

leading to strenuous litigations between the parties to

ensure their respective rights are protected. In this

post, we have tried to analyze the provisions of the IT

Act pertaining to tax recovery proceedings, and how

these provisions may stand in the way of secured

creditors realizing their claims, should such a situation

arise.

The provisions dealing with tax recovery are covered

as per the provisions of the IT Act along with Schedule

II to the IT Act. These provisions exclusively and

elaborately discuss the procedure surrounding

recovery of Taxes.

Tax recovery proceedings under the IT Act

Pursuant to completion of an assessment or

verication proceedings, tax demand is raised against

the assessee through a demand notice under Section

156 of the IT Act (“Notice of Demand”). The Notice of

Demand generally contains a time period within which

the tax demanded should be deposited, failing which

the assessee runs the risk of being treated as a

defaulter. However, the assessee could request for

stay of the demand and appeal against the order

passed against him. However, the assessee has to act 1

within the prescribed time limit. If the assessee does

not pay the demand within the said time limit and has

not got a formal stay of demand from the IRA, he could

be regarded as an assessee in default.

Generally, the IRA would try to recover the outstanding

taxes from the assessee by writing various notices

and making requests, coercing and nally demanding

the outstanding tax demands to be paid, along with the

applicable interest. If none of these actions bear fruit,

he may refer the case to the Tax Recovery Ofcer

(“TRO”). To begin the process, the TRO draws up a

Tax Recovery Certicate (“Certicate”).

It is pertinent to note that section 222(1) provides for

four different modes for tax recovery, viz., attachment

and sale of assessee’s movable or immovable

properties, arrest and detention of the assessee and

appointing receiver for the management of

assessee’s movable and immovable properties. The

TRO is required to mention not only the arrears due for

recovery but also prescribes the mode of recovery for

such dues in the Certicate. Once it is prepared by the

TRO, a notice is served on the assessee under Rule 2

of Schedule II of the IT Act to pay the arrears of

demand within a stipulated time period. As soon as the

said notice is served on the assessee, Rule 16(1) of

Schedule II is triggered which renders the assessee

incompetent to create any charge on any property or

transfer any property and even prohibits the civil court

from issuing any process against the property in

execution of a decree for payment of money. Further

once the attachment of property is completed as per

the Certicate, any subsequent transfer made by the

defaulter assessee of the attached property, is

rendered void under Rule 16(2) of Schedule II of the IT

Act.

Similar to Rule 16(2) mentioned above, Section 281

also renders transfers of assets void. The section

states that any transfer done or charge created by the

assessee, on his assets, during the pendency of any

proceedings under the IT Act, but before notice is

received under Rule 2 (above) is void against any

claim of any sum payable by the Assessee. However,

such charge or transfer shall not be void if it is made for

adequate consideration and the parties to the

transaction have no notice of such proceedings, or if

1 Section 220(1) of IT Act – the time period allowed in the Notice of Demand is generally 30 days.



such transfer is made with the prior permission of the

AO.

The aforesaid framework clearly sets the procedure

for tax recovery under the IT Act. However, over time,

several controversies have arisen in lieu of conicts

between the tax recovery mechanism under IT Act and

other legislations like the IBC or the Securitisation and

Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (“SARFAESI”) which

contain explicit provisions on preference being given

to secured creditors over government debts. In such a

scenario, it would be pertinent to explore the fate of

claims of secured creditors when the tax recovery

proceedings are instituted under the IT Act and the

transfer of assets is considered void. Here, we have

analysed questions to certain prominent overarching

questions that have been recurring in the disputes in

relation to tax recovery proceedings, and their

answers have been attempted through the lens of

various decisions of judicial authorities.

Crown debts or secured debts?

The epicenter of the entire debate around secured

debts and tax recovery proceedings lies in the

common law principle of priority of crown debts. The 2SC in the case of Builders Supply Corporation,

explored the question of applicability of the aforesaid

principle in the context of Indian laws. The SC held that

the doctrine of priority of crown debts falls under the

ambit of ‘law in force’ under Article 372(1) of the

Constitution of India. However, the SC conned the

priority claim of the Government only to the extent of 3

unsecured creditors. Later, in the case of Dena Bank,

the SC held that the statutory dues will have priority

over the dues of a secured creditor if there is specic

provision to that effect in the statute.

Subsequent to this, scal statutes have now started

explicitly recognizing the claims of secured creditors

over and above all other claims. For example, section

26E of the SARFAESI (notied by way of amendment

under Central Act 44 of 2016), gives priority to the

claims of secured creditors over all other debts and all

revenues, taxes, cesses and other rates payable to

Central and State Government. Similarly, section 53 of

the IBC which sets out the hierarchy of creditors, has

prioritized both secured and unsecured creditors over

the dues of the Government. Section 31B of the

Recovery of Debts due to Banks and Financial

Institutions Act, 1993 also provides priority to secured

creditors over Government dues. It may be pertinent

to note that all the aforesaid provisions start with a non

obstante clause “notwithstanding anything contained

in any other law..” thereby, making such provisions

binding on the parties. Even section 326 of

Companies Act, 2013 gives priority to secured

creditors and workman dues over all other debts, in

case of winding up of a company.

Recently, courts have deviated from the doctrine of

priority for crown debts. For instance, SC in the case of 4Monnet Ispat, as well as AP Telangana HC in the

5case of Leo Edibles, upheld the rights of secured

creditors over the claims of the IRA. Further, National

Companies Law Appellate Tribunal (“NCLAT”), in the 6

case of Synergies Dooray, has categorized

statutory dues as ‘operational debt’ and Government

authorities as ‘operational creditors’, who currently do

not form part of the committee of creditors under IBC,

which comprises of mostly nancial creditors.

In contrast to this context, IT Act provides explicit

restrictions on the transfer of assets of the assessee

where proceedings are pending under the IT Act.

Thus, secured creditors making their claim over the

assets of a debtor, against whom tax recovery

proceedings are also pending, often face problems

with securing their claim.

What constitutes ‘any proceedings’?

Section 281 of the IT Act holds transfer of assets of the

assessee void during the pendency of ‘any

proceedings’ under the IT Act. Often, usage of the

wide term ‘any proceedings’ has been exploited by the

IRA to hold transfers made by the assessees, during

pendency of assessment proceedings, as void.

However, there have been more than one instance of

the judiciary stepping in to push back the overreach of

the IRA in widely interpreting the term to their benet.

2 Builders Supply Corporation v. Union of India, 1965 SCR (1) 289.3 Dena Bank v. Bbhikkmbhai Prabhudas Parekh & Co., AIR 2000 SCW 4237.4 PCIT v. Monnet Ispat and Energy Ltd., (2018) 304 CTR (SC) 233. 5 Leo Edibiles and Fats Ltd. v. Tax Recovery Ofcer, 2018 (4) ALT 700 (AP & Telangana HC).6 Principle Director General of Income-tax v. Synergies Dooray Automotive Ltd., [2019] 103 taxmann.com 361 (NCLAT).

35



For instance, the Calcutta HC in the case of Preeti 7Rungta, stated that the language under section 281

does not contemplate the passing of any order without

a properly constituted proceeding. Recently, the AP 8Telangana HC in the case of ICICI Bank Limited, has

adopted an interesting approach to interpret the term

‘any proceeding’. In this case, the petitioner, ICICI

Bank (being a secured creditor) had proceeded to

register the sale of property mortgaged in its favour,

under the SARFAESI. However, the sale deed could

not be registered due to intervention of the IRA stating

that the mortgage was created at a time when

assessment proceedings were pending and,

therefore, such mortgage was void. When the matter

reached the HC, the HC examined the exceptions

carved out in proviso to section 281(1) and observed

that:

a) exceptions laid out in proviso (i) is valid only till

the issue of order of attachment under Rule 48,

and

b) once the order of attachment is issued, Rule

16(2) would tr igger and the transfers

undertaken or charges created would

automatically be rendered void.

The HC held that proviso (i) to section 281(1) is the

way out for innocent third parties, in whose favour the

property of the assessee is transferred during the

pendency of any proceedings under the IT Act but

before the order of attachment is passed. This

distinction is important because every assessee

against whom assessment proceedings are initiated

does not become an assessee in default. Hence,

section 281(1) cannot be interpreted to hold that every

assessee against whom assessment proceedings are

initiated cannot make transfers or create charge on

their property.

In fact, according to the HC, there is no provision

under the IT Act that automatically creates rst charge

on the properties of the assessee and where the

statute does not create a rst charge on the property,

the crown’s debt does not take precedence over the

claims of a secured creditor.

Given the above it may be comfortably stated that tax

assessments may be a very premature stage for the

IRA to contend that the transfers made by the

assessee in favour of secured creditors or other third

parties are void. Proper constitution of proceedings

could only commence when the tax demand is

crystallized and the payment of the same is disputed.

However, until the provision is determinatively

amended, it will be difcult to argue that assessment

stages are certainly out of the ambit of any

proceedings.

Nature of transfers void or void ab initio?

Another pertinent question to explore is whether all

transfers made by the assessee during the pendency

of the proceedings under the IT Act would

automatically become null and void without any action

from any statutory authority.

In this context it may be pertinent to note the decision

of the SC in the case of Gangadhar Vishawnath 9

Ranade, wherein it was held that the TRO by itself

cannot hold a transaction null and void and would

have to take recourse to ling a suit under Rule 11(6)

of Schedule II to the IT Act.

However, the AP Telangana HC in the case of Shriya 10Bhupal, has held that it may not be necessary to

involve the civil court in declaring a transfer null and

void under section 281(1) of the IT Act. It is pertinent to

note that an SLP has been led against this decision

and has been admitted by the SC. However, where

Rule 16(2) of Schedule II becomes applicable, the

position is that the transfers are void ab initio, given the

language of the Rule clearly stating that transfers

would automatically be void once attachment order is

passed under Rule 48.

Later, the AP Telangana HC in the case of ICICI Bank

observed that Rule 48 of Schedule II requires passing

of an order to prohibit transfers or creation of charge

by the assessee in default. According to the HC, Rule

48 is the catalyst to ignite the provisions under section

281(1) which is indicative of the fact that the

declaration of transfers as null and void was not

7 Preeti Rungta v. Income Tax Ofcer, (1995) 214 ITR 594 (Cal).8 Writ Petition No. 33417 of 2018.9 Tax Recovery Ofcer v. Gangadhar Vishawnath Ranade, AIR 1999 SC 427.10 Shriya Bhupal v. ACIT, [2018] 95 taxmann.com 230 (AP).

36



automatic under section 281(1) of the IT Act. Hence,

until the attachment of property is done by means of

Rule 48, transfer made by an assessee in default can

only be held void if there is an order stating the same

passed by the TRO or the civil court. Once the

attachment of property is done, the transfers made or

charges created by the assessee in default shall be

automatically declared void by means of Rule 16(2).

Conclusion

Given the above, it can be seen that over time through

multiple decisions by different levels of judicial

authorities, the haze around grey areas of tax

recovery proceedings has been attempted to be

cleared. The position now seems fairly in favour of and

in the interest of secured creditors. However, one still

cannot ignore the contentious nature of these

provisions. Given the same, it cannot be denied that

the secured creditors still face the harassment while

claiming the charge created in their favour due to

claims of the IRA. Thus, in order to address the said

problem from the root, it is important that the law on

restrictions on transfer in lieu of tax recovery

proceedings be amended to clearly lay down the

boundaries between the interests of IRA and interests

of secured creditors and taxpayers.

37



CASE LAW UPDATES

- INDIRECT TAX

- AAR RULINGS

38



SHIFTING OF EXISTING UTILITIES INCLUDING

INSTALLATION OF NEW GOODS IS WORKS

48 In Re: M/s Yogiraj Powertech Pvt. Ltd., 2019 (2) TMI 185.49 Commissioner of Central Excise, Ahmedabad v. Solid & Correcting Engineering Works, 2010 (252) ELT 481.

39

CONTRACT SERVICE

48In Yogiraj Powertech Private Limited, the

Maharashtra AAR held that engineering, procurement

and construction (“EPC”) contract for supplying,

shifting and laying of underground electrical cable for

a corridor of the Nagpur Metro Rail Project was

classiable as works contract service as per GST

legislations. The AAR also held that the contract was

not eligible for a concessional rate of tax available to

original works.

FACTS

Nagpur Metro Rail Corporation (“NMRCL”) oated a

tender for shifting of transformer substation, HT & LT

overhead line and cable, etc. for the Nagpur Metro Rail

Project (“Transaction”). Yogiraj Powertech Pvt. Ltd

(“Applicant”) was awarded the said contract. The

work schedule described each

activity as a separate component

to complete the work, however, the

components were sold as a

package at a single price, under a

single tender. NMRCL insisted that

the Applicant treat the transaction as a composite

supply of works contract, pertaining to railways,

monorail and metro, and levy GST at an effective rate

of 12% in terms of Notication No 11/2017- Central

Tax (Rate) dated June 28, 2017 read with relevant

state notication (“Notication”). The Applicant had

approached the AAR with the issues detailed below.

ISSUE

i. Whether the Transaction was classiable as

works contract?

ii. Whether the concessional rate of GST in terms

of the Notication was applicable to the

Transaction?

ARGUMENTS

The Applicant contended that a “works contract”

means a contract for building, commissioning,

modication, alteration, commissioning etc. of an

immovable property, wherein transfer of property in

goods was involved in execution of contract. Relying

on judicial precedents for analysing the meaning of

“immovable property”, the Applicant contended that

only things which were attached permanently to the

land and could not be demolished should be 49considered as immovable. Applicant also tried to

draw correlation with precedents under the erstwhile

excise law which provided that

turnkey projects like power plants,

cement plants, etc. involving

supp ly o f l a rge number o f

components for installation on

foundation/ civil structure at a site

would not be considered as excisable goods. The

Applicant stated that the scope of work did not entail

construction of the entire metro project but was

restricted to shifting of overhead HT/LT lines that were

obstructing the path and providing underground

cables. Therefore, as no immovable property would

come into existence after the erection activity was

undertaken by it, the transfer would not qualify as a

composite supply of works contract.

The schedule of the tender provided for supply of

goods and services such as testing, cable wires,

cement pipes, transport, etc. The Applicant submitted

”“ Original works meanscomplete new construction.



that such supplies were naturally bundled and

supplied in conjunction with each other with the

principal supply being HT/LT cable. Moreover, it

submitted that the tender had to be accepted as a

whole and it could not accept only part of the activities.

The department agreed with the submissions of the

Applicant and submitted that cables and transformers

can be moved/shifted and re-installed at other place.

The cement concrete base was for smooth operations.

Therefore, it was not a composite supply of works

contract service and hence, the notication was not

applicable.

DECISION

The AAR reviewed the schedule detailing the work

allotted by NMRCL and observed that the Applicant

was required to a provide cement concrete foundation

for the pump wherein the pump was attached, erect an

indoor unit ring and fencing section on the CC

foundation, lay RCC Hume pipes under the ground at a

certain depth and cover it with lling to make a road

over it. Therefore, it concluded that goods were

permanently fastened to earth or attached to earth and

could not be considered as movable property.

Accordingly, it held that the Applicant was supplying

works contract services.

Additionally, in relation to the applicability of

concessional rate of GST, the AAR observed that it

was available only in relation to original works

pertaining to metro. Original works has been dened to

mean all new construction, all types of addition and

alterations to abandoned or damaged structures on

land that are required to make them workable,

erection, commissioning or installation of plant and

machinery, etc. In this regard, the AAR depended on

the statement made by the Applicant that its scope of

work was not construction of metro rail project but

shifting of existing utilities and supplying and installing

new underground cable. Therefore, it concluded that

the contract was not in relation to any original works for

applicability of concessional rate of GST.


Interestingly, the AAR has disregarded the submission

of both, the Applicant and the department. It has failed

to consider the contention that the civil structures

involved in the contract were not permanent and were

erected only for stability. Further, as the tender was in

relation to shifting of the cables, it clearly depicted that

goods were temporarily attached to earth.

Additionally, the AAR has also failed to consider the

installation of plant and machinery, and alteration of

the current structure to make it workable, as original

works for the purpose of concessional rates. In the

instant case, the tender for shifting of overhead cables

(obstruct ing the metro path) and providing

underground cables was to make the running of metro

possible. Thus, the AAR has constricted the meaning

of “original works”.

Such narrowing down of the applicability of the

concessional rate of tax would signicantly impact the

businesses engaged in making old railways, monorail

or metro structures workable.



CASE LAW UPDATES

- INDIRECT TAX

- OTHER JUDICIAL PRONOUNCEMENTS

41



ANCILLARY SERVICES PROVIDED IN CONNECTION

WITH TRANSMISSION AND DISTRIBUTION OF

42

ELECTRICITY ARE EXEMPT

50In Torrent Power Ltd, the Division Bench of the

Gujarat HC held that charges such as application fee,

meter rent, testing fee etc. were part of composite

supply where the principal supply i.e. transmission

and distribution of electricity (“Main Supply”) was

exempt from GST in terms of Entry 25 of the

Notication No. 12/2017 dated June 28, 2017

(“Notication”). Accordingly, Paragraph 4(1) of the

Circular 34/8/2018-GST dated March 1, 2018

(“Circular”), which attempted to make such supplies

taxable was held to be ultra vires to the provisions of

Section 8 of the CGST Act.

FACTS

Torrent Power Ltd (“Petitioner”) was engaged in the

business of generation, transmission and distribution

of electricity in the State of Gujarat and had distribution

franchisee for Bhivandi and Agra. It was obligated to

provide an electric plant/line for supplying electricity to

the premises of the consumer as per the Electricity

Act, 2003 (“Electricity Act”). Further, the Gujrat

Electric Regulatory Commission (“GERC”) allowed

the Petitioner to collect charges for supply of

electricity, expense incurred in providing any electric

plant/line and rent for electric meter.

Prior to the introduction of negative list regime under

the Finance Act, the activities connected with

transmission and distribution of electricity were

exempt from tax. The Petitioner did not pay service tax

on the charges collected for providing any ancillary

services on the premise that these services were

naturally bundled with the Main Supply, which was 51

outside the purview of Service Tax. The, Main Supply

continued to be exempted post introduction of GST 52

regime.

Thereafter, the Government of India vide Paragraph

4(1) of the Circular provided that services, in the

nature of releasing connection of electricity, rental of

metering equipment, testing, labour and providing

duplicate bill (“Ancillary Services”), provided by

DISCOMS were taxable. In furtherance to this, the

Directorate General of Goods and Service Tax

Intelligence issued summons to the Petitioner

requiring them to submit details of Ancillary Services

provided from the F.Y. 2012-13 till date. Aggrieved by

the same, the Petitioner approached the Gujarat HC

and challenged the vires of the Circular.

ISSUE

i. Whether Service Tax was payable on supply of

Ancillary Services?

ii. Whether Paragraph 4(1) of the Circular was

ultra vires to the CGST Act?

ARGUMENTS

The Petitioner argued that the Ancillary Services were

provided towards the Main Supply which was

exempted, as the charges for providing such services

were collected as per Electricity Act.

Alternatively, the Petitioner contended that even

where the Ancillary Services were not covered by the

Negative List or the Notication, such services would

form part of bundled services/ composite supply of

services under both erstwhile service tax and GST

regime. The test for the same was direct and close

nexus. The Petitioner submitted that Ancillary

Services were directly connected with the Main

Service as the charges for providing the same were

xed by GERC.

50 Torrent Power Ltd v. Union of India, 2019-VIL-18-GUJ. 51 Clause (k) of Section 66D of the Finance Act, 1994.52 Section 11 of the CGST Act read with Entry 25 of Notication 12/2017 Central (Rate) dated June 28, 2017.



Moreover, the Petitioner submitted that exemptions

granted by a notication cannot be revoked by a

circular. It also contended that a circular cannot be

given retrospective effect by placing reliance on 53judicial precedents . Accordingly, the Petitioner was

of the view that the Circular was bad in law and would

not be applicable from July 01, 2017.

On the other hand, the department challenged the

maintainability of the petition on the ground that

petition was directed against the summons, by relying 54

on various precedents . It further

stated that retrospective applicability

of the Circular could be interpreted by

the appellate tribunal, and an

efcacious alternative remedy was

available to the Petitioner.

The Respondents also contended that the rescinding 55

of the notications which dealt with Service

Tax exempt ion on Main Supply resc inded56

the corresponding circular (“Old Circular”)

automatically. Further, as the Old circular only dealt

with charges for installation of electricity meter and

hire charges, it was not applicable on the Ancillary

Services.

Additionally, the Respondent submitted that benets

of taxation by bundling of services would not be

available to the services falling under the negative list

as they were not chargeable to tax. The Respondent

was of the view that a reference to a service would not

include the input services used for providing such

service. Thus, ancillary/incidental services used for

providing Main Supply could not be treated as main

service. In relation to GST regime, it was argued that

Section 8 (a) of the CGST Act would not be applicable

where the principal supply was exempt from GST. It

also contended that merely because the Main Service

and the Ancillary Services were governed by the same

statute, it would not expand the scope of exemption.

In response to above argument, the Petitioner

contended that tax was leviable on the principal supply

which constitutes the predominant element of the

bundled service/ composite supply. The term

“taxability” would also include not being liable to tax.

Accordingly, services mentioned in Negative List

could be the service which gives the bundle its

essential character. Similarly, under GST legislation,

the denition of taxable supply included goods or

services which were exempt. Accordingly, an exempt

supply can be a principal supply for the purpose of

GST legislations. Thus, as the Main Service was

principal supply in the instant case, the entire bundle

of services provided would attract the

levy at the rate applicable on such

supply i.e. nil.

The department also relied upon the

settled position of law that exemption

notications were to be interpreted 57strictly. Accordingly, it was of the

view that Ancillary Services would not be included

within the purview of the Notication. Further, with

respect to retrospective applicability, it submitted that

the Circular was clarifying the position which existed 58

earlier and was not a new levy, thus it was valid.

DECISION

The HC declared Paragraph 4(1) of the Circular as

ultra vires to the provisions of the Section 8 of the

CGST Act as well as the Notication. In relation to

maintainability of the petition, the court observed that

the petition challenged the vires of the Circular and the

challenge to the summons was only an ancillary relief.

Accordingly, the petition was maintainable.

In relation to the availability of exemption, the HC was

of the view that the exemption available to the Main

Service does not change either under the negative list

regime or the GST regime. The same could not be

excluded by mere issuance of a circular having a

retrospective effect. It observed that the Old Circular

claried the stand of the Government that a service

includes essential activities having direct and close

nexus with Main Service. The HC also took note of the

alternative argument of the Petitioner in relation to

”“ An exempt supply can

be the principal supply of acomposite supply.

53 Suchitra Components Limited v. Commissioner of Central Excise, (2009) 20 VST 726 (SC); Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd., (2006) 2014 ELT 517.

54 Media Graphics v. Commissioner of Customs Chennai, 2018 (359) ELT 172 (Mad.); K . Elumalai v. Commissioner of Customs, Chennai, 2017 (355) ELT 241 (Mad.).55 Notication No. 11/2010- Service Tax dated February 27, 2010 and Notication No. 32/2010 – Service Tax dated June 22, 2016.56 Circular dated December 07, 2010.57 Commissioner of Customs v. Dilip Kumar and Company, (2018) 95 Taxmann.com 327 (SC); Novopan India Limited v. Collector of Central Excise and Customs, Hyderabad,

1994 (Supp 3) SCC 606.58 Katira Constructions Ltd. v. Union of India, (2013) 352 ITR 513 (Gujrat).



bundled service/composite supply. The HC held that

provisions for taxing a bundled service were akin to

the provisions for taxing composite supply under

Section 8 of the CGST Act. It perused the provisions of

the Electricity Act and regulations, and observed that

Ancillary Services related Main Service, were

naturally bundled in the ordinary course of business,

as they had a direct and close nexus with the same.

Thus, provision of Main service and Ancillary Services

were to be treated as provision of bundled service /

composite supply.

The HC also rejected the Respondent's interpretation

that non-taxable supply cannot form part of bundled

service. The court held that the term 'taxability' would

take within its sweep exempt supplies. Therefore, it

held that Ancillary Services were to be taxed as per the

taxability of the principal supply, namely the Main

Service.


The aforementioned judgement extensively

discusses the principles of composite supply /bundled

services. Thus, it would play a substantial role in

guiding different AARs in determining the nature and

applicable rate of GST on various supplies. It would

impact various sectors engaged in supplying multiple

services / goods such as annual maintenance

services, installation services, etc.

Moreover, the clarication provided by the judgement

that the rental charges, testing fees, etc., collected by

the DISCOMS for Ancillary Services would not be

exigible to GST, would considerably reduce the cost of

operations for the power sector.

Separately, the ruling also extends the scope of

exemption to the supplies which are naturally bundled

and includes a principal supply that is exempt from the

levy of GST.

44



SECTION 174 OF THE KERALA GST ACT, 2017 IS

CONSTITUTIONALLY VIRES

45

59 In Sheen Golden Jewels (India) Pvt. Ltd., the

Kerala HC upheld the constitutional validity of Section

174 of the Kerala GST Act, 2017 (“KGST Act”), which

deals with saving of the levy, assessment and

recovery under KVAT Act and CST Act (“Past

Taxation Events”).

FACTS

Sheen Golden Jewels (India) Pvt. Ltd. and others

(“Petitioner(s)”) were dealers registered under the

Kerala VAT Act, 2003 (“KVAT Act”) and CST Act. The

Petitioners were issued notices or orders post

operationalization of the GST

r e g i m e , a l l e g i n g e s c a p e d

assessment for assessment years

which were under the KVAT Act.

The Petitioners led writ petitions

before the Kerala HC challenging

the validity of orders and notices

issued to them under the KVAT

Act. The Petitioner also challenged the legislative

power of the State to enact Section 174 of the KGST

Act.

ISSUE

Whether the State had the legislative competence to

enact Section 174 of KGST Act post amendment of

Entry 54 of List II of Seventh Schedule (“Relevant

Entry”) of the Constitution effective September 16,

2017?

ARGUMENTS

The Petitioners contended that the Relevant Entry

which empowered the State to levy tax on sale and

purchase of goods had ceased to exist post

enactment of Constitution (One Hundred and First

Amendment) Act, 2016 (“Amendment Act”). In the

absence of any saving beyond September 16, 2017,

the States did not have the power or authority to enact

another repeal and saving provision as this would

tantamount to nullifying the provisions of the

Amendment Act, which emanated from Parliament's

constituent power. Therefore, notices issued or orders

passed were ultra vires the Amendment Act.

The Petitioner further argued that Section 19 of the

Amendment Act was a sunset provision with its expiry

on September 16, 2017. This clearly indicated that

there was a clear and unequivocal legislative intent to

hold the existing legislations as temporary statues

and stop the operation of such legislations after said

date. Therefore, the Relevant

Entry, could have survived only up

to September 16, 2017. Saving of

the Relevant Entry beyond

September 16, 2017 would have

rendered Section 19 of the

Amendment Ac t as o t iose ,

meaningless and insignicant.

Additionally, the Petitioner contended that as the

language similar to Section 174 of the KGST Act was

not adopted in the Amendment Act, it clearly indicated

that the Government had no intention in keeping KVAT

Act operational after September 16, 2017.

Further, the Petitioner submitted that the General

Clauses Act, 1897 (“GC Act”) could only be referred

when there was no repeal or saving provision under

the Amendment Act. Section 19 of the Amendment

Act, though a sunset provision, contained repeal and

saving provision. Therefore, invocation of the GC Act

to resurrect the repealed KVAT Act was not allowed.

The Petitioner lastly contended that a law i.e. KGST

Act enacted by the State legislature under the powers

granted to it under Article 246A of the Constitution

could not be the source of power to save an erstwhile

legislation enacted under the un-amended Relevant

Entry.

59 Sheen Golden Jewels (India) Pvt. Ltd. v. The State Tax Ofcer, TS-67-HC-2019(KER)-NT.

”“If a right has once been acquired

under some statute, that right will not be taken away by the repeal

of the statute under whichit was acquired.



On the other hand, the Respondent argued that the

Parl iament would have never intended for

dealers/assesses to escape the tax network and

letting the exchequer suffer. The Respondent further

argued that the power to enact the GST legislations

was not derived from the Entries in the lists of Seventh

Schedule but from the Amendment Act. Therefore, a

mere substitution of such an entry in List II of Seventh

Schedule would not impact the power of the State

Legislator to enact KGST Act including its Section 174.

The Respondent also argued that the non-obstante

clause in Section 19 of the Amendment Act mandated

tha t the ex is t i ng leg is la t ions were made

notwithstanding with anything contained in the

Amendment Act. Therefore, power under Relevant

Entry, remained available for the State under Article

246 of the Constitution even post the enactment of the

Amendment Act.

The Respondent lastly argued that whenever a new

legislation superseded an old legislation, it was

presumed that the rights accrued and liabilities

incurred under the old legislation would continue,

unless the new legislation stated otherwise.

DECISION

The Kerala HC held that the succeeding enactment

could not have rendered the previous enactment a

temporary one. Where a later enactment was

inconsistent with the previous one, the previous

enactment was to be considered as repealed, either

expressly or impliedly. The HC further held that even

when an enactment was repealed, the rights or

obligations accrued under the said enactment could

not be taken away by way of repeal, and that's where a

saving clause came into picture.

The HC looked into the meaning of 'saving clause' and

held that since the KGST Act had its own saving

clause i.e. Section 174 of the KGST Act, there was no

need to refer to the savings clause under Section 6 of

the GC Act. The said clause was enacted to save the

previous operations of any rights, obligations or

liability acquired, accrued or incurred under the

repealed or amended acts. Thus, the repeal of the

previous enactments had not affected any rights and

obligation accrued to the assesses under such

previous enactments.

The HC further observed that Section 19 of the

Amendment Act was not a saving clause as any

saving clause operated from the last day of the

previous act, whereas, it saved nothing beyond

September 16, 2017.

The HC held that Article 246A of the Constitution

provided for a new legislative eld conferring power

to enact laws outside the three Lists of the Seventh

Schedule. Thus, the power which was exclusive

to States was now simultaneously exercised by

the Centre. Accordingly, the HC was of the view that

while Relevant Entry was substituted, the power

to enact Section 174 of the KGST Act came from

the newly inserted Article 246A of the Constitution.

Consequently, the State legislatures were

empowered to enact law on the said subject matter.


This decision of the HC is an important decision for

erstwhile indirect tax regime as it upholds the

applicability of a repealed law on any rights,

obligations or liability acquired, accrued or incurred,

legal proceedings of matters pertaining to assessment

periods when such repealed law was in place. The

judgment however doesn't address the pertinent

questions such as “revive” and limitation. Thus, such

argument would still continue.

Hence, it seems that any order passed or notice

issued under laws repealed and saved by KGST,

could not be challenged on the ground of lack of

legislation. Recently, the aforementioned ruling was

relied upon by Kerala HC to dismiss the writ petition

challenging Section 174 of KGST Act to be ultra vires 60of the state's legislative power .

Moreover, the HC has clearly reiterated that the State

legislature is competent to enact law under any other

Article of the Constitution apart from subjects

mentioned under Schedule 7 of the Constitution.

60 Vajra Wheel Impex v. The State Tax ofcer, TS-106-HC-2019(KER)-NT



PRE-IMPORT CONDITION ON INPUTS IMPORTED

UNDER ADVANCE AUTHORIZATION SCHEME IS ULTRA

VIRES THE FTP

47

61In the case of M/s Maxim Tubes Company , the

Gujarat HC held that the 'pre-import condition',

imposed on inputs imported under Advance

Authorization (“AA”) scheme, had no nexus with the

objectives of the said scheme. It was held that the 'pre-

import condition' was ultra vires the FTP and hence

unsustainable in law.

FACTS

M/s Maxim Tubes Company (“Petitioner”) was a

recognized export house engaged in manufacture and

export of goods like stainless steel

seamless, welded pipes, tubes, U-

tubes, etc.

The Petitioner also exported its

products under AA scheme and in

relation to the same, it imported

inputs in terms of Notication No. 18/2015-Cus. dated 62April 1, 2015 (“Impugned Notication”). In this

regard, The Directorate of Revenue Intelligence,

Kolkata (“DRI”) issued notices to the Petitioner and

several other companies (referred together as

“Petitioners”), requesting them to submit information

regarding compliance of 'pre-import condition', newly

inserted in Impugned Notication and para 4.14 of the

FTP. The Petit ioner submitted the requisite

documents to the DRI.

As per the DRI, 'pre-import condition' required goods

to be imported rst and used in the manufacture of

nal products for export. Therefore, the Petitioner

approached the HC challenging the insertion of said

'pre-import condition' in the Impugned Notication and

the FTP.

ISSUE

Whether 'pre-import condition' imposed on import of

inputs under AA scheme was valid and sustainable in

law?

ARGUMENTS

The Petitioner argued that the pre-import condition

was wholly unreasonable and illegal as it had no

nexus with the objective of AA scheme i.e. to

encourage exports. The said condition was inserted

without any rationale or basis and

was also against the objectives of

AA scheme. Therefore, it was

violative of Article 19(1)(g) of the

Constitution and deserved to be

set aside.

The Petitioner also argued that the

manufacturer-exporters required three to four months

to manufacture and deliver goods for export. In the

event, where exporters were required to comply with

the said condition, such order would typically take

them ve to six months to execute. Therefore, it was

virtually impossible for most of the manufacturers-

exporters to comply with such condition. Further, since

such goods had no identication marks/serial number,

it was not possible for the exporters to establish that

the goods imported under an AA were utilized in the

manufacture of goods to be exported under that

particular AA only.

The Petitioners also argued that imposing such

condition, merely because GST was implemented,

was wholly unjustied and irrational. Moreover, it

caused hardship to the exporters as it resulted in

blockage of working capital. Therefore, such a

”“Pre-import condition is not required

to be fulfilled for imports of inputunder the AA scheme.

61 M/s Maxim Tubes Company Pvt. Ltd. v. Union of India 2019 (2) TMI 1445 - Gujarat HC.62 The Notication No. 18/2015-Cus. dated April 1, 2015 was amended vide Notication No.79/2017- Customs dated October 13, 2017 to exempt the import of goods under the

AA scheme from the payment of IGST and Compensation Cess, subject to the ‘pre-import condition’.



condition was ultra vires Articles 14 and 19(1)(g) of the

Constitution.

The Petitioners contended that while the pre-import

condition was inserted in the Impugned Notication

and FTP, paragraph 4.27 of the HBP and the EDI still

allowed exports in anticipation of AA. Thus, such

provisions of the HBP and procedure on the EDI

system were disregarded by insertion of such 'pre-

import condition'.

The Petitioners further argued that since, the pre-

import condition was ambiguous and vague, it

deserved to be set aside.

The Petitioners lastly contended that said 'pre-import

condition' has been omitted from the Impugned

Notication for being contrary to the public interest, 63

with effect from January 10, 2019. Therefore, it was

argued that since such omission was curative in

nature, it should apply retrospectively.

On the other hand, the Union of India and others

(“Respondents”) contended that since the FTP and

Impugned Notication were in the nature of scal

policies, these were not amenable to judicial review. It

was further argued that the concession granted by the

Government did not confer the beneciaries with any

legally enforceable right against the Government,

except to enjoy its benets during period of grant.

The Respondents further argued that exports were

zero-rated under the provisions of GST legislations. In

such a case, extending IGST exemption on

replenishment imports, would result in double benet

to the exporters as the importers could also avail the

credit of IGST paid on replenishment material.

The Respondents also argued that the exemption

provisions had to be construed strictly and the

conditions for the availability of such exemption were

required to be complied with for the enjoyment of such

benet.

It was also contended that the pre-import condition

was not a mandatory condition for import of goods

under the AA scheme. The importers had the option to

either continue paying IGST on the goods imported

under AA scheme or to avail benet of IGST by

complying with such pre-import condition. Therefore,

such conditions could not be held as invalid and

unsustainable in law.

JUDGEMENT

The HC agreed with the contention of the Petitioner

and held that the pre-import condition made it nearly

impossible for the manufacturer-exporter to make

exports under an AA scheme without violating the said

condition. The HC further held that the said condition,

rendered the AA scheme nugatory, as it did not boost

exports which was the objective of the AA Scheme,

and rendered it unsustainable in law.

Regarding the Respondent's argument in relation to

the exemption on IGST being an option for importers,

the HC held that the Government could not just state

that it was an option for the importers to either take it or

leave it. The Government was empowered under

Section 25 of the Customs Act to provide such

exemptions. Such powers were required to be

exercised in public interest and not just for the sake of

exercising such powers. Therefore, by contending

that it was an option, the Government had, in effect

and substance, granted the aforesaid benet by one

hand and taken away the same by the other.

The HC also noted that there was no change in the

basic scheme of AA, which warranted a different

procedure than the one which existed under the pre-

GST regime.

In relation to the arguments on replenishment import,

the HC observed that the Respondents had failed to

explain as to how import of goods in anticipation of AA

amounted to replenishment scheme. The HC

observed that there were special replenishment

schemes under the FTP, however, the AA scheme was

not envisaged as replenishment of inputs. Hence,

there was no question of replenishment or double

benet to Petitioners insofar as the AA scheme was

concerned.

In light of the above, the HC held that the 'pre-import

condition' did not meet the test of reasonableness,

and was ultra vires the scheme of the FTP and HBP.

Therefore, such condition was required to be quashed

and set aside.

63 Notication No. 53/2015-2020 dated January 10, 2019.

48



Accordingly, the HC held that all proceedings initiated

for violation of 'pre-import condition' would no longer

survive.


The aforesaid landmark judgment of the Gujarat HC to

quash the pre-import condition comes as a major relief

to all such authorization holders (exporters) who were

caused undue hardship by the DRI on the issue of pre-

import condition. This decision would also reduce the

number of litigation on similar issue before various

forums.

It may be noted that the pre-import condition was

inserted in the Impugned Notication on October 13,

2017 and was later omitted on January 10, 2019.

Thus, the dispute pertains only to the interim period of

approximately 14 months. However, even after more

than three months of pronouncement of this decision

by the HC, no notication/circular has been issued by

the concerned department to make the omission of

pre-import condition effective from its inception.

It may be noted that the validity of the pre-import 64

condition was earlier upheld by the Madras HC.

Subsequently, the Division Bench of the said HC

granted an interim stay on ongoing investigation

proceedings in the writ appeal led against the

aforesaid order.

The CBIC has recently issued an instructions directing

the petitioners to apprise the HCs about the order of 65

the Madurai Bench of the Madras HC and that the

CBIC is considering ling of Special Leave Petition

before the SC challenging the order of the Gujarat HC

in the present case. Given the current position, it the

imperative that the SC examines the matter at the

earliest.

64 W.P. No. 18435 of 2018 65 F. No. 276/73/2019-CX.8A dated April 23, 2019

49



NO ACTUAL USER CONDITION OR RESTRICTION ON

VARIETY CAN BE IMPOSED ON IMPORT OF INPUTS

UNDER DFIA LICENSE

50

66In Shah Nanji Nagsi Exports Pvt. Ltd., the Nagpur

Bench of the HC of Maharashtra held that import of

input (maize) of any variety was permissible under the

DFIA scheme in the absence of restriction or condition

(as regards to the variety, quality or characteristic of

the maize) specied under the SION or in the DFIA

license issued.

FACTS

Shah Nanji Nagsi Exports Pvt. Ltd. (“Petitioner”) was

an exporter/merchant exporter, engaged in export of

various commodities including

inter-alia maize starch powder,

under the DFIA scheme. Pursuant

to export of maize starch powder,

the Petitioner imported a specic

variety maize i.e. popcorn (as

allowed under Entry E75 of the

S ION) w i thou t payment o f

customs duties under the DFIA scheme.

The Petitioner led applications for issuance of DFIA

licenses before the DGFT (“Respondent”) for

allowing 'maize' as inputs against the export of 'maize

starch powder'. Although the prescribed norms and

conditions were fullled, the Respondent withheld

issuance of the authorization under the DFIA scheme

to the Petitioner.

Aggrieved by the above, the Petitioner led the writ

petition.

ISSUES

i. Whether the DFIA license holder was eligible to

import any variety of maize including maize

(popcorn) which was capable of being used in

manufacture of export item?

ii. Whether the 'actual user condition' was

applicable on import of inputs under DFIA

Scheme?

ARGUMENTS

The Respondent contended that the Petitioner

imported a generic input i.e. maize (without endorsing

the name of specic input i.e. popcorn maize on the

shipping bills, and thus, violated para 4.12(i) of the

FTP. The Respondent further argued that import

under the DFIA scheme was subject to an actual user

condition as per Policy Circular

No. 2 dated February 14, 2017. As,

the Petitioner sold the imported

popcorn in domestic market, it also

violated the actual user condition.

The Respondent also contended

that the Petitioner had misused the

DFIA scheme in the past. It was

argued by the Respondent that SION only permitted

import of 'maize' as against the export of 'maize starch

powder'. However, the Petitioner imported popcorn

which was much costlier (four times) than maize and

thus, caused heavy loss to the Government

Exchequer.

On the other hand, the Petitioner contended that Entry

No. E75 of SION referred to the input commodity as

“maize” and did not impose any restriction on such

import. Therefore, popcorn could be imported against

DFIA licence issued for export of maize starch powder.

The Petitioner further argued that the Respondent

were not empowered to insert or impose any new

restriction/condition on such import, which never

existed under the FTP. Regarding actual user

condition, the Petitioner argued that the said policy

circular was in relation to the AA Scheme and not DFIA

”“Imposition of actual user condition onimport of input under DFIA amounts

to adding a new condition in theFTP which never existed.

66 Shah Nanji Nagsi Exports Pvt. Ltd. v. Union of India, 2019 VIL 128 BOM-CU



Scheme. It further argued that the policy circular could

not be implemented retrospective.

The Petitioner lastly argued that “maize”, as

mentioned in Entry E75 of the SION, was a specic

term in itself and not a generic term, such as cereal.

Therefore, para 4.12 of the FTP, which required

endorsement of specic input, was not applicable.

JUDGMENT

The HC held that para 4.12 (1) of the FTP was not be

applicable in case of maize since it was not a generic

term, and can be well construed as a specic term in

itself.

The HC further noted that there was no mandate of

'actual user condition' for import of maize under the

SION as well as the DFIA scheme or the license

issued. The HC noted the 'General Notes for all Export

Products Groups' and held that the only requirement

for import under DFIA scheme was that maize should

be capable of being used in manufacture of 'maize

starch powder'. The FTP did not require such maize to

be actually used in such manufacture. Additionally, the

scheme itself was of a transferable authorisation

which claried that there was no actual user condition

on such import. Therefore, no actual user condition

could be imposed on such import under DFIA scheme.

Further, the HC held that imposition of any such

condition on import under the DFIA scheme, would

amount to adding conditions in the FTP, which was

never the intention of the legislature.

The HC also observed that the DFIA license and Entry

No. E75 of the SION permitted the import of 'maize'

without putting any restriction or condition as regards

the variety, quality or characteristic of maize.

Therefore, the DGFT could not hold the import of

popcorn to be invalid, by adding a restriction which

was not in the FTP.

In light of the above, the HC held that the Petitioner

was entitled to import popcorn variety of maize under

the DFIA license while Respondent was to evaluate

fullment of other conditions for issuance of license.


Presently, investigations are underway as well as writs

petitions are pending adjudication before different

HCs, on issues pertaining to various aspects of the

DFIA scheme, such as, actual user condition, import of

a specic variety of the input under SION, etc. This

landmark decision of the HC is rst of its kind wherein

most of the aforesaid issues are analysed in detail.

Thus, this decision comes as a great relief to the

litigants currently undergoing investigation /

adjudication, as it may be used as a judicial

precedence before HCs and other authorities.

It may be noted that while the present case was

pending adjudication, a transfer petition was led

before the SC to transfer other similar matters to the

HC of Maharashtra, Nagpur Bench for a combined

hearing and order. However, since the HC has already

disposed off this matter, a request may now be made

to the SC directing the HCs to pass orders in pending

matters on similar lines.



INCREASE OF PRICE OVER AND ABOVE THE DENIED

ITC AMOUNTS TO PROFITEERING

67 Sh. Kiran Chimirala v. M/s Jubilant Food Work Limited, Case No. 4/2019 – NAA.

52

In M/s Jubilant Food Work Limited 67

(“Respondent”) , the NAA held that the Respondent

has proteered by charging higher price than it could

have charged by issuing incorrect tax invoices.

FACTS

The Respondent is engaged in the business of

operating quick service restaurants under the brand

name "Domino's Pizza" and has a pan-India

presence.

A complaint was made through an email against the

Respondent alleging that the Respondent had

increased the base price of stuffed garlic bread and

med veg extrava (medium veg

pizza), after the reduction of GST

rate on restaurant services from

18% to 5% w.e.f. November 15,

2017, in order to maintain their

pre-rate cut gross selling price.

The DGAP issued a notice of

initiation of investigation for the period between

November 15, 2017 and May 31, 2018 to the

Respondent on January 25, 2018.

A detailed investigation was conducted by the DGAP

and it concluded that the Respondent had proteered.

ISSUES

Whether the benet of GST rate reduction after taking

into account the denial of ITC, was passed on to the

consumers in terms of Section 171 of the CGST Act?

ARGUMENTS

The DGAP contended that the Section 171 of the

CGST Act mandated that the benet was to be passed

on through reduction in price in absolute terms so that

the nal price payable by the consumer is reduced and

by no other means. Therefore, the Respondent by not

reducing the price, failed to comply with the said

provision.

The DGAP reported that the Audited Financial

Statements indicated that the Respondent had not

incurred losses due to denial of ITC. The Financial

Statements also reected that the prots had

increased substantially as compared to the increase in

sales.

The DGAP also highlighted that the base price of 314

items out of 393 products was increased on eve of the

rate-cut and GST was levied at 5% on such increased

price. Hence, the cum-tax price

paid by the consumer had not

been reduced, commensurately.

In order to analyse the impact of

d e n i a l o f I T C , t h e D G A P

determined the percentage of ITC

available to the Respondent at

5.59% of the net taxable turnover.

However, it stated that the Respondent had increased

the base prices by more than 5.59% (more than what

was required to offset the impact of denial of ITC) in

respect of 170 items. Therefore, in respect of those

items the commensurate benet of reduction in the

rate of tax had not been passed on to the customers.

On the other hand, the Respondent argued that the

appl icat ion was led for two di fferent and

incomparable products. Further, the Respondent also

argued that the investigation should be restricted to

the products for which complaint was led. The DGAP

contended that the said claim was not sustainable as

the application has been led with respect to

restaurant services (from which the subject products

were bought).

”“Companies have no unfettered

discretion to pass on benefitselectively as per their own whims

and fancies.



The Respondent argued that the procedure and the

mechanism for determination and calculation of

proteering has not been prescribed. The calculation

and methodology used on case-to-case basis was

arbitrary and contrary to the constitutional mandate as

well as to the principles of natural justice. Further, the

Respondent relied on various judicial precedents,

wherein it was held that unless the methodology was

in place no action could be initiated.

The Respondent also submitted that while calculating

the alleged proteered amount, the DGAP had

wrongly added a notional 5% of proteered amount

without explaining the reasons. The Respondent was

of the view that the amount was added due to GST and

the same had been duly collected and deposited with

the Government. Therefore, addition of such notional

amount was illegal.

The Respondent claimed that it should be considered

as an entity supplying restaurant services and hence,

the proteered amount should be calculated on basis

of the Prot & Loss Account and not item (SKU) wise.

Further, the Respondent stated that although all

stores were independently registered, the DGAP had

treated it as one entity. In this regard, the DGAP

submitted that it was justied in applying the

provisions of anti-proteering at the Product/SKUs

level in the absence of invoice-wise outward taxable

supplies data.

Further, the Respondent objected the methodology

similar to “zeroing methodology” adopted by the

DGAP, as the Government of India had objected such

methodology at the WTO. Further, the Respondent

cited a report, wherein the plea of the Government of

India was accepted and it was ordered that both

positive and negative margins should be taken into

account while calculating the amount of proteering.

The Respondent submitted that as the government

had not prescribed any methodology for passing of the

benet, they had to use their best judgement in view of

their business operations and global practices.

Further, the Respondent also submitted that the

DGAP had not taken cognizance of other factors

affecting price of a product, which were taken into

account in its previous decisions. The DGAP

countered such claim of the Respondent by stating

that the variable cost of the Respondent had reduced

in F.Y. 2017-18 even if ination was not taken into

account.

The Respondent submitted that the DGAP had failed

to consider the impact of increased sales and reduced

xed expenses per unit or percentage to the sale and

thus, the conclusion drawn that the sharp increase in

prot was due to proteering was factually incorrect.

The Respondent had further claimed that the DGAP

had wrongly computed the amount of eligible increase

due to non-availability of ITC as 5.59% instead of 7%

due to factual and arithmetical error. The DGAP

argued that the Respondent had claimed a large

amount of ITC on 14.11.2017 and the actual date of

availment was not available with the DGAP.

The Respondent argued that since the menu prices

were constant throughout the country the same

should have been taken it to account instead of net

sale realization which differed based on the various

discounts offered to the customers. The DGAP

submitted that GST was chargeable on actual

transaction value after excluding any discount.

Therefore, for the purpose of computation of

proteering, menu price or MRP could not be

considered instead of actual sale price.

The Respondent stated that it would have no objection

if the order was passed beyond the statutory period of

3 months due to recalculation of proteered amount

on invoice basis.

The Respondent stated that when it had reduced the

rate of tax and increased the prices due to denial of

ITC and other commercial reasons it could not be

termed as proteering. Any restriction on price

increase would amount to 'price control' or 'price

regulation' which would violate the freedom to carry on

trade or business guaranteed under Article 19(1)(g) of

the Constitution. The Respondent also contended that

the proteered amount had been calculated till May

2018 and was not sure till what period it could not

increase the prices so as not to invite anti-proteering

provisions.

Further, the Respondent submitted that the present

proceedings were in violation of the principle of natural

justice as no show cause notice had been issued

intimating the action contemplated against it.

53



Lastly, the Respondent pleaded that the ndings given

by the NAA in the case of Jijrushu N. Bhattacharya v.

M/s NP Foods (Case No. 9/2018), that the increase in

the basic prices was commensurate with the loss of

ITC, was squarely applicable to the present case.

DECISION

The NAA observed that the DGAP had the jurisdiction

to extend its investigation and take cognizance even

where a complaint had not been made in respect of the

product(s).

The NAA held that it was established that the

Respondent had proteered, as the higher sales

realization was due to increase in the base price,

despite reduction in the rate of tax.

Further, the NAA held that no xed method of

calculation of proteered amount can be prescribed as

the various parameters are required to be taken in to

account, which may vary from industry to industry and

from one product to another. The NAA also held that it

was duty of the Respondent to ascertain the products

on which rate of tax had been reduced and account for

the impact of denial of ITC, prior to price revision. The

whole exercise needed no directions from it as it

involves simple mathematical calculations.

The NAA observed that on account of ination the

Respondent should have increased the prices

anytime from April to October 2017 and had no reason

to increase them from the midnight of 14/15th

November, 2017. Such action of the Respondent was

malade and illegal.

Further, the NAA held that all claims of the

Respondent of having suffered losses due to denial of

ITC, were not supported by nancial statements and

hence, were completely unworthy of reliance.

The NAA upheld the amount of eligible ITC calculated

by DGAP. Further, the NAA held that the DGAP has

rightly considered the average sales realization for

computation of proteering amount as discount

offered by the Respondent cannot be added while 68

calculating the turnover .

The NAA also observed that the Respondent was

quite ignorant, in claiming that anti-proteering

provisions amount to price regulation on one hand and

on the other hand submitting supporting regulations of

other countries that regulate pricing.

The NAA held that the DGAP had rightly added 5%

GST, as the Respondent had compelled the

consumers to pay additional GST on the increased

base price and denied passing on the benet of rate

reduction.

Moreover, the NAA stated that the benet of reduction

in rate of tax has to be passed on every products sold

to the customers. Denial of such benets would be hit

by Article 14 of the Constitution of India.

In addition, the NAA observed that provisions of

Section 171 of the CGST Act were not comparable

with the issues of anti-dumping margins and hence,

the same were irrelevant to the facts of the present

case. Further, applying the netting off principle at an

entity level would result in denial of benet to the

recipients individually.

The NAA also stated that a notice for investigation had

been issued to the Respondent and the Respondent

had led detailed submissions in response to the

DGAP report. Hence, the objection of non-issuance of

show cause notice, raised in additional submissions

by the Respondent was an afterthought to evade

consequence of its illegal act.

In light of the above discussion, the NAA held that in

total, the Respondent had proteered an amount of

INR 41.42 crores. Further, the NAA directed the

Respondent to deposit the amount in 50:50 ratio along

with interest at the rate of 18%, in the Central and the

State CWFs in accordance with Rule 133(3)(c) of the

CGST Rules.


Once again, the NAA has completely disregarded

other factors which affect pricing of products, while

determining the proteered amount, without any

reasonable basis. Therefore, even where market

factors inate the cost of production, businesses are

68 Section 15(3)(a) of the CGST Act.

54



compelled to reduce the prices of their products and

incur losses so as to avoid any anti-proteering

proceedings by the DGAP or NAA.

It must be noted that while the NAA has already passed

more than 50 orders including the present order,

various issues still remain untouched and undecided.

In the instant order, though the NAA held that any

increase in pricing ought to be undertaken only prior to

the change of rate of GST or after elapse of a

reasonable time post such change, what would be

considered as 'reasonable time', continues to be

ambiguous. Further, the jurisdiction of the DGAP

remains unmarked as even when complaints are led

only in relation to a specic stock keeping unit,

investigations are usually conducted against the entire

Company. In the present case, the NAA has even

exceeded its jurisdiction and has directed the DGAP to

conduct investigation against all the franchise of the

Company without any specic compliant.

What is presently more worrisome is, NAA's reaction to

the recent reduction in rate of GST on real estate

services effective April 1, 2019. The real estate sector

may face challenges in implementing such changes.

Additionally, since the NAA has evidently refused to lay

down a general methodology to compute the

commensurate reduction in price, the industry is left

with the only options of adopting measures as per its

best judgement. In such a scenario, it is likely that a

new round of notices would soon see its way to the real

estate developers.

It may also be noted that a writ petition challenging the

present order along with the constitutional validity of

anti-proteering provisions under Section 171 of

CGST Act has already been led before the Delhi HC.

Thus, the fate of this decision as well as the provision

itself is dependent upon the decision of Delhi HC.

55



REGULATORY DIRECT

TAX UPDATES

56



CBDT extends due date for ling of CbC reports of

constituent entities having USA parent entities

69Through a recent circular, the CBDT has extended

the due date for furnishing the CbC report for

constituent entities in India having parent entities in

the USA to March 31, 2019. The provisions of section

286(4) of the IT Act require a ‘constituent entity’ of an

international group, resident in India to le the CbC

report if the parent entity is resident in a country or

territory:

(a) where the parent entity is not obligated to le the

CbC report;

(b) with which India does not have an agreement

providing for exchange of the CbC report; or

(c) where there has been a ‘systemic failure’ i.e. the

country has suspended automatic exchange of

reports under (b) above or has persistently

failed to automatically provide the report in its

possession to India.

The ling of the CbC report by the constituent entity

under section 286(4) is required to be made within

twelve months from the last date of the reporting

accounting year.

70 The CBDT had in its earlier circular, as a one-time

measure, extended this due date to March 31, 2019.

This revision was for ling of such report by the Indian

constituent entity whose parent entities are resident in

USA, for accounting year of the parent entity ending till

February 28, 2018. This timeline to le the CbC report

has now been revised to April 30, 2019 for furnishing of

the CbC report by such constituent entities, in respect

of reporting accounting years ending up to April 29,

2018.

The Bilateral Competent Authority Arrangement,

along with an underlying Inter-Governmental

Agreement, for exchange of CbC Reports between

India and the USA has been signed on March 27, 2019

to enable both the countries to exchange CbC Reports

led by the ultimate parent entities of ‘international

groups’ in the respective jurisdictions, pertaining to the

FYs commencing on or after January 1, 2016.

Consequently, Indian constituent entit ies of

international groups headquartered in USA, who have

already led CbC Reports in the USA, would not be

required to do local ling of the CbC Reports of their

international groups in India. However the agreement

would come into force once notied after completion of

internal procedures by India and USA. This revision

for ling the CbC report has been made to factor in

non-notication of the inter-governmental agreement

for exchange of CbC reports between India and USA

and the resultant non-activation of the exchange

mechanism between the countries.

DPIIT modies the angel tax exemption regime

On February 19, 2019, the Department for Promotion

of Industry and Internal Trade (“DPIIT”) notied certain

changes to the regime of exemption from taxation

under section 56(2)(viib) of the IT Act, granted to start-71

ups issuing shares at a premium (“Notication”).

Although the earlier procedure for application by the

start-up to the DPIIT (earlier the Department of

Industrial Policy and Promotion) for exemption

remains unaltered, certain conditions associated with

the granting of exemption have been relaxed by the

Notication.

72 Under the Notication, a start-up would be granted

the above exemption from taxation:

(a) for a period of up to ten years from the date of

incorporation or registration (earlier seven

years);

(b) if its turnover for any of the nancial years since

incorporation or registration has not exceeded,

and does not exceed, INR 100 crore (earlier INR

25 crore); and

(c) if the aggregate amount of post issue paid up

share capital and share premium of the startup

does not exceed INR 25 crore (earlier INR 10

crore). Please note that in computation of the

aggregate amount of post issue paid up share

capital and share premium of the startup,

57

69 Circular No. 7 of 2019 dated April 8, 201970 Circular No. 9 of 2018 dated December 26, 2018.71 DPIIT Notication No. G.S.R. 127(E) dated February 19, 2019.72 A rm / LLP / private limited company which works towards innovation, development or improvement of products or processes or services, or if it is a scalable business

model with a high potential of employment generation or wealth creation.



amounts in respect of shares issued to (a) non-

residents, (b) venture capital companies/funds

and (c) public companies with quoted shares

and having a net worth of at least INR 100 crore

or turnover of at least INR 250 crore are not

required to be included.

Certain restrictions have been added with respect to

the investments that the start-up has made and can

make for a period of seven years from the end of the

FY during which shares are issued at premium:

(a) no investment in residential property (other than

that used for the purposes of renting), non-

residential property (other than that occupied for

business or used for purposes of renting), loans

and advances, motor vehicles (the actual cost of

which exceeds INR 10 lakh) and jewellery,

except in the ordinary course of business; and

(b) no capital contribution to any other entity, or

investment in shares and secur i t ies ,

archaeological drawings, drawings, paintings,

sculptures, any work of art and bullion.

Aiming to further simplify the exemption process, the

requirement of merchant banker valuation report for

FMV of the shares and preconditions relating to the

angel investor’s average returned income and net

worth have been eliminated.

The Notication is applicable to all issues of shares at

a premium by those start-ups who are granted

exemption by the DPIIT, except those issues in

respect of which assessment under section 56(2)(viib)

of the IT Act has already been completed prior to

February 19, 2019.

73Through a notication dated March 5, 2019, the

CBDT has formalized the exemption regime as

intended through the Notication. Accordingly, all

start-ups that register themselves and comply with the

requirements of the Notication in terms of

investment, paid up share capital, etc., will

automatically qualify for tax exemption from the

application of section 56(2)(viib) without any

additional hurdles. Recent news reports also suggest

that the DPIIT is in the process of seeking

stakeholders’ comments on introducing a denition of

“accredited investors” in the exemption regime. The

amounts invested by such accredited investors would

not have to be included in the computation of the

aggregate amount of post issue paid up share capital

and share premium of the startup (described in point

(c) above).

58

73 CBDT Notication No. S.O. 1131(E) dated March 5, 2019.



REGULATORY INDIRECT

TAX UPDATES

59



Creation of the National Bench of the GST

Appellate Tribunal (GSTAT) at New Delhi

Ministry of Finance vide Notication No. 01/2019 -

S.O. 1359(E) - Central GST (CGST), dated March 13,

2019 has notied creation of the National Bench of the

GSTAT at New Delhi to hear appeals against the

orders passed by the appellate authority or revisional

authority.

Extension of exemption on levy of IGST and

Compensation Cess on goods imported under

Advance Authorisation, EPCG scheme and Export

Oriented Unit (“EOU”) schemes, up to March 31,

2020

The customs notications exempted the import of 74 75

goods under EOU schemes , Advance Authorisation 76

and EPCG scheme from the levy of IGST and

compensation cess under sub-sections (7) and (9),

respectively of Section 3 of the CT Act till March 31,

2019. Vide Notication No 9/2019-Customs dated

March 25, 2019, the CBIC has extended the benet of

such exemption till March 31, 2020.

CBIC imposed new conditions on exemption of

IGST on imports of goods after discharge of full

export obligation under advance authorization

and advance authorization for annual requirement

CBIC, vide Notication No. 1/ 2019 –Customs, dated

January 10, 2019 while removing the pre-import

condition has interleaved the requirement to furnish a

bond to Assistant/Deputy Commissioner of Customs

at the time of clearance of goods, where the holder has

fully discharged his export obligation and has taken

ITC of inputs used in manufacture and supply of goods

exported. The said bond binds the holder to use

material imported, in his factory or in the factory of his

supporting manufacturer in the manufacture and

supply of taxable goods (other than nil rated or fully

exempted goods). Further, the holder is required to

submit a certicate from chartered accountant within 6

months from date of clearance of the said material.

The said requirement to furnish a bond would not be

applicable in either of the following scenarios:

a) where the holder pays IGST and Compensation

Cess on the imported material; or

b) where the holder has not availed ITC of inputs

used in manufacture and supply of goods

exported and is able to submit a proof to this

effect to the satisfaction of Assistant / Deputy

Commissioner of Customs.

CBIC imposed condition on treating supply of

goods as deemed export by a registered person

against Advance Authorization

CBIC, vide Notication No. 1/ 2019 –Central Tax,

dated January 15, 2019 while deleting the pre-import

condition has inserted a proviso that the goods

supplied against advance authorization shall be

treated as deemed exports where they are used for

the manufacture and supply of taxable goods (other

than nil rated or fully exempted goods). Such

conditions need to be fullled only where the supplier

has exported goods availing the ITC of inputs used in

manufacture of such exports. Further, the supplier is

required to submit a certicate from chartered

accountant within 6 months from date of said supply.

However, no such condition is applicable if ITC has not

been availed on inputs used in manufacture of goods

for exports.

Increase in threshold l imit for avai l ing

composition levy scheme

CBIC, vide Notication No. 14/2019 –Central Tax,

dated March 07, 2019 has increased the threshold for

availing composition levy scheme from INR 1 Crore to

INR 1.5 Crores (aggregate turnover in the preceding

nancial year) with effect from April 01, 2019.

However, for Arunachal Pradesh, Manipur,

Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and

Uttarakhand the threshold limit is INR 75 Lakhs.

Increase in threshold for registration under GST

legislations

CBIC, vide Notication No. 10/2019 –Central Tax,

dated March 07, 2019 has increased the threshold

limit for a person exclusively engaged in supply of

60

74 Notication No. 52/2003- Customs dated March 31, 200375 Notication No. 18/ 2015 – Customs dated April 01, 2015; For annual requirement - Notication No. 20/ 2015 – Customs dated April 01, 2015; For export of prohibited goods

- Notication No. 22/ 2015 – Customs dated April 01, 2015; Under Special Advance Authorization Scheme - Notication No. 45/ 2016 – Customs dated August 13, 201676 Notication No. 16/ 2015 – Customs dated April 01, 2015



goods to be liable to be registered under GST

legislations, from INR 20 lakhs to INR 40 lakhs, subject

to prescribed exceptions with effect from April 01,

2019.

New composition scheme for supplier of both

goods and/or services

CBIC, vide Notication No. 2/2019 –Central Tax Rate,

dated March 07, 2019 has prescribed a concessional

rate of CGST at 3% for rst supplies of goods and/or

services upto an aggregate turnover of fty lakh

rupees made on or after the 1st day of April in any

nancial year, by a registered person subject to

prescribed conditions.

Clarication regarding rate of GST applicable on

supply of food and beverage services by an

educational institution

Circular No. 85/04/2019-GST dated January 01, 2019

has claried that the supply of food and beverage

services made by an educational institution to its

student, faculty and staff would be exempt. However,

where the supply of food and beverage was made by

any other person based on a contractual arrangement

with educational institution, it would be subject to GST

at an effective rate of 5%.

DGFT inserted Import policy for electronics and IT

Goods

DGFT vide Notication No. 50/2015-2020 dated

January 08, 2019 notied that import of goods listed

under the Electronics and Information Technology

Goods (Requirement of Compulsory Registration)

Order, 2012, as amended from time to time, would be

allowed on fulllment of either of the following

conditions:

a) Registration with the Bureau of Indian Standards

(“BIS”), or

b) Specic exemption letter from the Ministry of

Electronics and Information Technology 77

(“MeitY”) for a particular consignment .

Thus, import of such goods in any other circumstance

is "prohibited". Such import consignments shall be re-

exported by the importer. The Customs shall deform

such goods, where importer fails to re-export, and

dispose them as scrap under intimation to MeitY.

DGFT claries that capital goods cannot be

imported under the EPCG scheme for distribution

of electricity

DGFT vide Public Circular No. 15/2015-2020 dated

January 04, 2019 claried that transmission and

distribution of electricity are the same process of

supplying of electricity. Thus, as EPCG scheme does

not permit import of capital goods for supply/export of

electricity, import of capital goods for distribution of

electricity was also not permitted.

DGFT has imposed new conditions on clubbing of

authorisations

Public Notice No. 70/2015-2020 dated January 30,

2019 has amended Para 4.38 of the HBP which deals

with the facility of clubbing of authorizations such as

advance authorization and duty free import

authorization. In terms of the said amendment, the

authorization issued within 18 months from the date of

earliest authorization (which is to be clubbed) shall be

clubbed on request of the holder. It also imposes an

additional condition that imports made within 30

months from the date of issue of the earliest

authorization shall be considered and the rest would

be regularized as per HBP.

Trust can set up SEZ

Vide Special Economic Zones (Amendment)

Ordinance, 2019 dated March 02, 2019, the denition

of person under Section 2 (v) of the SEZ Act has been

amended to include trust and any other entity notied

by the Central Government.

61

77 Gazette Notication SO No.3022 dated 11.09.2013



GLOSSARY

ABBREVIATION MEANING

AAR Hon’ble Authority for Advance Rulings

AAAR Hon’ble Appellate Authority for Advance Rulings

ACIT Learned Assistant Commissioner of Income Tax

AE Associated Enterprises

AO Learned Assessing Officer

AY Assessment Year

Customs Act Customs Act, 1962

CbC Country by Country Reporting

CBDT Central Board of Direct Taxes

CBEC Central Board of Excise and Customs

CCR CENVAT Credit Rules, 2004

CEA Central Excise Act, 1944

CENVAT Central Value Added Tax

CESTAT Hon’ble Customs, Excise and Service Tax Appellate Tribunal

CETA Central Excise Tariff Act, 1985

CGST Central Goods and Service Tax

CGST Act Central Goods and Service Tax Act, 2017

CGST Rules Central Goods and Service Tax Rules, 2017

CIT Learned Commissioner of Income Tax

CIT(A) Learned Commissioner of Income Tax (Appeal)

CRISIL Credit Rating Information Services of India Limited

CST Central Sales Tax

CST Act Central Sales Tax Act, 1956

CT Act Custom Tariff Act, 1975

CVD Countervailing Duty

DCIT Learned Deputy Commissioner of Income Tax

DIT Learned Director of Income Tax

DGFT Directorate General of Foreign Trade

DRP Dispute Resolution Panel

DTAA Double Taxation Avoidance Agreement

EPCG Export Promotion Capital Goods

FMV Fair Market Value

FTP Foreign Trade Policy

FTS Fees for Technical Services

FY Financial Year

GAAR General Anti-Avoidance Rules

GST Goods and Service Tax

62



ABBREVIATION MEANING

GST Compensation Act Goods and Services Tax (Compensation to States) Act, 2017

HC Hon’ble High Court

IBC Insolvency and Bankruptcy Code, 2016

IGST Integrated Goods and Services Tax

IGST Act Integrated Goods and Services Tax Act, 2017

INR Indian Rupees

IRA Indian Revenue Authorities

IT Act Income Tax Act, 1961

ITAT Hon’ble Income Tax Appellate Tribunal

ITC Input Tax Credit

ITO Income Tax Officer

IT Rules Income Tax Rules, 1962

Ltd. Limited

MAT Minimum Alternate Tax

MLI Multilateral Convention to Implement Tax Treaty related measures to prevent

Base Erosion and Profit Shifting

MoU Memorandum of Understanding

MRP Maximum Retail Price

NAA National Anti-profiteering Authority

OECD Organization for Economic Co-operation and Development

PCIT Learned Principal Commissioner of Income Tax

PE Permanent Establishment

Pvt. Private

R&D Research and Development

SC Hon’ble Supreme Court

SEBI Security Exchange Board of India

SEZ Special Economic Zone

SGST State Goods and Services Tax

SGST Act State Goods and Services Tax Act, 2017

SLP Special Leave Petition

ST Rules Service Tax Rules, 1994

TCS Tax Collected at Source

TDS Tax Deducted at Source

TPO Transfer Pricing Officer

UK United Kingdom

USA United States of America

UTGST Union Territory Goods and Services Tax

UTGST Act Union Territory Goods and Services Tax Act, 2017

VAT Value Added Tax

VAT Tribunal Hon’ble VAT Tribunal

63



ACKNOWLEDGMENTSWe acknowledge the contributions received from S. R. Patnaik, Daksha Baxi, Mekhla Anand, Surajkumar Shetty,

Ankit Namdeo, Shiladitya Dash, Thangadurai V.P., Jesika Babel, Rupa Roy, Bipluv Jhingan, Shivam Garg, Reema

Arya, Akshara Shukla, Sanjana Rao and Shrishma Dandekar under the overall guidance of Mrs. Vandana Shroff.

We also acknowledge the efforts put in by Madhumita Paul and Avishkar Malekar to bring this publication to its

current shape and form.

DISCLAIMER This Newsletter has been sent to you for informational purposes only and is intended merely to highlight issues.

The information and/or observations contained in this Newsletter do not constitute legal advice and should not be

acted upon in any specific situation without appropriate legal advice.

The views expressed in this Newsletter do not necessarily constitute the final opinion of Cyril Amarchand

Mangaldas on the issues reported herein and should you have any queries in relation to any of the issues reported

herein or on other areas of law, please feel free to contact us at the following co-ordinates:

Cyril Shroff

Managing Partner


Daksha Baxi

Head - International Taxation


S. R. Patnaik

Partner


Mekhla Anand

Partner


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on how we can make the Newsletter more useful for your business, please email us at [email protected]

Cyril Amarchand Mangaldas

Peninsula Chambers, Peninsula Corporate Park, GK Marg, Lower Parel, Mumbai - 400 013 (India)

Tel: +91 22 2496 4455 Fax:+91 - 22 2496 3666

Website: www.cyrilshroff.com

Other offices: New Delhi Bengaluru Hyderabad Chennai Ahmedabad

64

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