Urban agricultural lands are treated as capital assets and gain arising on transfer thereof is charged to capital gain tax. If land is not an urban land the gain arising from transfer thereof is not chargeable to capital gain tax. But in such a situation question arises whether the gains can be treated as agricultural income. Recently the third member bench  of  ITAT has answered  the question in the affirmative and held that the gain is agricultural income and thus exempt from tax.

Urban agricultural lands treated as capital asset

Section 2(14) defines the term capital asset. It provides an inclusive definition of capital asst. As per section 2(14) capital asset does not include agricultural lands in India within its ambit. But all agricultural lands in India are not out of the scope of capital assets. As a consequence the following agricultural lands are treated as capital assets and their transfer will  give rise to capital gains :

Land situated in any area which is comprised within the jurisdiction of a municipality ( whether know as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before that first day of the previous year; or

In any area within such distance, not being more than eight kilometres, from the local limits of any municipality or a cantonment board referred to in items  (a) above as the Central Government may, having regard to the extent of, and scope for urbanisation of that  area and other relevant considerations, specify in this behalf by notification  in the Official Gazette.Gain arising from transfer of Agricultural Lands situated as above would give rise to capital gains.The above position held good till the assessement year 2013-14.The Finance Act, 2013 has amended section 2(14) effective from the assessment year 2014-15. Therefore, from assessment year 2014-15 the agricultural land situated:

In any area is comprised within the jurisdiction of a municipality (whether know as a municipality, municipal corporation, notified area committee, town area committee, or by any other name) or a cantonment board and which has of not less than ten thousand. [similar  to item (a) of sub-clause (iii) of clause (14) of section 2 as it existing  upto  assessment year 2013-14 except for the difference that the words according to the last preceding census of which the relevant figures have been published before the first day of the previous year has been omitted and the term population has been explained in  a separate explanation added to section 2[14] [iii].

In any area within the distance, measured aerially,---

Not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or
Not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or
Not being more than eight kilometres, from the local limits of  any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh will be treated  as capital asset and gain arising from transfer of agricultural land situated as above would give rise to capital gain.

According  to  Explanation to section 2(14)(iii) “population” means the population according to the last preceding census of which the relevant figures have been publishes before the first day of the previous year.

Rural Agricultural land and Treatment of gain arising from Transfer thereof Position upto assessment year 2013-14

If any agricultural land is not a---

Land situated in any area which is comprised within the jurisdiction of a municipality (whether know as a municipality, municipal corporation, notified area committe, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relavent figures have been published before the first day of the previous year; or
In any area within such distance not being more than eight Kilometres, from the local limits of any municipality or a cantonment board referred to in items (a) above as the Central Government may, having regard to the extent of, and scope for,  urbanisation of that area and other relevant consideration, specify in the behalf by notification in the Official Gazette.

Then such land will not be treated as a capital asset. If the agricultural land is not a capital asset, then its transfer of such land will be treated as agricultural income

This is borne out Explanation 1 to section 2(1A) which provides that any revenue derived  from transfer will not result in capital gain. Further, the gain arising from transfer of such land will be treated as agricultural income.

Above view has been upheld in ITO v. Dr. Koshy George & Anr (2010) 31 (II) ITCL 150 (Coch-Trib) : 2009 TaxPub (DT) 1841 (Coch-Trib): (2009) 317 ITR 116 (Coch). In this case the assessing on sale of coffee estates, over and above the registration sale deed, wewe “On Money” is still taxable in the present case. It was held that the property sold by the assessee was agricultural property situated beyond 8 k.m. of any surplus of money arising to an notified either. In such circumstances, any surplus of money arising the registered sale deed is very much agricultural income even though that surplus consideration is tainted with the expression:On Money: the genesis of the :On Money” is definitely the sale of agricultural Land.

Position from asseseement year 2014-15

If any agricultural land is not a:

Land situated in any area which is comprised within the jurisdiction of a municipality (whether know as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of more than ten thousand but not exceeding one lakh; or
In any area within the distance, measures aerially,--

Not  being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or
Not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not execeeding ten lakh; or
Not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) nd which has a population of more than ten lakh.

Then such land will not be treated as a capital asset. If the agricultural land will not a capital assets, then its transfer will not result in capital gain. Further, the gain arising from transfer of such land will be treated as agricultural income.

Judicial precedents as to treatment of gain arising on transfer of land situated beyond specified distance.

In ITO v. Anthony  John Pereira (2008) 24 (II) ITCL 582 (Mum ‘F-Trib);2008 TaxPub (DT) 2048 (Mum-Trib); (2008) 24 SOT 459 (Mum ;F’-Trib) the assessee had produced all evidence he could, by way of certificates from competent Authority Of ULC (Urban Land Celing), State PWD, ect.,, that the agricultural limits. It was held that the said agricultural land in question was not capital asst in terms of section 2 (14). Therefore, the land in question , was not a capital asset, and hence, profit earned on transfer of land to co-operative housing society was also not liable to capital gains tax.

In Ronjibhai P. Chaudhry v. Dy. CIT & Asstt. CIT v. Ramji P.

Chaudhry (2009) 29 (II) ITCL 531 (Ahd-Trib); 2009 TaxPub (DT) 696 in non specified urban area could not be treated as capital asset and gain arising on sale thereof could not be chargeable to capital gains tax.

It was held in the case of CIT v. Manilal Aomnath (1977) 106 ITR 917 (G uj) as follow:

“ Under the Income Tax Act of 1967, agricultural lend situated in India was excluded from the definition of ‘ capital asset’ and any gain from the sale thereof was not to be included in the total income of an assessee tinder the head :capital gains”. In order to determine  whether a particular land is agricultural land or not one has to first find out if it is being put to any use. If it is used for agricultural purpose there is a presumption that it is agricultural land. If it is used for non Agricultural purposes the presumption is that it is non Agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be cases where agricultural purpose  of the presumption is that it is non agricultural land. This presumption arising from actual use can be rebutted by the presence of other factors. There may be casese where land which is admittedly non agricultural is used temporily or agricultural purpose the determination of the question would  therefore  end on the depend on the facts of each case.

‘The   assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time  of its sale, agricultural operation were carried on in the land. There was no regular road to the and it was with the aid of a tractor that agricultural operation were carried on in the land. There was no regular road to the land and it was within municipal limits or took place. The facts that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purpose for a long timr and nothing had happened till the date of the sale to change that character of thr land. The potential non-agricultural value of the land  for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date o fthe sale. The land in question  was  therefore  agricultural  land.

In  Smt. T. Urmilav. ITO (2013) 50 (II) ITCL 370 (HYd ‘A’-Trib): 2013 TaxPub (DT) 845 (Hyd-Trib) the assessee had purchased 20.07 acres of land in Srinagar village in Maheswaram  Mandal. During the relevant land in Srinagar village in Maheswaram Mandal. During the relavant previous year, the said land was sold to R. The receipt was not offered  assessing officer noticed that the impugned land was situated in the  village which was included in the Hyderabad Airport Development of Andhra Pradesh had issued a land acquisition notigication under the land Acquisition Act for the acquisition of the above said lans . it may be noted that the land and there was no dispute regarding come was declared in the return of income filed by the assesse for the past several years as agricultural income. It was also an admitted fact that the assessee had not applied for conversion of this agricultural land for non-agricultural purpose and the assessee had not put the land to any purpose other than agricultural purposes. It was also an admitted subjected to any developmental activities.

It was observed that it is important to mention that mere inclusion of impugned property in the HADA cannot change the character of the property. Mere inclusion of the property in the HADA by State Government notification does not change the character of the property if the property still continues to be agricultural land at the point of sale of said property. Nothing had been brought on record to show that in this village of Srinagar (Maheswaram Mundal) any infrasture development had taken place. In the present case during the relevant  point of sale of the land in question the surimpugned of the land for non agricultural purpose would not change the character of the land into non-agricultural purpose would not change the character of the land into non agricultural land at the relevant point of sale of land by the assessee.

Facts of the case in Supriya Kanwar v. ITO (2015) 61 (II) ITCL 219 (Job- Trib) (TM): 2014 TaxPub (DT) 2468 (Job-Trib) (TM)- (2014) 163 TTJ (job-Trib)(TM)1

The assessee purchased certain agricultural  land and sold in the previous year relevant to assessment year under consideration. The case of the assessee was that the income arose from the transaction of agricultural land and hence, it was exempt under section 10(1) read with swction 2[1A](a) of the Act. Even otherwise the income arising therefrom  was not assessable to capital gains tax in the view of the provision of section 2(14)(iii)(a)/(b). On the other hand the case of the Revenue was that it was an adventure in the nature of trade and the  income from the impugned land was business income.  The assessing officer as well as the by the assessee on sale  of the impugned land deserve to be treated as profit from adventures in the nature of trade and assessable as business income. When the case was heard land was purchase on 7-2-2006 and it was sold on 23-03-2007 (b) the land was situated beyond the prescribed municipal limits (beyond 8 kms. From the municipal limits) in a village of Alwar District, Rajasthan, and (c) it being agricultural land the sale proceeds thereon were not assessable to tax as business income wherein agricultural income on sale of standing crops was shown. He had also taken into consideration the plea of the assessee that at no point of time the assessee sought for conversion of land use by making an application with the respective authorities. Though the assessee was dealing in sale and purchase of plots in urban areas, so far as this land was concerned, the intention was not to convert into plots and in fact the agricultural land with standing crops was sold to single party, i.e. Vedic Village Developers (P) Ltd.

The case of the assessee was that no steps had taken to change the character of the land and hence it continued to remain as agriculture land till the date of sale to Vedic Village Developers (P) ltd. And the assessee did not make any effort to locate the buyer and because of the attractive price which was offered by Vedic Village Developers (P) Ltd. Assessee was persuaded to sell the land.

The assessee submitted that only such land which falls within the description of agricultural land under section 29(14) (iii), upon sale thereof, gives rise to income which cannont be considered as agricultural land which is situated beyond eight kilometres (specified distance for the A.Y 2014-15) from the local limits of any municipality, the sale proceeds thereof has to be considered as ;agricultural income’, in which event section 1091) comes into play, i.e., whether it is o capital account or revenue account, agricultural income cannot be included in the total income. It was also submitted that the assessee had also included the impugned sale proceeds for rate purpose.

Opinion of Judicial Member

The  JM observed that the assessee purchased five pieces of agricultural  land adjoining  each other through different sale deed and the tural  land was registered on different  dates from 7-2-2006 to 5-4-2006. The assessee showed the purchase of agricultural land as ‘fixed asset’. In the preceding year the assessee earned Rs.70000 on sale of crop which was accepted by the Revenue. In this year Rs. 22,000 was declared on sale of outstanding crop and accepted by to assessing officer. In fact on sale of standing at the time of sale which was passes. If the intention of the assessee was to carry on an adventure in the nature of trade she would have applied ffor conversion of land use and drawn up the requisite plotting scheme, engaged professional architects for preparing site plan approval and would have commenced preliminarily development works whereas no such activity was undertaken by the assesse which shows that the intention of the assessee at the time of purchase of land was only to retain the land and it was not purchased for the purpose of resale as an adventure in the nature of trade. He also observed that undoubtedly the land was situated beyond 8 kms. From the municipal limit and hence the land has to be considered as agricultural land. So long as the land is capable  of agricultural operations, the sale of agricultural land by itself would not make it business income. He also relied upon several precedents apart from analysing the facts of the case to come to the  conclusion that the impugned land is Barani land admeasuring only seven Bighas with standing crop which it itself prove that it was not purchased with an intension to utilise the land for the purview of the definition of ‘capital assets’ and hence  income therefrom cannot be assessed to tax by treating it as adventure in the nature of trade.

Opinion of Accountant Member

The AM was not agreeable with the view taken by the JM. Having regard  to the peculiar factual matrix of the case, which was highlighted in his order, he order, he concluded that the assessee sold the land to make profit. He observed that the assessee was not having any agricultural background since she was deriving income b way of salary from Ashapurna land and also on fencing the land. The land was purchased along with standing crop and he said standing crop was sold in the earlier year. It was claimed that two  crops were raised in this year and the first  crop fact that both the lower authorised have given concurrent finding that the transaction of purchase  and sale of agricultural land and purchase deriving a huge return of 558 percent, he also observed that the land was situated at a distance of more than 500kms. From the place where the assessee usually resided and therefore he drew a conclusion that these lands were not purchased for the purpose of cultivation. Since she was engaged in the business of real estate development the impugned purchase was with the full knowledge that the values are likely to appreciate rapidly as these fall within thw new town of National Capital Region (NCR) the global city, on national highway No.8 he also observed that the investment was made out of borrowed funds.

Adventure in trade vis-a-vis of sale

The issue as to whether a particular transaction amount to mere sale of investment or an adventure in the nature of trade was subjected matter of several judicial decisions and the Apex Court have time and again observed that no principal can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. In the case of Venkataswami Naidu & Co. (supra) the Court observed that even an isolated transaction can safisy the description of adventure in the nature of trade may partake of the character of an adventure in the nature of trade but at the same time cautioned that the ‘ single plunge must be in the waters of trade.’ The Hon’ble Court observed that it is impossible to evolve any formula which can be applied in determining the character of isolated transaction; if a person invests  money in land intending to hold it, enjoys its income for some time, and then sells it at a profit derives from an adventure in the nature of trade. These factore were taken into consideration to come to the conclusion that it was an adventure in the nature of trade. The Apex Court as well as various High Court  have reiterated the basic principal and observed that it is impossible to evolve any formula which can be applied in determining the character of an isolated transaction and a holistic view has to be taken, by taking into consideration the circumstances of the case.

Agricultural land situated within specified distance vis-a-vis agricultural land situated beyond specified distance

If it is not considered as adventure in the nature of trade the next issue that arises for consideration is whether sale of agricultural land gives rise to ‘agricultural income’ or it is assessable to tax under the head ;capital gains’. Admittedly, the expression “agricultural income” is not comprehensively defined in the Income Tax Act, though it was explained under section 2(1A) , that any revenue derived from land, which is situated in the India, can be considered as agricultural income. Section 2(14) of the Act defines capital asset, which substituted by Finance Act, 1970 and thereafter in 1989 whereby only such agricultural land which is located within eight kilometres from the municipal limit should be treated as capital assets. In other words, agricultural land situated beyond eight kilometres from the nearest municipal limits not be treated as capital assets and sale proceeds thereof may be treated as revenue derived from land which is situated in India and is used for agricultural purpose. The Apex Court in the case of Singhal Rakesh Kumar v. Union of India & Ors. (2001)247 ITR 150 (SC) explained the meaning of the expression ‘agricultural income’ as well as the expression ;capital asset’. In the said case the issue was whether the profit arising out of sale of agricultural land gives rise to capital gains, within the meaning of income Tax Act, 1961. Awrit petition was filed by the assessee  asking the High Court to declare as unconstitutional the Explanation to clause (1A) and sub clause (iii) of clause (12) of s. 2 of income Tax Act, 1961 to declare that  capital gains arising from sale of agricultural land within the municipal area were not liable to capital gains tax under the Income Tax Act.1961. the Hon’ble High Court of Madhya Pradesh having dismissed the writ petition the matter came up before the Hon’ble Supreme Court. The Apex Court observed that the parliament is empowered to legislate to say what “agricultural income “ means. What Parliament says  in this regard is that the meaning given under Income Tax Act should be taken as the correct meaning of the expression ‘agricultural income’ and in regard to such agricultural income the State may legislated in the aforementioned case the court observed that the Land being situated within the municipal limits income arising from transfer of agricultural land falls within the terms of items (a) and (b) of sub-clause  (iii) of clause  (14) of section 2 and falls outside the ambit of revenue derived from land, therefore, outside the ambit of ‘agricultural income’ and consequently liable to capital gains tax under section 45 of the Act. The assessee placed reliance upon the aforecited decision to submit that the impugned land sold by the assessee  was situated beyond eight kilometres from the nearest municipal limt and hence, the income arising from transfer of agricultural land falls within the ambit of revenue derived from transfer of agricultural land falls as agricultural income in which event it has to be considered for rate purposes only.

The Hon’ble Bombay High Court in the the case of Gopal C. Sharma v. CIT (1994) 209 ITR 946 (Bom), on the other hand, observed that the expression agricultural land is not defines in the Income Tax Act and going by the Intention of the legislature, i.e. encouraging cultivation sale of agricultural land gives rise to capital gains. It may be noticed that the Court was not concerned with the case of agricultural land situated outside the municipal limit and had not specifically dealt with the provisions of section 2(1A) read with section 2(14) (iii)(a) and (b). On the contrary, the Apex Court in the case of Singhai Rakesh Kumar v. Union of India  & Ors. (supra) observed that agricultural land situated within eight kilometres from the municipal limits

Land situated beyond specified distance cannot be treated as capital assets and gain arising on sale thereof gives rise to agriculture income

The Third Member held that the impugned land cannot be treated aas capital assets since it was situated beyond eight kilometres from the municipal limits and it was purchased as agricultural land and sold accordingly without making any change such as cconversion in the land records, plotting of land, ect. In facts the assessee stated that even at the time of purchase of the land cannot be inferred that the assessee intended to make enormous profit by selling the land within a short spam It was also submitted that National Capital Region masters plan was prepared in 2002 and notified in 2010 and it was to come into effect from 2031 whereas the land was purchased. There was nothing  on record to suggest that the assessee has done any act to convert the land for non-agricultural use. It was not even the case of the Revenue that the assessee advertised for sale of the land the case of the assessee, on the other hand, was that the Vedic Village Developers (P) Ltd. Offered tempting pric and the assessee decided to take the benefit out of it though there was no intention to carry on trade

It is thus clear that it was a case of sale of agricultural land and the land being situated to tax under the Income Tax Act either as business income or capital gains. In the light of  the  latest decision of the Apex Court in the case of Snghai Rakesh Kumar v. Union of India & Ors (2001) 247 ITR 150 (SC) the only interpretation permissible is that the land situated outside the municipal limits stands excluded from the expression ‘capital Assets’ from the inception and the sale proceeds have to be treated as revenue received from agricultural land.


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1. Introduction

       The view stated in the title of the article (supra) has been expressed by the C- Bench of the C- Bench of the ITAT, Kolkata, in the case of Tarun kumar sarkar v. DY.Director  Of Income -3 (1) , Kolkata 2017 Taxpub (DT) 3872 (Kol ‘C’ –Trib): (2017 ) 166 ITD 125 (Kol-Trib).The decision has been picked up for this write –up because the AO’s decision in the case is contry to the CBDT’s Circulars No.13/2017, dt.11-4-2017 and No.17/2017 dt.20-4-2017 issued ofter the assessment.

2.Facts of the case

             The  assessee,a Marine Engineer by profession , for the AY  2011-12 filed his return of income ,showing an income of Rs.2,09,021 in the status of a ‘non–resident ‘.He was engaged with M/s Mercator Lines Ltd ., Singapore, as a Marine Engineer .During the previous year ,relevant to the AY 2011-12, he was paid a sum of Rs.23,71,727 by the employer company on different dates for his services  as a seafarer by credit to his  two NRE accounts  in india  with HSHC Bank. The assessee did not show this amount as income in the return as income  in the india filed in the status of a ‘Non-Resident’. The assessee’s case was that this  income was  received from  outside india in foreign currency and,therefore, claimed as exempt.The assessee stated  that he used to get  his contract to do services with india/foreign shipping company through  Indian agent and  that contrats were executed in india duly signed by the agent in india and himself before joining  the ship. But, he was to float on foreign water to render services during the courses of voyage and accordingly, when he will stay more than 182 days outside india or on foreign water,his  residential status will be treated  as ‘Non –resident’ as per provision of law and his salary income ,which are received out side india  in foreign currency also will not be taxable under section 5 of the Act .The AO accepted the residential  status of assessee as non-resident after verification  of copy of passport  and other details  submitted . The assessee claimed that as per  provisions of law ,salary income , which is received outside india  in foreign issued show cause notice to the assessee as to why the remuneration received in india should not be  brought to tax in terms of section 5(2)(a) of the Act. However, before examining the assessee’s defence to the AO’s notice ,it is relevant to examine the provisions of section 5(2)(a) of the Income Tax Act,1961 (Act).

 

 

    3. Section 5(2)& (b) of the Act

             Clauses (a) and (b) of section 5(2)  of the Act read as under –

             “(2) Subject to the provisions  of this Act ,the total income of any previous  year of a person , who is a non-resident, includes all income from whatever source derived , which-

              (a) is received or is deemed to be received in india in such year by or on behalf of such person ;0

               (b) accrues or arises or is deemed to accure or arise to him  in india  during such year”

Explanation  2 to section 5(2) provides  that income,which has been included in the  total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received  or deemed to be received  by him in india.

4.Analysis of section 5(2)(a)

       From the foregoing extract of section 5(2)(a),it could be seen that section  5 of the Act provides  for  charge  of income  tax on accrual  or receipt  basis . Explanation 2 to section 5(2) provides that if an income has been subject of taxation  on accrual basis , it  cannot again be taxed on receipt  basis. The section ,however , does nit give any indication  as to in respect  of what  income ,the charge shall be on the receipt  basis and on what income  the charge  shall be on accrual basis . Obviously , this would depend on the factual matrix.

5. Appraisal of the Tribunal’s  decision

      With the above background  of legal provisions, the tribunal’s decision can be examined.

(i)AO’s case

      According to the AO, the  provisions of section 5(2)(a) of the Act state that income from whatever  source derived, which is received in india  in such year by or on behalf  of such  person shall be  included  in the total income  of any previous  year  of such person. He  further observed  that the said sextion  does  not mention  anything  about Indian  currency. The  section specifically states  that  any income received or deemed to be received in india taxable in  india.He observed  that the  law states that the  income received in india is taxable

In india in all cases (whether accrued in india or elsewhere), irrespective  of residential  status  of the assessee. He also observed that it is  significant  to  know the  meaning  of income received  in india . if the place where the  recipient  gets the money (on first occasion) under his control ,is in india,it is said  be income  received in india. In the instant  case ,all the  income was remitted  by the employer to the bank  accounts of the assessee maintained in india .therefore, the AO added a sum  of Rs .23,71,727 as income chargeable to tax in india. In support of his proposition , he placed of Capt . A.L.Fernandes v. ITO (2002) 81 ITD  203(Mum) (TM) whrerin it was held that teh salary received by the assessee in india  was taxable under section 5(2)(a) of  teh Act.

(ii)CIT (A)’s decision

     The  assessee claimed before  the CIT (A) that teh AO’s decision is wrong,interalia, on the  ground that he was under employment of a foreign  company and serevices  were  rendered outside India. For  The services rendered by the assessee outside India ,the entire payment of salary made by the foreign  company  in US$ and remittance was  made  to the  NRE account  of the assessee in india . The meaning   of section 5(2) (a) or the  Act. Should  be interpreted only in the  context of income  received  in india  currency  in india.There is a distinction between receiving money and transfer of money . The distinction  between receiving money and transfer of money.the  distinction  is that where a foreign company  makes payment  to the  non-resident for services rendered outside  india , the foreign currency to the assessee who is a non- resident  and the money in foreign  received  by the assessee not in india as because the point po payment by the company  is in foreign land & the point of receipt  by the assessee should  be  taken from the of payment. Mere remittance or transfer of the payments by the foreign co in the NRE account of the assessee in india that also in foreign exchange shall not be considered as income  received  in india  & larger interpretation to the  section would render it otiose.

 

                 The CIT (A) did not feel convinced with assessee (appellant before him) and confirmed AO’s order . Hence ,the assessee filed appeal before the  income tax Appellate Tribunal  (Tribunal ,for short,in  later  discussion).

(iii) Tribunal’s decision

    The Tribunals  has decided the appeal in favour  of the  case of the assessee , inter alia , on the following grounds.

     (i) Thuogh  the third  Member’s decision  in the case of capt .A.L.Fernandes v. ITO (2002)  81 (Mum) (TM), could be said to support the AO’s case , but More important  are the CBDT’s Circulars (infra), which read as under  and are binding  on the AO’s:-

1st circular

                “Section  5 of the act –income- Accrual  of –Clarification regarding liability  to income tax in  india for  a non-resident seafarer receiving  remuneration  in NRE  (non –resident external) account maintained  with an  Indian Bank

Circular  NO. 13/2017 (F.No500/07/2017- FT & TR –V) dt 11-4-2017 (as corrected by Circular  No 17/2017(F.No 500/07/2017-FT& TR- V) dt.26-4-2017)

 Represent have been received  in the board  that income  by  way of salary received  by non- resident seafarers for services  rendered outside  india on-board foreign ships,are being  subjected  to tax in india for the reason  that the salary has been received by the seafarer.

2. The matter  has been examined  in the board. section 5(2)(a) of the Act  provides that only such income of a non- resident  shall be subjected  to tax in india that is  either received  in india. It is hereby clarified that salary accrued  to a non-resident seafarer  for services rendered out side india  on a foreign  going ship (with indian flag or foreign  flag) shall not be included in the NRE account maintained with an indian bank by the seafarer".

2nd circular

  "section  5 of the act - income -accrual  of - clarification  regarding liability to income - tax in india  for a non-resident seafarer receiving remuneraton in NRE (non-resident external) account with  an indian bank -  Corrigendum to circular  NO.13/2017(F.NO.500/07/2017-FT&TR-V)  dt.11-4-2017)  Circular NO.17/2017(F.NO.500/07/2017-FT&TR-V) dt. 26-4-2017)

In the 4 of the paragraph No. 2 of the captioned circular, the words "Foreign Ship " may be "foreign going ship (with Indian  flag or foreign  flag)".

(iv) Final  summing up by the tribunal

     According to the Tribunal, a perusal  of the Circulars reffered to above  shows  that salary accrued to a non-resident seafarer for services rendered outside india on a foreign  going ship (withindian flag or foreign flag) shall not be included in the  total income merely because the said salary  hsa been crtedited in the NRE account maintained with an indian bank by a seafarer.Remittance  of salary into NRE account maintained with an indian Bank by a seafarer could bea two types:

 (i) employer directly creditng slary to the NRE account  maintained  with an Indian bank by the seafarer '

(ii) employer directly creding salary to the account maintained outside India by the seafarer transfering such money to NRE account maintained by him in india .the latter remittance would be  outside the purview of provisions of section 5(2)(a) of the Act as what is remitted  is not 'Salary  income' but a mere transfer of assessee's  fund from one bank account to another ,which does not give rise to 'income'.It ios not clear as to whether the expression 'merely because ' used in the Circular refers to the former type of remittance  or the latter.To this extent, the circular  is vague.

However, giving the benefit of doubt to the assessee ,the Tribunal has said that inthe case before it, the employer has directly credited the salary  for services rendered  outside India into the NRE bank account as it does not  specify as to whether the circular covers either of the situations contemplated  above. Hence, we deem it fit to give the benifit of doubt to the assessee by holding that the circular covers both  teh situations  referred to above. The result of such interpretation of teh circular would  be that the provisions  of section 5(2)(a) of the Act is rendered redundant. Be that as it may,it is well settled  that the circulars issued by CBDT are binding on the revenue authorities . This position has  been confirmed by the Apex  Court in the case of Commissioner  of Customs  v.Indian Oil Corpn .Ltd .2004 Taxpub (DT) 1391 (SC) : (2004) 267 ITR 272 (SC) wherein their Lordships examined the earlier decisions of the Apex  Court  with regard to binding nature of the circulars and laid down  that when a circular issued by the Bourd  remains of the circulars issued by the Board remais  in operation then the revenue is bound by it  and cannot be allowed  to plead  that  it is contrary   to the terms of the statute.Accordingly,the grounds raised by the assessee are allowed.Hence the Tribunal allowed the assessee’s appeal.

Logically also,the Tribunals decision  seems to be correct The salary  accrued  to the assessee for services rendered outside  territorial  waters  when his status was  that of  non- resident, about  which  there is no  dispute .The salary having accrued  outside territorial  waters, whether he rerceives  it so on his behalf should make no difference.If at all, it could  only  be a technical  non-compliance, for which the assessee need  not be subjected  abroad  when it is squarely  covered  by teh CBDT’s circulars. Hence,it  is respectfully  said that the Tribunal  has reached to a correct conclusion  though through  a circuitous route.


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Recently the Delhi high Court in Bostom Scientific India (p) Ltd.v.Asst.CIT 2017 Tax Pub (DT) 3985  (Del –HC) has give it’s verdict regarding allowability of expenditure incurred by pharma companies on sponsoring medical conference  in and outside India. The learned  author analyses the impugned issue in the light of this recent verdict.

Background

           It is general practice  of pharma companies to sponsor and conduct medical conferences  in & outside  India and for this purpose these companies also make arrangements  for travel and accommodation  of doctors  attending the conferences. In a recent past, a serious  controversy  arose as regards allowability  of expenditure  incurred b pharma  companies for organising such conferences. These expenditure  incurred by pharma  companies  for organising such conference.these expenditure are claimed  to be allowable as business expenditure for being incurred for  business purpose, however, the department tends to disallow  the same by invoking Explanation 1 to section 37 (1).

  1. Explanation 1 to section 37(1) disallow illegal expenditure

              The Finance  (No. 2) Act, 1998 has inserted an Explanation to section 37(1), with  retrospective  effect from 1-4-1962, so as to clarify  that any expenditure incurred by an assessee for any purpose which is an offence or which is  prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect  of such expenditure.

  1. Nature of expenses incurred  by pharma companies

             The pharma companies incr expenditure to sponso and conduct doctors’  conferences , to distribute  its product amongst  doctors  as free   samples, to give  gift  articles to  doctors ,  etc. These expenditure  are classified as advertisement  and sales promotion  expenditure and claimed  to be  allowable on the ground of being incurred wholly and  exclusively for  the  business purposes.

  1. CBDT’s clarification as regards allowability of expenses incurred in providing freebies to medical  practioner

              The  Medical council of India in excersise  of its statutory powers amended the Indian medical Council  (Professional Conduct, Etiquette  and  Ethics) Reguations, 2002 (the Regulations ) on 10-12-2009  imposing a prohibition on the medical practitioner & their professional associations   from taking  any  gift  travel facility , hospitality, cash of monetary  grant from the pharmaceutical  and allied health sector  industries.

            Section  37(1) of the Income Tax Act provides for deduction  of any revenue  expenditure   (other  than those failing under sections  30 to 36) from the  business Income  if such expenses is laid out/expended  wholly or exclusively  for the purpose  of business income if such expense  is laid out/expended wholly or exclusively for  the  purpose  of business or  profession. However,the explanation  appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose  which  is either an offence  or prohibited  by law.

          Thus the  of any expense incurred in providing above  mentioned  or similar freebies in violation  of the provisions of Indian  medical Council (Professional  Conduct Etiquette  and  Ethics ) Regulations, 2002 shall  be inadmissible  under  section  37(1)  of the Income Tax  Act  beingan expense  prohibtited by the law. This disallowance shall be made in the  hands of such pharmaceutical  or  allied health sector  industries  or other  assessee  which has provided aforesaid freebies  and claimed  it as a deductable  expense in it’s  accounts  against  income.

           It is also clarified  that the  sum equivalent to value of freebies enjoyed  by the aforesaid  medical  practitioner  or  professional  associatiosns  is also  taxable  as business  income  or income  from the other sources, as teh case may be,depending  on the facts  of each case.The assessing officers of such  medical practitioner  or professional  associations  should  examine the same and take an appropriate action.

             However,the Indian  Medical  Council (Professional  Conduct, Etiquette and Ethics) Regulations,2002 which  has been amended on 10-12-2009 prohibits  medical practitioners and their professional  associations  from  taking any  gift, travel  facility, hospitality, cash  or monetary  grant from the  pharmaceutical and allied health sector industries.

                Thus, the expenditure incurred on freebies are disallowed on the ground of being incurred  in violation of the provision  of Indian medical  Council ( Professional  Conduct, Etiquette  and Ethics) Regulations, 2002.- circular  No. 5/2012,dt.1-8-2012.

  1. Judical  controversy as regards allowability  of expenditure  incurred  by pharma companies

           In live Healthcare  Ltd.  v. DCIT (2016) 161 ITD  63 (Mum),the Mumbai  Bench  of the Tribunal  held that the expenditure on foreign travel and  accomdation  of doctors  and their  spouses was incurred  with  the  intent and the objective of profiteering form the  distribution  and entertainment that had a direct nexus with promoting  the sales  and profitability which made such expenditure violative  of the provisions of  the said regulations  of 2002.It held that the expenditure was incurred  to seek favours  from the doctors  by way of recommendation of  the company’s  product  which  was an illegal gratification ,was against public  policy,was unethical  and was prohibited  by law. Accordingly,the expenditure in question was liable for disallowance.

          However  in PHL Parma (p)  Ltd. v. ACIT (2017) 163 ITD 10(Mum),the decision  was given in favour  of the assessee by observing that the  code  of conduct has meant  to be followed  and adhered to by the medical practironers and doctors  alone and  did  not apply in any manner to pharmaceutical companies. The  Indian  Medical Council did not  have any jurisdiction  nor had any authority upon the pharmaceutical companies and could not have  prohibited  such  companies  in conduct of  their  business. The  CBDT in issuing  Circular  No. 5, dt.  1-8-2012 had  enlarged the scope of the said Regulations by  applying  it to the pharmaceutical  companies without any enabling  provisions to do so. Further  the circular in any  case could not be reckoned retrospectively  i.e., it could not be applied  before the date of its issue, i.e.,  on 1-8-2012.

            Thus the expenditure  incurred by the assessee  company was in the nature  of sales and  business  promotion  and was to be allowed; the gift articles bore the logo of the assessee and could not be held to the freebies,the free samples proved  the  efficacy of the products  of the  products  of the company and again were not in violation of the said Regulations  framed  by the Medical Council  of India.

  1. Applicability of CBDT Circular No. 5/2012

             In Syncom Foundations  (I) Ltd.  ( IT  PPEAL Nos. 6429  & 6428  (Mum) of 2012, it was observed  that CBDT circular  would not be applicable in the assessment years 2010-11  and 2011-12 as it  was introduced  w.e.f. 1-8-2012. Similarly  it was held in UCB India  (P)  Ltd.v. ITO (IT Appeal No. 6681 (Mum) of 2013, dt 13-5-2016), that the CBDT circular colud not have a retrospective  effect.

  1. Recent decision of delhi High Court in Boston Scientific India (P) Ptd.’s  case

               In Boston Scientific  India (P) Ltd v. Asstt. CIT 2017 Tax Pub (DT) 3985 (Del-HC), the assessing  officer on the specific heads of ‘advertisement and business promotion’  and travel related expenses ‘ made the following  disallowances :

            (i) Expenditure  of Rs. 13,14,548  was stated  to be  constituting freebies provided to medical  consultants and other doctors, disallowable   in view of Explanation  1 to section  37(1) of the Act , read with CBDT Circular No.  5/2012, dt.1-8-2012.

            (ii) Expenditure of Rs  19,06,000 incurred on conducting  seminars conventions, meetings, etc., for the purpose of Appellant’s business.

This  was disallowed  on the ground that details  were scanty, despite ample opportunity being given  to the assessee .

             (iii) Expenditure  of Rs  8,00,000  incurred  on sponsorship  for organizing conference/seminor. This was disallowed on the ground that the payment was made after the event had place.

On appeal before ITAT , it was held that as the assessee  had incurred expenses in the garb of marketing  the cardiac machine, onus  was upon the assessee to prove that the expenses incurred did not  violate any law that may be applicable. The burden lies uopon the assessee which has not been discharged  by evidences/materials.  Merely by placing the bills of payments, the travel details, the hotel details , where the doctors  were stationed , and the seminars / conferences  that were actually attended by such doctors. Assessee had also not demonstrated  that the doctors by participating  in such conferences and accepting the hospitality  extendedby it (the assessee ) have not contravened any MCI Regulations.

          The High Court ,however, said that the ITAT placed an unfair burden on the assessee to prove that the above expenses was incurred  bona fide for the  business  purpose of the assessee. The assessee had placed before the ITAT  all the relevant details thereby discharging the initial  onus. Thereafter,it was  open to the Revenue  to prove to the contrary . It was not possible for the assesee  to show  that  doctors “actually  delivered  any lectures, attented any meetings for, providing training  courses and seminars for assessee, etc.      

            As regards  other disallowances, it was held that since the ITAT proceeded on  and conjectures and failed to deal with  the contentions of the assessee in that regard , it is only fair that the ITAT  considers the entire appeal of the assessee  on merits afresh.

            Thus, the High Court rendered decision in favour  of assessee and against  the revenue and  all the contentions of the  assessee raised  in the appeal before the ITAT  would be considered afresh.

    8. Conclusion

       The decision of the Delhi High Court has provided some rays of hope in favour of Pharmaceutical Companies for doctors. If relief is  provided, it wil be of great  help in sharing  and upgrading  knowledge in the field of medical science and ultimately whole mankind would  get benefitted therefrom.


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Accommodation services are under the purview of tax net since a long time It was a handsome source  of revenue under service tax law and the legacy is continuing in refined manner,even under GST  law.

1.Introduction

                    Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive  list regime.The same is carried forward in the GST law also.Under GST law there is classification  of services  and  accordingly  accomdation services have been classified into the  various categories according to the practice  prevailing in the industry.

2. Classification

                   Accommodation  services have been classified under HSN/SAC 9963 wherein the further classification ia as under.

Heading/Group

Service Tariff Code (HSN/SAC)

Description of Service

99631

996311

Room or unit accomdation  services provided by Hotels, INN,Guest House , club, etc

 

996312

Camp Site Services

 

996313

Recreational an vocational camp services

99632

996321

Room or unit accomdation  services for students in student residences

 

996322

Room or unit accomdation  services provided by Hotels, Capms, Paying Guests, etc.

 

996329

Other room or unit accomdation services not specified else where

 

 

 

3.Nature of supply

                 Accommodation services are generally provided at the premises used for providing  accomdation services. Since the GST is destination based consumption  tax, therefore, the place of supply of accomdation  services  is  the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before  reaching  at the conlusion we need to understand  the relevantprovisions of the GST law.

             The relevant provisions of law determaining  the nature of services  are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.

             According to setion 8(2) of the IGST Act,2017  supply of  services where the  location  of the supplier and the place  of  supply of services are in the same  State  or the same Union  territory  shall be  treated as intra-state supply.

            According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home  stay , club or campsite, by whatever  name called  and including  a house boat or any other vessel shall be the location  at which the immovable property  or boat or vessel, as the case may be, is located or intended to be located.      

             Thus, on a combined reading  of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.      

4.Whether accomdation services can be an inter-State  supply

             Although by referring  to the provisions cited above,  it can be  inferred that the  basic philosophy of implematon of destination   based consumption tax goes in line of taxing accommodation  services as intra-State  supply. Howeve, the following provisions of IGST Act,2017 are worth noting-

(a)Provisio to section 8(2) : The said provision reads as –“the  intra-State supply of services shall not include supply of services shall not include  supply of services to or by a Special Economic Zone developer or a Special Economic  Zone unit”.   

(b) Section 7(5)  (b) : Supply of goods or services or both to or by a Special Economic Zone developer  or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the  course of inter –State trade or commerce.

The direct implication of the above provisions on accomdation services is that the said services  if provided to any unit in SEZ shall not be considered  as intra-State supply. In other words, it shall be considered  as inter –State  supply.

 

 Hence, it can be fairly concluded that the accommodation services, when provided to any unit in SEZ or by unit in SEZ, evolve a concept divergent to the basic intent of the GST  law of taxing the services on a consumption  basis.Now the question that flashes in the minds is the need of such  a provision. The purpose  of the introduction  of such provisions can be  understood  with the provisions of section  16 of the IGST Act, 2017

         The implication of sections  7(5), 8(2) and 16 of the IGST Act, 2017

        The implication of sections 16  and 8(2) can be understood i two parts. In one part the supplier of services is outside the SEZ and in another part the supplier of services is in the SEZ. The impact on both the transaction shall be different.

(i) Supply to SEZ – Zero- rated supply

             Accordingly to section 16 of the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely:- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic  Zone developer or a   Special  Economic Zone unit.

            The provision stated in section 16 clearly mandates that the accommodation services provided to SEZ developer or to a unit in SEZ shall be treated as zero-rated supply.  To put it differently, the same shall be considered at par with the export of services. Thus, such services shall fall under zero-rated supply under GST law and shall be eligible for benefits attributed to zero-rated supplies including a refund of taxes paid on the relevant, services, subject to the other provisions of GST law.

(ii) Supply by SEZ-Inter-State-supply

On a close reading of section 8(2)  and section 16 as mentioned above, it can be inferred that accommodation services provided by the unit in SEZ to any person outside SEZ shall be treated as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State supply and IGST shall be considered as inter-State supply and IGST shall be chargeable on the same.

(iii) Supply within  SEZ–Zero–rated supply        

                            Since in case of supply within SEZ the recipient shall always be in SEZ, therefore, such supply shall always fall within the meaning of zero-rated supply. Hence, supplies within SEZ shall be eligible for benefits at par with the benefits available to zero-rated supply.

5. Conclusion 

Accommodation services are generally taxed as intra-state supply, however, the law contains the relevant provisions for treating the same as inter-state supply also. Thus, before reaching any conclusion about the place of supply, it is essential to refer the law as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.


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The learned author attempts to make an overview of the anti-Profiteering measure introduced under the GST regime and the scope of powers of the National Anti- Profiteering Authority.

  1. Anti- Profiteering measure- Meaning

It is fundamental spirit of an indirect tax regime that reduction in rate of tax any supply of goods or services or the benefit by input tax credit should have been passed on to the recipient by way of commensurate reduction in prices. However, it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices.

This was obviously happening because the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering.  

    With the introduction of GST regime in india, National Anti- Profiteering Authority has been constituted central Government to examine whether input  tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price o fthr goods or services or both supplied by him,this is to ensure that thecosumer is protected from arbitrary price increase  in the name of GST.

      2.Statutory provisions 

                   The statutory provision relating to anti- Profiteering measure are enshrined under section 171of the CGT Act.Rules  123 to 133 of the CGST Rules,2017 deal with provision in  respect of constitution of the National Anti- Profiteering Authority  and scope of its powers.

         As per  sub–section  (1) of section 171 of the CGST /SGST  Act, any reduction in rate tax on any supply of goods or services or the benefit  of input tax credit shall be passed on to the recipient by way  of commensurate  reduction in prices.

        As per sub- section  (2) of section 171, the Central Government may, on  recommendation of the Council, by notification, constitute  an Authority, or empower an existing Authority constituted under any law for the time being force, to examine whether input tax credits availed by any registreted person  or the reduction in the tax rate have actually resulted in a commensure reduction in the price of the goods or services or both supplied by him.

               It is  clear from the above that when input tax credit is availed  of by an registered person, the amount of tax is excluded from the purchase price or cost the goods and the input tax credit is used for discharge of output tax on outward supply. The Authority constituted under sub-section  (2) of section 171 is required to examine  that input tax  credits  availed by any registered person results in a  commensurate reduction in the price of the goods or services or b both supplies by him.

              The Authority is also required to ensure that any reduction in the tax rate  must result in a   commensurate  reduction in the price of the goods or services or b both supplies by him.

        3. Constitution of Authority

          The National Anti- Profiteering  Authority shall be a five-member committee  consisting of a Chairman  who holds or has held a post equivalent  in rank to a Secretary to the Government  of India ; and four technical Members who are or have been  Commissioners of State  tax  or central  tax or have held an  equivalent  post under existing laws.

          The Additional shall cease to exist after the expiry of two years from the date on which the Chairman enters upon his office unless the Council recommends otherwise.

     4.Power to determine the methodology and procedure

           The Authority can determine the methodology and procedure for determination as to whether the reduction in the rate of tax on the suppy of goods or services or the benefit by way of commensurate reduction in prices.

     5.Duties of  Authority

          As per  rule 127 of the CGst Rules, the Authority would have the following duties:

        (i) to determine whether any reduction in the rate of t axo any supply of goods o services or the benefits of input tax has been passed o to the  recipient by way of commensurate reduction in prices;

       (ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient  by way of   commensurate reduction in prices;

       (iii) to order;

             (a) Reduction in prices

             (b) Return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen per cent. Fromthe date of collection of the higher amount  till the  date of  the return of such amount or                        recovery  of the amount or recovery of the amount not returned, as the case maybe, in case the eligible person  does not claim return                      of the amount or is not identifiable, and deposite the same in the  Consumer Welffare Fund;

            (c) Imposition of penalty; and

            (d) Cancellation of registration.

   (vi)   to furnish a performance report to the Council by the 10th of the close each quarter.

    6. Application to the Authority

            According to sub-rule 128, the Standing Committee shall within a period of two months from the date of the receipt of a written application froman interested party or from  a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima-facie evidence to  support the claim of goods or to the recipient by way of commensurate reduction in prices.

     All  applications from interested parties on issues of local nature shall first be examined by the State level Screening  Committee constituted in each State by the State Government consisting  of an officer of the State Government to be nominated by the Commissioner, and an officer of the Central Government to be nominated by the Chief Commissioner.

   7. Initiation and conduct of proceeding 

          In terms of sub-rule  (1) or  rule  129, if the Standing Committee is satisfied  that there is a prima-facie evidence to show that the supplier has not passed on the benefit of reduction in the rate of tax on thesupply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices , it shall refer the matter to the Director General of Safeguards for a detailed  investigation

        In terms of sub-rule  (3)  of rule 129, if the Director  General of Safeguards shall conduct

investigation  and  collect evidence necessary to determine undue profiteering and before initiation of the investigation,issue a notice to the  interested parties (and to such other persons as deemed fit for a fair enquiry into the matter) containing, inter alia, information on the following, namely:-

            (a) The description  of the goods or services in respect of which the proceedings have been initiated;

            (b) Summary of the statement  of facts on which the allegations are based; and

            (c) The time limit allowed  to the interested  parties and other persons who may have information related  to the proceedings for furnishing                     their reply.

       The evidence or information presented to the Director General of Safeguards by one interested party can be made available  to the other   interested parties  participating in the proceedings in the proceedings. The evidence provided will be  kept confidential  and the provisions of section 11 of the Right to Infomration  Act,2005, shall  apply mutatis to the disclose of any information which is provided on a confidential basis.

       The Director General of Safeguards can seek opinion of any other agency or statutory  authorities  in the discharge  of his duties. The Director Genearal of Safeguards,or an officer authorised by him will have the power to summon any person necessary either to give evidence or to produce a document or any other thing. He will also have same powers as that of a civil court and every such inquiry will be a judicial proceeding.

       The Director General of   Safeguards will complete the investigation within a period of three months  for reasons to be  recorded  in writing as allowed by the Standing committee and, upon completion of the investigation, furnish to the Authority, a report  of its findings along with the relevant records.

  8. Confidentiality  of information

          For the purpose of ensure confidentiality of information, it has been provided  that notwithstanding anything contained in sub-rules  (3) and (5) of rule  129 and sub-rule (2) of rule 133, the provisions of section 11 of the Right to Information  Act, 2005, shall apply mutatis mutandis   to the disclosure of any information which is provided on a confidential  basis.

         It is also provided under sub-section  (2) of section  130  that the Director General of Safeguards may requie the parties providing information on confedential basis  to furnish non-confidential summary   thereof and if in the opinion of the party providing  such information, the said information cannot be summarised, such party may submit to the Director General of Safeguards  a statement of reasons as to why summarisation  is not possible.

  9. Cooperation with other agencies or statutory authorities

        As per rule 131 of the CGST Rules, where the Directors General of Safeguards deems fit, he may seek opinion of any  other agency or statutory.

        Authorities in the discharge  of his duties.

  10. Power to summon persons to give evidence and produce  documents

           In terms of sub-rule 132,the Director General of Safeguards, or an officer authorised by him in this behalf,shall  be deemed to be the proper officer  to exercise the power to summon any person  whose attendance  he considers necessary either to give evidence  or to produce a document or any inquiry in the same manner, as provided in the case of a Civil Procedure,1908.

           Every such inquiry referred  to in sub-rule  (1)  shall be deemed  to be a judicial proceedings within the meaning  of sections  193 and 228 of the Indian Penal Code.

   11. Order of the Authority

       As per  sub-rule  (1)  of the CGST Rules, the Authority shall (after  granting  an opportunity of hearing to the interested  parties if so requested) within a period of three months  from the date of the receipt  of the report from the Director General  of Safeguards determaine whether a register person has passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit  of input tax credit  to the recipient by way of commensurate reduction in prices. 

       If the Members  of the Authority differ in opinion  on any point, the point shall be decided according  to the  opinion of the majority.

       Where the Authority determines that a registered  person has not passed on the benefit  of the reduction in the rate of tax credit to the recipient  by way of commensurate reduction in prices, the benefit  of input tax  credit  to the recipient by way of commensurate  reduction  in prices, the Authority may order-

     (a) Reduction in prices;

     (b) Return to the recipient, an amount  equivalent to the amount not  passed on by way of commensurate reduction  in prices along with interested at the rate of eighteen percent. from  the date of collection of the higher  amount  till the date of the return of such amount or recovery of the of amount including interest not returned, as the case may be, in case the eligible person does not claim return  of the amount or is not identifiable, and depositing the same in the Fund refered to in section 57;

     (c) Imposition of penalty as specified  under the Act ; and

     (d) Cancellation of registered under the Act.

          Any order passed by the Authority shall be immediately complied with by the registered person failing which action shall be initiated to recover the amount in accordance  with the provisions of the Integrated Goods and service Tax Act  or the Central  Goods and Services Tax Act or the Union territory Goods and Services Tax Act of the respective States , as  the case may be.

     The Authority can  direct any authority of central  tax,State tax or Union territory tax to monitor the impletion  of the order passed by it.

  12. Decision to be taken by the majority

        As per rule 134 CGST Rules, if the Members of the Authority differ in opinion on any point, shall be decided according to the  opinion of the majority.

 13. Compliance by the registered person

       In terms  of rule  135 of the CGST Rules, any order passed by the Authority shall be immediately  complied with by the registered person failing which action shall be initiated to recover  the amount in accordance with the provisions of the Integrated  Goods and Services Tax Act or the State goods and Services Tax Act of the respective States, as the case may be.

 14. Summing up

         Anti-profiteering measures are globally Accepted policies which are implemented by various  countries for controlling temporary inflationary prices of goods and services  during the transition  phase of implementation of GST. Anti-profiteering measure are adopted for providing benefit of GST to the consumers in terms of reduced prices and curbing more profit margins to the businessmen sought to be earned due to rise in prices of goods and services resulting inflation in country. 

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Authorised  Representative plays a crucial role by appearing as a legal representative of another person in adjudicating proceedings under the GST regime. Section 116 provides qualification,disqualification and other procedures relating to authorised representative which are articulated under this article.

  1. Concept of authorised representative

             Authorised  Representative is a authorised by a person to appear on his behalf in any proceedings. ‘Authorised Representative’ has been defined  in the Goods and Services Act itself. Section  2(15) of the  central Goods and services Act ,2017 (hereinafter reffered to as “ the CGST Act”) defines ‘authorised representative’  as     representative reffered to in section 116. Broadly, it includes a relative, a regular employee, an advocate, a charted accountant, a company secretary, or any person with prescribed qualifications. It is also provided that indirect tax gazetted officers can appear as authorised representative after one year from retirement.

         The GST law also specifies for some disqualification for an authorised representative such as dismissal from government service, conviction under some specified Acts, insolvency, misconduct, etc. Such orders of disqualification are, however , required to be passed after complying the principles of natural justice.

2 . Appearance by authorised representative

       Section 116(1) provides that any person can appear by an authorised representative in any proceedings under the Goods and Services regime.By virtue of this, an authorised representative can appear before the following authorities-

1. GST Officers,

2. The Appellate Authority under GST Law,

3.The Appellate Tribunal under GST Law.

        However, a person is not allowed to appear by an authorised representative  when he is required  under the Act to appear personally for examination on oath or affirmation.

3.   Persons who can be authorised representative

          Section 116(2) places limitation on the persons  who may be authorised to represent before the authorities. The following categories of persons are so permitted to act as an authorised representative on his behalf -

  1. Relative or persons regularly employed by the registered person

                Relative or regular employee of an registered  person  who has authorised him to act can be appointed as an authorised representative.

       2. Advocate

            An advocate who is entitled to practice in any court in india, and who has not been debarred from practicing  before any court in india, can represent the assessee.

    3. Professionals

           Any  charted accountant, a cost  accountant or a company secretary who holds a certificate  of  practice and who has not been debarred from practice, are permitted to act as an authorised representative.

    4. Government officers

        A retired officer  of the Commercial tax  department of any State Government or Union  territory   or of the Board who, during his services under the Government had  worked  in a post not below the rank than that of a Group –b Gazetted officer for a  period of not less than two years  can be  a appointed as an authorised representative.

        However, such officer  would  not be entitledto appear before any proceedings under the GST Act  for a period of one year from the date of his retirement or resignation.

 5. GST  practitioner

           A GST  practitioner would  also be allowed to appear as authorised  representative before any  officer of  department, Appellate  Authority or Appellate Tribunal, on behalf  of a registered person who has authorised  him to be his GST practitioner.

4.  Disqualification for acting as an  authorised representative  

       The Disqualifying factors in relation  to a person representing the assessee under section 116 are contained in sub-section  (3) thereof which are as follows:

1. Who has been dismissed or removed from Government services; or

2. Who is convicated of an offence connected with any proceedings under this Act, the State  Goods and  Services Tax Act, the Integrated Goods and Services Tax  Act or the  Union  Territory Goods ad Services Tax Act, or under  the existing law or under any of the Integrated  Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, or under the existing law  or uder any of the Acts passed by a State Legislature  dealing with the imposition of taxes on sale  of goods or supply of goods or services or both;  or

3. Who is found guilty of misconduct by the prescribed  authority;

4. Who has been adjudged  as an insolvent.

Such disqualifications  to act as an authorised representative  would  work  for the  period as mentioned under-

  1. For all times in case of persons reffered  to in clauses  (a),  (b)  and (c); and
  2. For the period during which  the insolvency  continues in the case of a person reffered  to in clause (d).

5. Action  for misconduct of an authorised representative 

         In term of rule  116 of the CGST Act, 2017, where an authorised representative, ( other than those  advocate/  CA/  CS/  CWA) is found, upon an enquiry into the matter, guilty  of connection with any proceedings  under the act, the Commissioner may, after providing him an opportunity of being heard , disqualify him from appearing as an authorised representative.

6. principle of natural justice to be followed

         The principle of natural justice has to be observed before any adverse action is going to be observed before any adverse action  is going to be taken against the assessee. One of the grant of an opportunity of hearing, oral or in writing,before conclusion  is arrived at by the authority exercising their powers.

7. Applicability of SGST Act/ UTGST Act

         Any person who has been disqualified under the provisions of the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act will be deemed  to be  disqualified under the GST Act as stated under section 161(4) of the CGST Act.

8. Applicability of IGST Act

         Section 20 of the IGST stipulates that the provisions of the CGST Act would, mutatis mutandis, apply to integrated  tax as they apply in relation to central tax as if these are enacted  under this Act. Accordingly, there is no separate provisions regarding authorised representative under the IGST Act, thus, the provision available  under the CGST Act, is made applicable to IGST  Act.

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Mr. Anil D'Souza, one of the few entrants of an elite list of chartered accountants in Bangalore can help you in person with understanding the concept of authorized representative.

In the case of Pr.CIT, New Delhi v. Delhi Airport Metro Express Pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017]  the Commissioner  opined that assessing officer allowed depreciation in excess of what was assessing officer  to make fresh assessment. The Delhi High Court held that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusioin that the order of the assessing  officer is erroneous and prejudicial to the interests of the Revenue has to be preceded  by some minimal inquiry. That basic exercise of determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the Pr. CIT undertakes an inquiry himself. The   High Court held that revision was not justified.The learned author discusses the case in detail.      

  1. Introduction

            Subject to it’s Explanations, section 263(1) of the Income Tax Act,1961 (‘Act’) states that the principal Commissioner may call for and examine the record of any proceeding under the Act, ad if he considers that any order passed therein by the assessing officer is erroneous on so far as it is prejudicial to the interests of the revenue, he may after giving the assessee an opportunity of being heard and after such order thereon as the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.

            More recently, in Pr. CIT, New Delhi  v. Delhi Airport Metro Express pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017], the short question  raised by  the Revenue was whether the ITAT was justified in setting aside the order  of the Principle Commissioner  of Income Tax  (‘Pr. CIT’)  passed  under  section 263  of the Act  in  respect of assessment year 2011-12 setting aside the original assessment order  dated 31-12-2013 passed by the Assessing Officer  (‘AO’) under section 143(3) of the Act.

2. Facts of the case

            The brief  facts in the above –mentioned case were that the assessee being a concessionaire of the Airport Metro Express Project of the  Delhi Metro Rail Corporation  Ltd.  (‘DMRC’) under a Build-Operate-Transfer (‘BOT’)  Scheme, had accepted the concession  for a period of 30 years During the assessment year in   question, the assessee claimed depreciation of Rs.112,29,74,447, on fixed assets  of Rs.15,60,48,17,189 50% of the eligible depreciation rates since, during the assessment year in question, the assets were used  for less than 180 days. The assessing officer framed the assessment under section 143(3) of the Act allowing depreciation as claimed by the assessee.

           The case of the revenue was that the assets were developed under the BOT scheme and  the assessee was not eligible to claim depreciation as it was not the owner of the assets. The Revenue contended that the land for the project was handed over by the DMRC to the assessee  as Concessionaire  of the  basic structure was also done by the DMRC.

          The case of the assessee was that during the assessment year in question it had purchased and installed plant and machinery and such plant and machinery was legally owned by it. It was further contended that since such assets were used for the purpose assessee’s business,it was entitled  to claim depreciation under section  32 of the Act.

          The Pr. CIT, in exercise of powers under section 263 of the Act issued a show cause notice (SCN)  dated 16-3-2015  to the assessee pointing out that if the value of  these fixed assets  were to be amortized evenly over a period of 30 years, the amount  of to be amortized  would only be Rs.52,01,60,572 for each year. Therefore, the depreciation allowed to the assessee was in excess by Rs. 60,28,13,875 and, to that  extent, the order passed by the assessing officer  was prejudicial to the interest of the Revenue. In reply to the SCN, the assessee took the stand that, interest of the Revenue. In reply to the SCN, the assessee took the stand that, during the assessment year in question, it “had purchased the assets from independent vendors, out of its own funds for settings up the project.

           Thereafter, order dated 30-3-2016 was passed by the Pr. CIT.

3. Thus held the court

             The learned Judges of the Delhi High Court observed that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the assessing officer is erroneous and prejudicial to the interests of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimum inquiry. In fact, if the Pr. CIT was of the view that the AO did no undertake any inquiry, it became incumbent on the Pr.  CIT to conduct such inquiry. All that Pr.  CIT had done in the order was to refer to the Circular of the CBDT and conclude that “in the case of the assessee company, the assessing officer was duty-bound to calculate and allow depreciation  on the BOT in conformity of the CBDT Circular No. 9/2014 but the assessing officer is erroneous insofar as prejudicial to the interest of revenue”. In the considered view of the Court,this can hardly constitute jurisdiction under section 263 of the Act. In the context of the present case depreciation on assets like land and building, it was incumbent upon the purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of the determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment.  That option, in the considered view of the Court, can be exercised only ofter the  Pr. CIT undertakes an inquiry himself in the manner indicated hereinbefore. That was missing in the present case.

           Finally, the Delhi High Court held, in respect of the appeal, that the ITAT was not in error in setting aside the order  of the Pr. CIT under section  263 of the Act, no substantial question of law arose herein.


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