Amarchand GST Aticle

T A X SCOUT A quarterly update on recent developments in Taxation Law
August 8, 2016 (April 2016 - June 2016)
Foreword
We are delighted to present to you, the latest issue of the Tax Scout, our quarterly update on
recent developments in the field of direct and indirect tax laws for the quarter ended June
2016.
India is at the brink of introducing Goods and Services Tax (GST). As a part of the Cover
Story of this issue of the Tax Scout, we have discussed at length the impact of the Model
GST Law on the infrastructure sector. The article details out the key takeaways for this
sector from the Model GST Law while also focusing on the possible issues.
Additionally, we have also analyzed some of the important rulings by the Indian judiciary and
certain key changes brought about by way of circulars and notifications in the direct and
indirect tax regimes during the June quarter.
We hope you find the newsletter informative and insightful. Please do send us your
comments and feedback at taxscout@cyrilshroff.com.
Regards,
Cyril Shroff
Managing Partner
Cyril Amarchand Mangaldas
Email: cyril.shroff@cyrilshroff.com
2016 Cyril Amarchand Mangal-
Mumbai | New Delhi | Bengaluru

Hyderabad | Chennai | Ahmedabad
Inside this issue:
Cover Story -
Model GST law Whats in store for the infrastructure sector? 4
Case Law Updates -
Direct Tax
Tips collected by hotel and paid to staff is not salary and hence not liable to TDS under section 192 of the IT Act 7
Transferor Company held taxable even in respect of sale consideration directly received by its shareholders under a scheme of
arrangement 9
Routine notices issued under section 143(2) of the IT Act are not tools for denying refunds 12
Conversion of firm into a company is not a transfer even before the insertion of section 47(xiii) of the IT Act 14
Maintainability of AAR application and constitutionality of clause (i) of the proviso to section 245R(2) of the IT Act 16
Constitution of PE under the India-USA DTAA 19
Loan waived is taxable as business income 21
Consideration from offshore construction services not taxable as royalty/ FTS 23
Direct contribution from the government is a mandatory prerequisite for availing exemption under section 10(23C)(iiiab) of the
IT Act 26
Indirect Tax
Common excise registration can be granted if two factories are connected through overhead conveyer 28
Attachment and recovery of service tax demand from bank account of a company as against the dues recoverable from a
proprietorship concern is illegal and impermissible 30
It is permissible for a manufacturer to avail the CENVAT credit of input services availed at its retail outlet 32
Subsidies received from the government do not form part of gross value of service for the computation of service tax 34
No service tax payable on construction services provided to IIT 36
Services by an employee to joint employers, who share his costs, fall outside the purview of levy of service tax. 38
Sales made from a state to the Exclusive Economic Zone is not a CST sale 40
Transferable Development Right may not necessarily be immovable property and would form part of other valuable
consideration 42
The doctrine of unjust enrichment is attracted only in the case of tax and not deposit 44
Incidental volume discounts are not consideration for providing service 46
Neither the officers of the service tax department nor the CAG have the power to audit the records of the Assessee 48
No tax can be levied in the absence of proper mechanism for valuation 50

Non Judicial Updates -
Direct Tax
Interest on refund of excess TDS deposited under section 195 of the IT Act 52
Printing and publishing activity constitutes manufacturing activity for the purposes of claiming additional depreciation 52
Allowability of bad debts even if debt is not established to be irrevocable 52
Rules notified for Direct Tax Dispute Resolution Scheme 52
2
Inside this issue:
Final rules for granting foreign tax credit 53
Taxability of income / loss arising from transfer of unlisted shares 54
Applicability and scope of Tax Collection at Source (TCS) amendments relating to sale of motor vehicles 54
Expenditure on scientific research 54
General Anti-Avoidance rules 55
Equalisation levy rules 55
Rules and FAQs in relation to Income Declaration Scheme, 2016 55
Determination of fair market value and reporting requirements in relation to indirect transfer of shares of Indian companies 55
Exemption to start-ups from so-called angel investment tax 57
Relief to non-residents from furnishing of PAN 58
3
TAX SCOUT | Apr - Jun 2016
Cover Story
MODEL GST LAW Infrastructure sector currently stands as one of the key focus areas of the
present government. Given that the Model GST Law (Model Law) is in public
WHATS IN STORE FOR domain for discussion and the Central Government is pushing for the
passage of the Constitution (122nd Amendment) Bill, 2014 in the monsoon
THE INFRASTRUCTURE Session of the Parliament, it is imperative to understand the impact of the
Model Law on this sector before GST becomes a reality in India.
SECTOR?
Works contract to be relieved from the impact of double taxation
The prime area of concern for the players in the infrastructure sector is the
taxability of works contracts under the present indirect tax regime. Presently,
works contracts are exigible to VAT under the state legislations or CST for
levying tax on the sale of goods involved therein along with service tax under
the central legislation for levying tax on the provision of services. Owing to
this dual levy by the State and the Central Governments on works contracts,
litigation is abundant in the infrastructure sector on issues ranging from
appropriate treatment of contracts i.e. whether different contracts have to be
treated as separate contracts for the sale of goods and the provision of
service or would they be considered as a single composite contract
involving transfer of property in goods along with the provision of service to
valuation as both the state as well as central legislations attempt to levy
respective taxes. Though, the legislations provide for concessional rates or ad
hoc rates for valuing the works contracts which are indivisible in nature, a
contractor engaged in works contracts ends up paying tax on more than
100% of the contract value under the present indirect tax regime
In terms of the Model Law works contracts would be treated as a service.

Thus, the issues relating to the classification and valuation of works contracts
for the purpose of levy of Central GST (CGST) and State GST (SGST) or
Integrated GST (IGST), as the case may be applicable, would not arise.
Input tax credit
One of the main objectives of introducing GST is to remove the cascading

effect of multiple levies by providing a seamless credit chain to the taxpayers
located across all states. Though the Model Law has attempted to provide a
simplified input tax credit mechanism, the continuation of restrictions from
the existing regime in the Model Law may hamper this ultimate objective.
In particular for the infrastructure sector, the Model Law has carved out
severe restrictions from the existing regime. As per the provisions of the
Model Law, the principal contractor shall not be entitled to avail input tax
credit in respect of goods and services which are used for works contract of
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construction of an immovable property. The major cost of for levying concessional rate on works contracts have been
Infrastructure projects lies in the construction of the proposed to be discontinued in the Model Law. Accordingly,
structure; be it ports, airports, railways, telecom if a contract qualifies to be a works contract, the value of
infrastructure, or a manufacturer / a service provider goods and services supplied therein would be taxed at
setting up its premises for operations. Under the existing standard rate under the GST regime without the possibility
regime, there are plethora of cases are pending on these of evasion of tax. However, the inclusion of the value of
very issues in various courts and tribunals. Thus, this not free of cost supplies in the taxable value under the GST
only has a potential of continuing the legacy of litigation regime would lead to higher tax incidence in cases of works
from the existing regime but such disruption of credits contracts for construction, erection etc of an immovable
would also lead to increase cost of services to the property as the project owners/ principal contractors are
consumers of the Infrastructure sector. not entitled to avail input tax credit.
It is further regrettable to note that the input tax credit can Cost of inputs procured on inter-state basis
be availed by the recipient of a taxable supply only when
the supplier has paid the tax collected and filed its return Under the present indirect tax regime, inputs procured on
under the GST regime. Infrastructure projects are normally inter-state basis for executing a works contract are liable to
executed with the collaboration of multiple players CST at the rate of 2%. Subsequent sale of such inputs
operating at the various levels of the economy. By posing under the works contracts is exempt under VAT and CST
such restrictions on the availment of input tax credit, the legislations. The Model Law is silent on such exemption.
Model Law has casted an impractical burden on the Accordingly, the first supply would be exigible to IGST and
contractors which might lead to denial of substantial subsequent supply would be taxed with CGST and SGST.
credits. Restricted credits for Infrastructure sector together with
removal of such exemption may lead to substantial
Exemptions and concessions increase in the cost of inputs procured on inter-state basis
for construction, erection etc of immovable property .
Under the present indirect tax regime, infrastructure
projects have the privilege of exemptions and concessions Unified point of taxation and place of supply for the
from the levy of taxes. For instance, construction or supplies under works contract
erection and commissioning of railways, ports and roads
enjoy exemption from service tax. Mining sector is generally Presently, the point of taxation of works contracts is based
exempted from excise duty. The Model Law proposes to on the completion of the specified milestones under the
discontinue with these exemptions. Thus, the major agreement for levying service tax thereon, whereas, the
infrastructure projects would fall within the purview of GST. point of taxation under the VAT/ CST legislations is the date
Further, under the present regime of indirect taxes, of sale of goods. Under the Model Law, the liability to pay
concessional rates are provided under the state and central CGST and SGST or IGST shall arise on the date of issue of
legislations to avoid duplicity of taxes on the works invoice or the date of receipt of payment, whichever is
contracts. However, owing to a single taxable event under earlier, if the invoice is issued within the prescribed period.
GST regime, the concessional rates have not been Where the invoice is not issued within the prescribed
continued in the Model Law except for the standard period, the date of completion of the provision of service or
composition limit for the intra-state supplies. However, in the date of receipt of payment, whichever is earlier. In all
absence of an effective credit mechanism, this might lead other cases, the time of supply shall be the date on which
to increase in the cost of the infrastructure projects. the recipient shows the receipt of services in his books of
account. In case of a continuous supply contract, the point
Free of cost supplies of taxation shall be the due date of payment to the provider
of works contract service as per the contract. Where such
Going by the present scheme of taxation, the Model Law due date is not ascertainable from the contract, the point of
proposes to include the value of free of cost supplies in taxation shall be earlier of the date of payment or date of
the taxable value for levying GST. In service tax, free of invoice. Further, in case the payment is linked to
cost supplies are included in the taxable value when an completion of an event, the time of completion of that
assessee opts for the concessional rate of tax. This event shall be the point of taxation.
provision was introduced to avoid the evasion of tax on the
portion of material used in a works contract when the As is seen, the point of taxation would considerably shift to
concessional rate was levied. It is, however, disappointing completion of the specified milestones in the project.
to note that the authors of the Model Law have simply Accordingly, invoices would be raised at the time of
hijacked the prevailing provisions of the present indirect tax achievement of specified milestones whereas movement of
regime without understanding the need for inclusion of the goods would occur at a different point of time under a
same. As discussed in foregoing paragraphs, the provisions works contract. Given this timing difference, the Model Law
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further needs to clarify on the mechanism for smoother Conclusion

movement of goods in case execution of works contracts.
A superlative infrastructure is the backbone of every
Place of supply developed economy. However, ever since the inception of
indirect taxes in India, transactions under this sector have
Similar to the point of taxation, the place of supply for the been contentious. With the Indian economy at the brink of
Infrastructure projects would be unified. Unlike the present introducing GST, the Model Law poses an opportunity for the
indirect tax regime, where the place of supply of goods is stakeholders to revisit their contract structures, logistics and
determined on the basis of the movement of goods, the place procurement policies and bring in an efficient compliance
of supply for goods under works contracts would be the mechanism to cater to the GST regime which might soon
location of the immovable property in the GST regime. become a reality.
Transition of ongoing contracts
The Model Law contains specific transitional provisions for the

ongoing contracts. The goods and / or services supplied after
the implementation of GST under an ongoing contract shall be
taxed under the GST regime. The advances received prior to
the implementation of GST for the supply of goods and / or
services made under the GST regime would not be exigible to
GST if tax had been paid on such advances under the present
indirect tax regime. It would, however, be interesting to see
the fate of supplies made prior to the implementation of GST
against which either the invoice has not been raised, or
payment has not been received, or tax has not been paid,
prior to enactment of the GST law. Since, the Model Law is
silent on this proposition, this has a potential of attracting
dual taxes, both under the present indirect tax regime as well
as under the GST regime.
Talking of the transitional credits, credits on capital goods,

remaining unavailed and not carried forward in the returns
filed by the existing tax payers in the existing regime in respect
of the period ending with the day immediately preceding the
appointed day would be allowed as transitional credits for
setoff against GST. Further, credit of duties or taxes
underlying, with a non-tax payer or a tax payer under the
composition/ concessional rate scheme in the existing regime,
in the closing stock of the raw materials, semi-finished goods
or finished goods on the penultimate date of GST
implementation would also be allowed.
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Case Law Updates

Direct Tax
TIPS COLLECTED BY In ITC Ltd.1, the SC held that no tax needs to be withheld on payments
received by the employees as tips. These amounts have no reference
HOTEL AND PAID TO whatsoever to the contract of employment since they are received from the
customer and the employer merely acts in a fiduciary capacity as trustee for
STAFF IS NOT SALARY such payments that are received from customers.
AND HENCE NOT FACTS

LIABLE TO TDS UNDER ITC Ltd. (Assessee) is engaged in the business of owning, operating, and
SECTION 192 OF THE IT managing hotels. A survey carried out by the tax authorities at the business
premises of the Assessee revealed that the Assessee allegedly had been
ACT paying tips to its employees, but not deducting taxes on the said amounts. The
AO treated the receipt of tips as income under the head salary in the hands
of the various employees and held that the Assessee was liable to withhold tax
at source under section 192 on such payments. In view of the same, the
Assessee was treated as an Assessee-in-default under section 201(1) of the IT
Act. The Assessee filed an appeal before the CIT(A) against the assessment
order. The CIT(A) allowed the appeals of the Assessee holding that the
Assessee could not be treated as Assessee-in-default under section 201(1) of
the IT Act for the non-deduction of tax on tips collected and distributed to its
employees. The IRA then preferred an appeal before the ITAT, which was
dismissed by the ITAT relying on its own order for AY 1986-1987 in the case of
the Assessee itself as well as in the case of Nehru Palace Hotels Limited.
Against the said order of the ITAT, an appeal was preferred by the IRA to the
Delhi HC. After considering sections 15, 17 and 192 of the IT Act, the Delhi HC
held that tips would amount to profit in addition to salary or wages and would
fall under the head salary and thus, it was obligatory for the Assessee to
withhold tax from such payments under section 192 of the IT Act. Aggrieved by
the Delhi HC order, the Assessee preferred an appeal to the SC.
ISSUES
(a) Whether tips received by waiters from customers constitute income under
the head salary?
(b) Whether the employer is liable to deduct tax at source on such payments
under section 192 of the IT Act?
ARGUMENTS/ANALYSIS
The IRA contended that salary paid or allowed to an employee by or on

behalf of an employer was chargeable to tax under the IT Act. The expression
allowed was of wide import and would include amounts such as tips paid by
the employer to its employees. Further, it argued that since the tips received
from customers through credit cards were first put into
the employers account and thereafter received by the
employees from the employer, it was sufficient to attract
the profit in lieu of salary component of the salary
There is no withholding
income. It was also argued that employees were receiving
obligation in respect of tips
payments from their employer, which were sufficient to
collected by hotels and
trigger salary taxation under the IT Act. A contract of
distributed to their employees.

employment was not a necessity for triggering salary tax
implications. Even otherwise, there was an indirect
1. ITC Ltd. v. Commissioner of Income-tax (TDS) Delhi (2016) 68 taxmann.com 323 (SC).
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reference to the contract of employment since in the absence The SC pointed out that tips are received by the employer in a
of an employment contract; the tips could not possibly have fiduciary capacity as trustee which they disburse to their
been paid at all to the concerned employees. The IRA also employees for the services rendered to the customers. There
relied on UK and Australian tax legislations to put forth its is, therefore, no reference to the contract of employment
case. when these amounts are paid by the employer to the
employee. The SC held that it is clear that under the scheme
The Assessee, on the other hand, argued that tips were paid of section 17 of IT Act, payment must be by an employer,
by customers out of their own volition, the payment was regardless of whether such employer is a future employer or a
gratuitous, the Assessee acted as a mere trustee for its past employer of the employee in question. When sub-clause
employees in collecting the tips charged to the customers (ii) of section 17 of the IT Act uses the expression employer,
credit cards, and such tips had no connection with the it uses the said expression in the same sense as is used in
employment contract. It further argued that tips were not section 15 of the IT Act, as the opening line of section 17 of
remuneration/ reward for services to the taxpayer and the the IT Act itself states that for the purposes of section 15 of
employees had no vested right to claim any tip from the the IT Act salary includes profits in lieu of salary.
customers. The Assessee further argued that the expression
employer contained in salary taxation provisions of the IT Act The SC also referred to the decision of Rambagh Palace
was of crucial importance. Payment received from any person Hotel v. Rajasthan Hotel Workers' Union3, wherein it was
other than the employer could not qualify as salary. It also stated that the true character of tips cannot be treated as any
argued that the withholding tax provisions of section 192 of payment made by the management; but only as a transfer of
the IT Act applied only when the person was responsible for what is collected from the customer and paid to the staff. The
paying salary income, and since the income received from tips same is equally applicable to the facts of the instant case.
was not the employees salary income (but income from other
sources), section 192 of the IT Act did not apply and Further, the SC while referring to the decision of Eli Lilly and
consequently, neither did section 201 (since the same holds Company (India) Private Limited4, observed that the interest
for failure to comply with section 192 of the IT Act) of the IT u/s 201(1A) of the IT Act can only be levied when a person is
Act. By relying on the Hotel Receipts Tax Act, 1980 and a declared as an assessee-in-default. However, as the taxpayer
circular issued there under, it was argued that tips did not in the present case is outside the purview of section 192 of
form part of the hotels taxable receipts. The guidelines the IT Act, the Assessee cannot be treated as an assessee-in-
published by the Australian tax office were also relied upon to default and hence, there is no obligation to pay any interest.
contend that tips were not consideration for the food or
service in the hotel.
SIGNIFICANT TAKEAWAYS
DECISION
The present ruling is significant in laying down the basic
As per section 192 of the IT Act, tax withholding obligation for propositions for explaining the concept of salary. The SC
salary is on any person responsible for paying salary to has held that there are no withholding-tax obligations on the
employees which, in the context of salary income, is the employer on tips collected by the hotel and distributed to
employer. In the instant case, it is clear that the person the employees. The SC further held that the presence of
responsible for paying tips to the employee is not the employer-employee relationship and receipts pursuant to an
employer, but a third person, namely, the customer. Also, if employment contract under a vested right are prerequisites
any employee receives income chargeable under a head other for triggering salary taxation. The provisions of section 192
than the head salary, section 192 of the IT Act does not get of the IT Act would not get attracted because tips are
received from the customers and not from the employer.
attracted.
The concept of holding the tips in trust is also a significant
concept, especially since the said tip amounts also do not
The SC noted, relying on its own decision in Emil Webber2 that
it is clear that income from tips would be chargeable to tax in form part of the Assessees taxable income.
the hands of the employee as income from other sources as
such tips are received from the customers and not from the
employer. Further, on analysis of section 15 of the IT Act, it
can be seen that there should be a vested right in an
employee to claim any salary from an employer or former
employer. In the present case, there is no vested right in the
employee to claim any amount of tip from his employer. Tips
being purely voluntary in nature, customers may or may not
pay any tip in respect of the services rendered to them.
Accordingly, tips paid by them would not, therefore, fall within

the meaning of section 15(b) of the IT Act.
2. Emil Webber v. CIT (1993) 67 Taxman 532 (SC).
3. Rambagh Palace Hotel v. Rajasthan Hotel Workers' Union (1976) 4 SCC 817 (SC).
4. CIT v. Eli Lilly & Co. (India) (P.) Ltd. (2009) 312 ITR 225 (SC).
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TRANSFEROR In Salora International Ltd.5, the Delhi HC held that a part of the consideration
for business transfer received directly by the shareholders of the transferor
COMPANY HELD company, under the scheme of arrangement, would form part of the total
consideration accruing to the transferor company for the purpose of
TAXABLE EVEN IN computing capital gains tax.
RESPECT OF SALE FACTS

CONSIDERATION Salora International Ltd. (Assessee) was engaged in the business of
DIRECTLY RECEIVED BY manufacture of television sets and components and had started Panasonic
Division in technical collaboration with a foreign company for the manufacture
ITS SHAREHOLDERS of colour television sets in India. Later, the Assessee decided to restructure
and reorganize the company by spinning off the Panasonic Division to
UNDER A SCHEME OF Matsushita Television & Audio India Ltd. (the transferee) through a court
approved scheme of arrangement under sections 391-394 of the CA. The HC
ARRANGEMENT approved the scheme of arrangement. The total consideration agreed to be
paid by the transferee had been fixed at INR 50.12 crores. As per the scheme
of arrangement, the shareholders of the Assessee were entitled to claim as a
right from the transferee, two equity shares of INR 10 each credited as fully
paid. In the income tax return filed by the Assessee, the total consideration in
respect of sale of Panasonic Division was shown as INR 32.48 crores and the
same did not include the sum of INR 17.64 crores, being the value of the
shares allotted by the transferee to shareholders of the transferor company.
The AO was of the view that the company had diverted part of its income to the
shareholders in terms of the scheme of arrangement and concluded that - (i)
total sale consideration which accrued in the hands of the Assessee was INR
50.12 crores on which the Assessee was liable to pay tax on capital gains, and
(ii) shares worth INR 17.64 crores given to shareholders were nothing but
application of income. On appeal, the CIT(A) confirmed the order of the AO. On
second appeal, the ITAT reversed the order of the CIT(A) and held that there
was diversion of receipt at the very source itself and, therefore, shares worth
INR 17.64 crores issued to shareholders of the Assessee by transferee could
not be considered as part of consideration received by the Assessee for
purpose of computing capital gains. The ITAT further observed that the
shareholders of the Assessee had acquired the right to receive the shares of
the transferee by virtue of the court approved scheme of arrangement which
had a binding effect. Accordingly, the value of the shares issued to the
shareholders of the Assessee could not be said to be income arising to the
Assessee, the same having been diverted at the very source itself.
ISSUES
Whether consideration received directly by shareholders on transfer of

business undertaking by a company will be taxable in the hands of the
transferor company?
ARGUMENTS/ANALYSIS
The Assessee contended that the terms of the scheme of

arrangement were binding and it could not be considered
that the Assessee voluntarily diverted its income in favour
Diversion of income to its of its shareholders. Further, the scheme of arrangement
shareholder will continue to be was sanctioned and since the shareholders had
taxable in the hands of the consented to the same, entailing the issue of shares of
company. paid-up value of INR 17.64 crores to them, the same

could not form part of the consideration, as either
received or accruing in favour of the Assessee.
5. CIT v. Salora International Ltd. (2016) 70 taxmann.com 92 (Delhi).
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The above contention of the Assessee drew strength from the diverted to the shareholders would not absolve the Assessee
decision of the SC in the case of Sadanand S.Varde6, wherein from recognizing the entire consideration.
it was held that the court has the discretion and power to
reject a scheme of arrangement even if all the shareholders Further, the HC also held that in case of Vodafone
and creditors have agreed to it. But once the scheme of International Holding B.V.10, the SC followed the look at
arrangement is scrutinised by the company court and approach, to ascertain taxability of the transaction. The court
sanctioned by an order made by it under section 391 of the held that in an instrument effecting sale of assets, where the
CA, it ceases to retain the character of contract and operates owner calls upon the buyer to pay part consideration to third
by force of the statute. Placing reliance on the said decision, party, undisputedly, the seller is entitled to the entire
the Assessee stated that the scheme of arrangement required consideration for sale. Accordingly, equating the word
statutory recognition, and since the parties of the scheme of entitlement to accruing as used in section 48 of the IT Act,
arrangement are bound by its terms, it could not be the court held that the value of shares issued to the
considered that the taxpayer voluntarily diverted its income in shareholders should be taken into account for purpose of
favour of the shareholders. computation of capital gains in the hands of the seller, in
terms of that section.
The tax department, on the other hand, referring to the
decision of the SC in the case of Miheer H. Mafatlal v. Mafatlal Rejecting the ITATs view that the shareholders acquired right
Industries Ltd.7, stated that the court was not required to to receive shares under a court approved binding scheme of
examine the merits of the scheme of arrangement or the arrangement and that there was diversion of income at
commercial wisdom exercised by creditors and the members source, the court referred to the decision of the SC in Sitaldas
of the company. Further, it was contended that sanction of the Tirathdas (supra) to observe that the nature of obligation is a
scheme of arrangement by this court was merely an approval decisive fact to determine whether there is diversion of
of the arrangement already arrived at by the stakeholders. income or not. Applying that test, the court noted that in the
case in question, the Assessee had in the scheme of
Further, the tax department also referred to the decision of arrangement proposed that the total sale consideration of INR
the SC in the case of Sitaldas Tirathdas8 and on the basis of 50.12 crores be discharged in the above manner, and hence
the said decision, contended that in the present case, the voluntarily diverted part of the income which belonged to the
undertaking of Panasonic Division was held by the Assessee Assessee to its shareholders.
and the Assessee was entitled to receive the entire
consideration for the same. However, the board of directors of Since the IRA was not seeking to compute capital gains on any
the Assessee proposed to divert part of the consideration hypothetical basis, the entire consideration for transfer of the
directly to its shareholders. Under these circumstances, the Panasonic Division (including the value of shares issued to the
consideration received by the shareholders could not be shareholders of the Assessee) was held to be real income
excluded from the income of the Assessee. accruing in the hands of the Assessee.
DECISION
The identity of the shareholders of a company is different from
the identity of the company. The consideration reflected under The HC has laid down the framework for determination of
the scheme is clearly from the transfer of title of the asset as the full value of consideration under section 48 of the IT Act
well as assumption of obligations of the Panasonic Division. in cases where part of the consideration is diverted to the
Undisputedly, the title to the assets of the Panasonic Division shareholders. It has also laid down the principle that here
belonged to the Assessee, so as the obligation to discharge there is no obligation to divert the income before it reaches
the liabilities of the said division. The Panasonic Division was the Assessee, the same will be taxable in the hands of the
an undertaking owned by the Assessee and not by its Assessee. This judgment is important in the context of
shareholders. Whilst shareholders own shares issued by a payment of consideration paid to a person other than the
company, they have no interest in the assets held by the transferor.
company. The HC, referring to the decision of the SC in the
case of Bacha F. Gazdar9, held that since title in the Interestingly, the HC has not considered the issue of
Panasonic Division vested with the Assessee and not its whether the transfer of shares to the shareholders would
shareholders, who were separate and distinct legal entities, amount to deemed dividend in the hands of the
the Assessee (being the transferor) would be entitled to the shareholders in view of section 2(22) of the IT Act.
entire consideration for the sale of the Panasonic Division and
the fact that, at its instance, a part of the consideration was
6. Sadanand S. Varde v. State of Maharashtra (2001) 247 ITR 609 (Bom).

7. Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 (SC).
8. CIT v. Sitaldas Tirathdas (1961) 41 ITR 367 (SC).
9. Mrs. Bacha F. Guzdar v. CIT (1955) 27 ITR 1 (SC).
10. Vodafone International Holding B.V. v. Union of India (2012) 341 ITR 1 (SC).
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This judgment also reiterates the age-old principle of

corporate law set out in Salomon v. Salomon Co. Ltd.11, that
the shareholders of a company are separate from the
company itself.
11. Solomon v. Solomon & Co. (1897) A.C.22 (H.L).
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ROUTINE NOTICES In Tata Teleservices Ltd.12, the Delhi HC held that the Instruction issued by the
CBDT, dealing with the issuance of adjustment of refunds is not sustainable in
ISSUED UNDER law, since it imposes higher burden on the tax payers than what was
enshrined in the provisions of section 143(1D) of the IT Act.
SECTION 143(2) OF
FACTS
THE IT ACT ARE NOT
Tata Teleservices Ltd. (Assessee) is engaged in the business of providing
TOOLS FOR DENYING telecom services and has over the years accumulated losses in excess of INR
REFUNDS 31,000 crores. During the same period, an aggregate amount of INR 733
lakhs has been claimed as refunds for the AYs 2012-13 to 2015-16. However,
the AO had declined to issue the refunds by relying upon the Instruction No. 1
of 2015 dated January 13, 2015 (Instruction) issued by the CBDT, wherein it
was clarified that the legislative intent behind the insertion of section 143(1D)
into the IT Act is to prevent the issue of refund when scrutiny proceedings have
been initiated under section 143(2) of the IT Act, which may culminate in a tax
demand being raised against the assessee.
ISSUES
Whether the impugned Instruction issued by the CBDT is sustainable under

law?
ARGUMENT/ANALYSIS
The primary contention put forward by the Assessee was that it incurred
substantial losses over the years and it had further represented to the IRA to
issue a lower withholding certificate under section 197 of the IT Act, which was
not entertained. This has compelled the Assessee to seek refund for all those
years, but its claim was unnecessarily delayed by the IRA. It was submitted
that on the strength of the impugned Instruction, notices under section 143(2)
of the IT Act were issued as a matter of routine thus, obviating the need for the
IRA to process the returns filed by the Assessee. As per the existing provision
of the IT Act, every return of income filed shall be processed in a specified
manner and refund shall be granted accordingly. Section 143(1D) of the IT Act
states that processing of return would not be necessary in cases where notice
is issued under section 143(2) of the IT Act. However, the CBDT has
interpreted section 143(1D) of the IT Act vide the impugned Instruction in a
manner prejudicial to assessees and stated that the legislative intent behind
the insertion of the said section is to prevent the issuance of refunds in cases
where notice under section 143(2) of the IT Act has been issued. It was the
contention of the Assessee that the said Instruction took away the
discretionary power of the AO to process the returns. The IRA submitted that
the impugned Instruction is not a circular and only for the internal guidance
of the officers of the IRA.
DECISION
The Delhi HC held that the impugned Instruction, relying

Notice issued u/ 143(2) is not a on which the IRA denied the refund, is legally not valid. It
bar to grant refunds and CBDT relied on the following decisions to hold that the direction
Instructions prejudicial to the or instruction issued by the CBDT should not be
interest of the assessee are not prejudicial to assessees and should be issued to
tenable in law. ensure ease in the administration of the IT Act. At the
same time, it has to be ensured that such instructions or

orders do not add to the difficulties of the tax payers.
12. Tata Teleservices Limited v. CBDT (2016) 69 taxmann.com 226 (Delhi HC).
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(i) UCO Bank case13, wherein the SC only interpreted the

CBDT circular, which was issued in the context of SIGNIFICANT TAKEAWAYS
inclusion of the interest accruing on sticky loans on
which the recovery was doubtful. The Court took reference Whilst the Delhi HC has held that the impugned Instruction
of Keshavji Ravji and Co.14, case in order to clarify the took away the discretionary powers of the AO under section
legal position of circular issued in terms of section 119(1) 143(1D) of the IT Act to process the returns, the Finance
of the IT Act. It was held that circulars beneficial to the Act, 2016 has amended the said section to provide that the
assessee are issued in exercise of the statutory powers returns shall mandatorily be processed before the
under section 119 of the IT Act, which were binding on the completion of the assessment under section 143(3) of the
authorities in the administration of the IT Act. It was held IT Act, even if a notice under section 143(2) of the IT Act has
that the circular cannot impose on the tax-payer a burden been issued.
higher than what is stated in the IT Act itself. The statutory
power under section 119 of the IT Act was to ensure a Thus, in any case, it is no longer open for the IRA to
unnecessarily delay the processing of return by issuing a
proper administration of the statute.
routine notice under section 143(2) of the IT Act. It shall,
(ii) Commissioner of Central Excise, Bolpur case15, wherein henceforth, mandatorily process the returns within the
the SC interpreted the circulars/ instructions issued by specified time-limit. Therefore, the tax payers shall be
the CBEC under the corresponding provision of the CEA granted with their refund dues computed under section 143
and held that a circular which is contrary to the statutory (1) of the IT Act before the completion of assessment.
provisions, i.e. increases the burden of the Assessee has
On the other hand, the Finance Act, 2016 has also
really no existence in law.
increased the scope with regard to the processing of tax
The Delhi HC has accordingly held that the impugned returns under section 143(1)(a) of the IT Act. Under the
Instruction shall not hereafter be relied upon by the IRA to erstwhile provisions of the IT Act, processing of return
deny refunds to the taxpayers, in cases where notices have involved rectification of arithmetical errors and incorrect
been issued under section 143(2) of the IT Act as a matter of claims, however, which has now been widened to disallow
certain losses and expenditure claimed by the tax payer in
routine assessment.
case of belated returns, to disallow expenditure included in
the audit report but not taken into account in computing the
total income as well as to include the income included in
TDS certificate/ Form 26AS16 but not considered in
computing the total income.
In conclusion, it can be stated that although the tax payers

shall be granted their refund dues within the prescribed
time, however, the quantum of their refund could get
substantially reduced if they fall within the expanded ambit
of section 143(1)(a) of the IT Act.
13. UCO Bank v. Commissioner of Income Tax (1999) 237 ITR 889 (SC).
14. Keshavji Ravji and Co. v. Commissioner of Income Tax (1990) 183 ITR 1 (SC).
15. Commissioner of Central Excise, Bolpur, v. Ratan Melting & Wire Industries (2008) 13 SCC 1 (SC).
16. An annual statement issued by the IRA to the tax payers on whose income tax has been deducted at source or tax has been collected at source.
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CONVERSION OF FIRM In R.L. Kalathia & Co.17, the Gujarat HC held that conversion of a firm into a
company was not a transfer, even before the enactment of section 47(xiii) of
INTO A COMPANY IS the IT Act, and hence, would not be liable to capital gains tax.
NOT A TRANSFER FACTS
EVEN BEFORE THE R.L.Kalathia & Co. (Assessee) was a partnership firm engaged in the
business of construction work. The Assessee was running its business in a
INSERTION OF SECTION building constructed on a land taken on lease for 99 years on a monthly rent.
47(XIII) OF THE IT ACT The said land and building was shown as non-business asset, outside the
balance sheet. The value of the said property was recorded in the Assessees
books only during the relevant year by way of revaluation of assets. The
reserves created thereupon are credited to the partners capital account in the
ratio of their shares in firm. Thereafter, the Assessee firm got converted into a
limited company as per the provisions of CA and went by the name of Kalathia
Engineering & Construction Ltd. The shares to the extent of revalued assets of
the firm were allotted to the partners in the firm as the directors of the limited
company. The AO took a view that property introduced into the books of the
firm by way of revaluation is an income chargeable to tax under section 28(iv)
of the IT Act. Alternatively, the conversion of firm into a company was liable to
be taxed under section 45 of IT Act. The CIT (A) dismissed the position of AO
with regard to holding the same as income under section 28(iv) of the IT Act.
However, the CIT (A) upheld the alternate position of the AO that the
conversion of firm into a company was liable to be taxed under Section 45 of
the IT Act. The ITAT, however, held that transaction in question could not be
brought within ambit of either section 45(1) or section 45(4) of the IT Act.
Accordingly, the ITAT deleted the impugned addition. Aggrieved by the order of
the ITAT, the IRA preferred an appeal before the HC.
ISSUES
Whether the transfer of business of firm to a company in consideration of

allotment of shares by the company, amounts to transfer liable to tax as
capital gains?
ARGUMENTS/ANALYSIS
The IRA submitted that profits and gains arising on the introduction of the
lease property into the books as stock-in-trade and its subsequent transfer
amounts to capital gains tax under section 45(2) of the IT Act. It further
submitted that the firm is a separate taxable entity and once it transfers its
assets to another taxable entity, i.e. a private limited company, the transfer of
assets should be subjected to capital gains tax. Therefore, in the conversion of
the firm to a company, there is a transfer of assets as envisaged under the
above provisions and hence, the transaction is exigible to capital gains tax.
Reliance was placed on the case of Kuttukaran Machine Tools18, wherein the
court held that when in a business, the capital assets are transferred and not
the individual assets, the gain, if any, on the transfer of
the business as a whole had to be computed and brought
to tax.
No tax payable in case of Section 47(xiii) of the IT Act was introduced with effect
transfer of assets by a firm to a from April 1, 1999 to exempt transfer of capital assets in
company upon conversion. case of succession of firm by a company, from capital
gains tax, subject to fulfilment of certain conditions.

However, the said provision did not have any
retrospective effect. The reference was made to Gujarat
17. DCIT v. R.L. Kalathia &Co. (2016) 66 taxmann.com 249 (Gujarat HC).
18. Kuttukaran Machine Tools v. CIT (2003) 264 ITR 305 (Kerala HC).
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HC decision in case of Artex Mfg. Co.19, wherein it was held

that the principle of mutuality would not apply to the transfer SIGNIFICANT TAKEAWAYS
of business as a going concern, and would be taxable under
The Gujarat HC held that even before the introduction of
section 45 of the IT Act.
section 47(xiii) of the IT Act, the conversion of firm into
company in accordance with Part IX of the CA does not
On the other hand, the Assessee argued that the capital gains
amount to transfer under section 2(47) of the IT Act and is
by the firm upon transfer of the assets to a company upon
conversion is not exigible to tax, by making reference to not liable to capital gains tax.
chapter IX of the CA. It argued that the firm had been
converted and registered as M/s. Kalathia Engineering & It may also be noted that the decision may negate the
Construction Ltd. and the credits lying against the partners applicability of section 47(xiii) of the IT Act, even during the
capital account had been converted into shares of the post amendment period, if the conversion of a firm into a
company. Therefore, there was no transfer of property. company is as per Part IX of the CA.
Further, there cannot be a transfer of immovable property
without registration, and in the instant case there was no
registration of the transfer. The Assessee further argued that
there was no transfer, as on conversion of the firm to a
company, the property vests with the same persons in
proportion of their interest. Thus, capital gains tax was not
attracted in respect of the said transaction.
DECISION
The Gujarat HC held that there was no transfer and even if it

were to be considered as a transfer, such transfer would have
been undertaken by way of a slump sale. Accordingly, section
45 of the IT Act would not apply to the present case as the
entire undertaking was transferred as a going-concern, and
item-wise ear-marking of assets is not possible by relying on
the judgement of Garden Silk Weaving Factory20 and Patel
Specific Family Trust21.
The Court factually distinguished the reliance placed by the

IRA on Artex Mfg. Co.(supra) by holding that it was not a case
of conversion of a firm into company under Part IX of the CA. It
relied on the decisions in the cases of Texspin Engg & Mfg.
Works22 and Well Pack Packaging23 to hold that the capital
gains could be brought to tax under sections 45(1) and 45(4)
of the IT Act only if the full value of the consideration is
received by or accrues to the transferor and in the instant
case, the consideration was by way of allotment of shares.
Further, the shares were issued by the company not to the
firm but to its partners.
The primary requirement for invoking the sub-section 45(4) of

the IT Act was that there had to be a distribution of capital
assets, which factor was completely missing in the present
case as there was no distribution of capital assets either by
way of dissolution of the firm or otherwise. The court held that
the conversion of a firm into a company was not a transfer
and hence would not be subjected to capital gains tax.
19. CIT v. Artex Mfg. Co., (1981) 131 ITR 559 (Gujarat HC).
20. CIT v. Garden Silk Weaving Factory (2005) 279 ITR 136 (Gujarat HC).
21. CIT v. Patel Specific Family Trust (2011) 330 ITR 397 (Gujarat HC).
22. CIT v. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bombay HC).
23. CIT v. Well Pack Packaging (2008) 174 Taxman 102 (SC).
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MAINTAINABILITY OF In Hyosung Corporation24, the Delhi HC held that mere filing of a return by the
assessee will not be treated as the question pending before the income tax
AAR APPLICATION AND authority. It was further held that clause (i) of the proviso to section 245R (2) 25
of the IT Act is not violative of Article 1426 of the Constitution of India.
CONSTITUTIONALITY OF
FACTS
CLAUSE (I) OF THE
Hyosung Corporation (Assessee), a company incorporated in South Korea, is
PROVISO TO SECTION a comprehensive energy solution provider and manufactures transformers,
245R(2) OF THE IT ACT switchgears, motors, etc. and is also engaged in the wind energy business. It
supplies transformers to customers all over the world including in India and
has also been engaged in several projects in India. During the AYs 2008-2009,
2009-2010 and 2010-2011, the Assessee supplied certain equipment to
Power Grid Corporation of India Ltd. (PGCIL). The supply of equipments was
effected outside India and all work related thereto was performed outside
India. While filing the return of income for each of the aforesaid AYs, the
Assessee took a position that its revenue from offshore supplies was not
taxable in India and claimed refund of the tax deducted by PGCIL. While
notices under section 143(2) and 142(1) of the IT Act were issued, the
Assessee filed separate applications before the AAR seeking a ruling on the
issue of taxability of the profits from off shore supplies made during the
aforementioned AYs to PGCIL. The facts in relation to the same are tabulated
herein below:
AY Project Date of 143 Date of 142 AAR filing date
2008- Maharani 25.09.09 30.08.09 10.10.11

2009 bagh
2009- T3, T4, 19.08.10 28.02.11 23.09.11
2010- Bidadi, 25.08.11 23.11.12 23.09.11

2011 Sipat
ISSUES
(a) Whether the AAR was correct in rejecting the applications filed by the
Assessee on the ground that the issue raised in the application was
pending for adjudication before the AO in view of the fact that notices
under sections 143(2) and 142(1) of the IT Act were issued?
(b) Whether clause (i) of the proviso to section 245R(2)

of the IT Act (the said provision) is violative of Article
14 of the Constitution of India?
Delhi HC explains the meaning ARGUMENTS/ ANALYSIS

of already pending in the
context of maintainability of an With respect to the constitutional validity of the said
application by the AAR. provision27, it was argued that such a provision was
discriminatory as it exempted resident public sector units
(PSU) notified by the Central Government from the bar
imposed by the said clause. However, there was no
24. Hyosung Corporation v. AAR (2016) 66 taxmann.com 217 (Delhi HC).
25. As per clause (i) of the proviso to section 245R(2) of the IT Act, the AAR shall not allow the application where the question raised in the application is
already pending before any income tax authority or appellate tribunal (except in case of a resident applicant falling in sub-clause (iii) of clause (b) of
section 245N i.e. is a resident falling within any such class or category of persons as the Central Government may, by notification in the official gazette,
specify in this behalf) or court. In other words, notified residents can make an application before the AAR even if the question raised in such application
is pending before any income tax authority or appellate tribunal.
26. Article 14 of Constitution of India deals with equality before law.
27. Clause (i) of the proviso to section 245R(2) of the IT Act..
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justification in creating such a classification that had no nexus

that the words already pending should be related to the date
with the object of the legislation. It was submitted that non- of filing of the application and not what happens subsequent
residents should also be exempted from the bar just as to the filing of such application. Thus, the Delhi HC set aside
notified resident applicants. the order of the AAR to the extent it rejected the applications
for AY 2010-2011 and restored the same to the file of the AAR
Thereafter, the counsel for the Assessee argued that the for fresh adjudication in accordance with the law.
notices issued under section 143(2) of the IT Act were in a pre
-printed format and did not contain specific questions on
which information was being sought by the AO. It was not SIGNIFICANT TAKEAWAYS
disputed by the counsel that with regard to AYs 2008-2009
and 2009-2010, notices under section 142(1) of the IT Act The issue as to when it can be said that a particular
accompanied by a detailed questionnaire were issued prior to question raised in the AAR application is already pending
the filing of applications before the AAR. It was, therefore, is highly vexed. However, this decision seeks to clarify a
pleaded by him that the applications for AY 2010-2011 should couple of contentious aspects while analyzing the content of
the notices under section 143(2) and 142(1) of the IT Act
be remanded to the AAR for a fresh decision.
issued by the income tax authorities. It also explains how
the declaration of the said provision as unconstitutional
On the other hand, the IRA argued that the classification made
between PSU notified by the Central Government and the non- would not put the assessee in a better position.
resident applicants was a reasonable one and further stating
that a conscious decision was taken to exempt Central Throwing some light on the decisions in this regard in the
Government PSUs seeking an advance ruling from maintaining past, it may be noticed that the Delhi HC in the case of
applications, notwithstanding the pendency of such questions NETAPP B.V.30, held that where a return of income has been
before the income tax authorities. While interpreting the words filed, the bar in the said provision would be attracted and
where the question raised in the application is already the AAR would be justified in declining to entertain the
pending, it was submitted that if question was pending for application for an advance ruling at the instance of a non-
one of the AYs and in this case, it was already pending for AYs resident. The said decision was set aside by the SC in the
2008-2009 and 2009-2010, then such question should be case of Sin Oceanic Shipping ASA Norway v. AAR31 in which
case, the SC took note of the fact that the Delhi HC had
taken as pending even for AY 2010-2011.
itself, in another decision32, had taken a view that mere
filing of a return would not constitute a bar to entertaining
DECISION an application for advance ruling. The AAR had rejected
several applications33 on the ground that the applicant had
The Delhi HC declined to declare the said provision to be
already filed the return of income and thus, the issue raised
violative of Article 14 of the Constitution of India. The Delhi HC
in the application would be considered to be a question
held that if the said provision is declared to be violative of
pending before the income tax authorities.
Article 14 of the Constitution of India, the bar would then
equally apply to both notified residents as well as non-
In the instant case, the Delhi HC held that even if a notice in
residents and would therefore, become equally burdensome
relation to any assessment year has been issued, it would
for both. For this purpose, the Delhi HC also examined Article
not affect the maintainability of the AAR application if such
2528 of the India Republic of South Korea DTAA and section
notice does not raise the specific issues raised in the AAR
90(2)29 of the IT Act. application. In other words, a particular question raised in
the AAR application can be said to be already pending only
It was further held that mere filing of return by the Assessee
if income tax authorities have required the applicant to
claiming refund of TDS will not tantamount to the question
provide information/ documents pertaining to the same
raised in the application before the AAR as pending before the
issue in some form or the other.
income tax authorities. The Delhi HC held that since the
notices issued under section 142(1) of the IT Act for the AYs
2008-2009 and 2009-2010 raised questions that formed
subject matter of the application before the AAR, the said
provision stood attracted and, therefore, rejection by the AAR
was not erroneous. However, the same could not be said for
AY 2010-2011 since the notices under section 142(1) were
issued after the AAR application was made. It was observed
28. Article 25 of the India Republic of South Korea DTAA mandates that the assessee (South Korean entity) should not be subject to any taxation treat-
ment which is more burdensome than the requirement to which an Indian entity is subject.
29. Section 90(2) of the IT Act mandates that where any provision of the IT Act is more beneficial to an assessee than a provision of the DTAA, then the
provision of the IT Act shall apply.

30. NETAPP B.V. v. AAR (2013) 357 ITR 102 (Delhi HC).
31. Sin Oceanic Shipping ASA Norway v. AAR (2014) 223 Taxman 102 (SC).
32. Mitsubishi Corporation, Japan, In re (2013) 40 taxmann.com 335 (AAR New Delhi).
33. Red Hat India P. Ltd. In re, (2012) 18 taxmann.com 259 (AAR New Delhi), GTB Invest ASA, In re (2012) 18 taxmann.com 262 (AAR New Delhi),
Wavefield Inseis ASA, In re (2013) 33 taxmann.com 545 (AAR-New Delhi).
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With regard to the aspects of constitutionality of Article 14

of the Constitution of India, the Delhi HC held that even if it
declared Article 14 to be unconstitutional, it would do no
good to the Assessee since that, by itself, would not delete
the bar that anyway existed in the said provision for non-
residents.
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CONSTITUTION OF In Adobe Systems Incorporated 34, the Delhi HC held that Adobe India does not
constitute a PE in India as it does not satisfy any of the tests of PE under the
PERMANENT India USA DTAA.
ESTABLISHMENT FACTS
UNDER THE INDIA-USA Adobe Systems Incorporated (the Assessee) is a company incorporated
under the laws of Delaware. The Assessee provides software solutions for
DTAA network publishing which includes web, print, video, wireless and broadband
applications. It has a wholly owned subsidiary (Adobe India) in India. Adobe
India provides software related research and development (R&D) services to
the Assessee and does not entail end to end software development. It was
further submitted that the Assessee does not have any business operations in
India. The R&D services rendered by Adobe India, are paid for by the Assessee
on cost plus basis in terms of an agreement entered into between the
Assessee and Adobe India.
Since Adobe India provided R&D services to its holding company, the
transaction was covered within the ambit of TP Regulations. During the
relevant period, it was the subject matter of examination by the TPO. The TPO
for AYs 2004-2005 and 2005-2006 had accepted the fees paid by the
Assessee on cost plus 15% basis as being on arms length price (ALP).
Subsequently, for the AY 2006-2007, the TPO did not accept the TP study as
he did not accept the set of comparables adopted by Adobe India to determine
the ALP. However, the ITAT accepted a set of comparables used by Adobe
India to determine the ALP35. Further, for the AY 2007-2008, the TPO applied
Profit Split Method (PSM) for determining the ALP instead of TNMM used in
the preceding years. However, the Dispute Resolution Panel (DRP) held that
the ALP shall be determined by applying TNMM as accepted in the preceding
years.
The AO issued a notice of reassessment on the Assessee under section 148 of

the IT Act for the AYs 2004-2005, 2005-2006 and 2006-2007. On re-
assessment, the AO held that the Assessee constituted a fixed place PE,
service PE as well as agency PE in India and, therefore, a part of the profits
attributable to the activities undertaken in India were taxable in India. The
Assessee preferred a writ petition against the AOs order.
ISSUES
Whether the Indian subsidiary constitutes a PE of the foreign company in

India?
DECISION
Transfer pricing and reason to believe that income has

escaped assessment
No further attribution to the It was observed by the Delhi HC that the services
foreign parent if the Indian provided by Adobe India to the Assessee were
subsidiary has already been remunerated by the Assessee on a cost plus basis and
remunerated on ALP in respect the same had been accepted by the tax authorities. Thus,
of the same income. the income of the Assessee, which is related to the
activities carried out by Adobe India were brought to tax in
its hands. Further, it was held that even if Adobe India is

considered to be the Assessees PE, the entire income
34. Adobe Systems Incorporated v. ADIT (2016) 69 taxmann.com 228 (Delhi HC).
35. Adobe India was remunerated on a cost plus 15% basis and the method of determining the ALP, i.e. Transactional Net Margin Method (TNMM), was
accepted in AYs 2004-2005, 2005-2006 and 2006-2007.
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which could be brought in the tax net in the hands of the supervision regarding R&D services being procured by the
Assessee had already been taxed. Also, there was no material Assessee. The Delhi HC observed that the audit of Adobe India
to suggest that the Assessee had undertaken any activity in was merely to ensure that Adobe India adheres to the
India, other than services which have already been subject to standards required by the Assessee and the same cannot
ALP in the hands of Adobe India. possibly lead to an inference that the Assessee was rendering
services to Adobe India. The Delhi HC further observed that
It was also held that even if it is assumed by the AO that the SC in the case of Morgan Stanley37 had also accepted the
Adobe India constituted the Assessees PE in India, there were same position.
no facts to support such belief that any part of the Assessees
income had escaped assessment under the IT Act. With regard Agency PE
to the determination of profits attributable36 to the activities
carried out by Adobe India by way of PSM, the Delhi HC held The Delhi HC observed that there was no allegation that
that the question as to which is the correct method of Adobe India was authorised to conclude contracts on behalf of
determining the ALP could only be debated in proceedings the Assessee or had been habitually doing so. There was
relating to the assessment of Adobe India and the fact that neither any agreement which stated so nor any material which
the AO had not been successful in persuading the DRP, indicated that Adobe India acted as such. It was not disputed
cannot possibly provide him a reason to now try and assess that Adobe India was assessed on its income at ALP and
profits calculated on PSM in the hands of the Assessee. therefore, it could not be assumed that Adobe India
Accordingly, the reassessment notices and proceedings constituted the Assessees Agency PE under Article 5(5) of the
initiated were to be set aside. tax treaty.
Subsidiary PE
It was observed that in determining whether a subsidiary
constitutes a PE, it is necessary to understand that a A foreign company forming a PE in India because of
subsidiary is a separate legal entity and its activities, the activities carried out by its subsidiary in India is a common
income from which is assessed in its hands at ALP, cannot be issue which is being experienced by many multinational
the sole basis for construing the subsidiary to be a PE of its enterprises. Various Courts have held that the presence of a
holding company. It was further observed that a subsidiary is subsidiary company itself would not lead to the formation of
liable to pay tax on its income and a foreign company is also a PE in India which has also been specified in Article 9 of
liable to pay tax on its income. The same set of activities the India-US tax treaty. It has been observed by the Courts
cannot be understood to be carried out by the holding just because the foreign parent exercises certain control or
company through its PE and by the subsidiary as its own management or supervision over its Indian subsidiary, that
activity resulting in income from the same activities being by itself would not render the subsidiary to constitute a PE in
taxed twice over; once in the hands of the subsidiary and India. At the same time, Courts have also held that it will not
be possible for the taxpayer to argue that since subsidiary is
again in the hands of the holding company.
a separate legal entity, it can never constitute a PE of the
foreign company.
Fixed place PE
Therefore, in order to determine whether the subsidiary of a
There was no allegation that the Assessee had any branch
foreign company forms a PE in India, it would be necessary
office or any other office or establishment through which it
to examine whether such subsidiary fulfils the conditions of
was carrying on any business. There was also no evidence that
Article 5 (PE) of the relevant tax treaty. This, in turn, would
the Assessee had any right to use the premises or any fixed
require a comprehensive factual and legal analysis to
place at its disposal. Thus, the right to use or the disposal test
understand the nature of activities carried out by the
were not satisfied. Thus, the AOs view that Adobe India
subsidiary, the agreements entered between the foreign
constituted the Assessees PE was palpably erroneous and not
company and the subsidiary company (if any), the support
sustainable based on the facts of the case. provided by the foreign parent, the frequency of employees
and other personnel belonging to the foreign parent visiting
Service PE India and the nature of activities carried out by them during
their stay in India, etc. The Delhi HC has also held that even
There was no material to hold that the Assessee constituted a if the foreign company has a PE in India, in case the
service PE. The AO had concluded that the Assessee had a resultant income has already been taxed in the hands of
service PE in India merely on the basis that Assessee had a Indian entity, no further attribution to the PE that could be
right to audit Adobe India so as to ensure that Adobe India
brought within the tax net in India.
adhered to the standards required by the Assessee and that
the agreement between Adobe India and Assessee entailed

that Assessee would provide specification, assistance and
36. As per AO, the income of Adobe India is to be ascertained by PSM and the TNNM method adopted by Adobe India did not fairly capture the profits which
could legitimately be taxed under the IT Act.
37. DIT v. Morgan Stanley & Co. Ltd. (2007) 292 ITR 416 (SC).
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LOAN WAIVED IS In Ramaniyam Homes (P.) Ltd.38, the Madras HC held that waiver of loan
taken for acquiring a capital asset would amount to receipt of a benefit or
TAXABLE AS BUSINESS perquisite from the business of the taxpayer and, therefore, be taxable as
business income under section 28(iv)39 of the IT Act.
INCOME
FACTS
Ramaniyam Homes (P.) Ltd. (the Assessee) was indebted to the bank in
respect of a loan availed for acquiring capital assets. The bank mooted a
proposal for a one time settlement, as per which, the bank waived certain
amount of interest and principal amount out of the total dues. The AO held
that the principal amount of loan waived was to be treated as income under
section 28(iv) of the IT Act. The CIT(A) followed the decision of Iskraemeco
Regent Ltd.40 and held that section 28(iv) of the IT Act is not attracted in
waiver of principal amounts of loan. The ITAT upheld the order of the CIT(A).
ARGUEMENTS/ ANALYSIS
The IRA argued that the principal amount of loan waived by the bank under
one time settlement was a taxable receipt coming within the definition of
income under section 2(24) and 2(45), by relying upon several decisions 41. It
was further pointed out that the case of Iskraemeco Regent Ltd. (supra), on
the basis of which the CIT(A) and ITAT decided the dispute in favour of the
Assessee is pending before the SC and, therefore, an independent view ought
to be taken by the Madras HC.
DECISION
The Madras HC held that principal amount of loan waived would be taxable as
business income under section 28(iv) of the IT Act if such waiver of loan
amounts to a receipt of a benefit or perquisite which has a monetary value,
whether such benefit is convertible into money or not. The Delhi HC took into
consideration several decisions wherein it was held that if a loan was taken for
acquiring a capital asset, the waiver thereof would not amount to any income
exigible to tax. However, if the loan was for trading purposes and was treated
as such from the beginning in the books of account, the waiver of such a loan
may result in income more so when it is transferred to the profit and loss
account.
It was observed that the waiver of a portion of the loan would certainly amount
to value of a benefit. Also, such benefit may not arise from the business of
the Assessee. However, it certainly arises from business. The absence of the
prefix the to the word business makes a world of
difference.
It was discussed by the Madras HC that when a loan

Principal amount of loan waived borrowed for acquiring a capital asset is repaid, two
is taxable as business income entries are made in the books of account, one in the
irrespective of the purpose for profit and loss account where the payments are entered
which the loan was taken. and the other in the balance sheet where the amount of
unpaid loan is reflected on the liability side. However,
when a portion of the loan is reduced by way of write off
38. Ramaniyam Homes (P.) Ltd. (2016) 68 taxmann.com 289 (Madras HC).
39. Section 28(iv) of the IT Act provides that the value of any benefit or perquisite, whether convertiblele into money or not, arising from business or the
exercise of a profession, would be chargeable to income tax under the head.
40. Iskraemeco Regent Ltd. v. CIT (2011) 331 ITR 317 (Madras HC) - It was held that section 28(iv) of the IT Act had no application in case of waiver of
loans.
41. CIT v. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC), Solid Containers Ltd. v. DCIT (2009) 308 ITR 417 (Bombay HC), Logitronics (P.) Ltd.
v. CIT (2011) 333 ITR 386 (Delhi HC), Rollatainers Ltd. v. CIT (2011) 339 ITR 54 (Delhi HC).
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by the lender, only one entry gets into the books as a natural
The Madras HC has highlighted distinguishing factors and
entry i.e. the total amount of loan shown in the liability side of
remarked that the Delhi HC in both, Logitronics (P.) Ltd.
the balance sheet is reduced and the amount in the capital
(supra) as well as in Rollatainers Ltd. (supra), did not take
reserves is increased to the extent of the loan waived.
note of the reasoning given in the decision of Madras HC in
Alternatively, such waived portion of the loan is shown as a
Iskraemeco Regent Ltd. (supra), in which case, it was
capital receipt in the profit and loss account. It was also
observed that section 28(iv) of the IT Act speaks only about
remarked that these aspects were not considered in
a benefit or perquisite received in kind and, therefore, it
Iskraemeco Regent Ltd. (supra). would have no application to any transaction involving
money.
However, the Madras HC in this case did not agree with its
Until this decision, the judicial position with respect to earlier decision in Iskraemeco Regent Ltd. (supra) as well as
waiver of loans was that waiver of loan taken for acquiring a other HCs and has gone deep into interpreting the
capital asset was not taxable, whereas waiver of loan taken underlying meaning of section 28(iv) of the IT Act and held
for trading purposes could be taxable. that it is not the actual receipt of money, but the receipt of a
benefit or perquisite, which has a monetary value, whether
In the case of T.V.Sundaram Iyengar & Sons Ltd. (supra), it such benefit or perquisite is convertible into money or not,
was held by the SC that if an amount is received in course of which is what is covered by section 28(iv) of the IT Act.
trading transaction, even though it is not taxable in the year
of receipt as being of revenue character, the amount Additionally, judicial decorum and legal propriety demand
changes its character when the amount becomes the that where a learned single judge or a division bench does
assessee's own money because of limitation or by any other not agree with the decision of a bench of co-ordinate
statutory or contractual right. When such a thing happens, jurisdiction, the matter shall be referred to a larger bench. It
commonsense demands the amount should be treated as is a subversion of judicial process not to follow this
income of the assessee. This decision was followed by the procedure.
Bombay HC in the case of Solid Containers Ltd. (supra).
This decision could lead to hardships to several taxpayers.
However, the Delhi HC in Logitronics (P.) Ltd.(supra) and In the absence of any legal guidance, this issue should be
Rollatainers Ltd.(supra) followed the decision of the Madras resolved by the SC or by legislative amendments.
HC in Iskraemeco Regent Ltd. (supra) and expounded the
law that if a loan had been taken for acquiring a capital
asset, waiver thereof would not amount to any income
exigible to tax. However, if the loan is taken for trading
purposes and was also treated as such from the beginning
in the books of account, the waiver thereof may result in the
income, more so when it is transferred to the profit and loss
account.
The Bombay HC also in the case of Mahindra & Mahindra

Ltd. categorically held that the principal amount of loan was
not taxable as business income. This decision has also been
followed in several other cases.
The present Madras HC ruling has held even if the loan has
been taken for acquiring a capital asset, it would fall within
the ambit of section 28(iv) of the IT Act to mean a benefit or
perquisite arising from business which is contrary to its
earlier verdict in Iskraemeco Regent Ltd. (supra) while also
distinguishing the same to the extent that the said decision
did not discuss the accounting aspects in relation to waiver
of loans.
42. Mahindra & Mahindra Ltd. v. CIT (2003) 128 TAXMAN 394 (Bombay HC).
43. Sunderjas Kanyalal Bhatija & Ors v. Collector (1989) SCR (3) 405 (SC).
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CONSIDERATION FROM In Technip Singapore Pte. Ltd. 44, the Delhi HC held that income earned from
services rendered to Indian company for offshore construction and installation
OFFSHORE work was neither taxable as royalty nor as FTS.
CONSTRUCTION FACTS
SERVICES NOT TAXABLE Technip Singapore Pte. Ltd. (the Assessee) is a leading solutions provider of
offshore construction, engineering, project management and support services
AS ROYALTY/ FTS to the oil and gas industry worldwide. The Indian Oil Corporation Ltd. (IOCL)
invited tenders for residual offshore construction work in relation to the setting
up offshore crude oil receiving facility having Single Point Mooring 45 (SPM)
terminal that would enable unloading the crude oil from very large crude
carriers to meet the crude oil requirement of its refineries located in the
eastern part of India. The Assessee signed a contract (Contract) with IOCL for
such offshore construction work. As per the Contract, the Assessee was to
provide all marine spread, specialized manpower and equipments, installation
tools and tackles, consumables, labour, logistic supplies, planning,
engineering, documentation, etc. to fulfil the project specifications up to the
commissioning stage. The Assessee was also responsible for taking over all
the project materials supplied by IOCL from the place designated by IOCL as
required for installation of the complete SPM system including their sub-
systems. Further, it was required to depute an installation engineer during the
entire installation period of the SPM system for assisting and advising the
Assessee in the installation of the SPM system.
The total Contract value was agreed to be paid for each item of work, viz. (i)
mobilisation and demobilisation of marine spread, (ii) pre and post erection
work, (iii) actual installation work, and (iv) documentation, misc. It was also
submitted that the Assessee does not have any project office or any other
premises in India for executing the work under the said Contract. The
Assessee had filed an application before the AAR to determine the taxability of
the services rendered by it to IOCL. The AAR held that the payment made for
the use of the equipments (i.e. the barges) and for mobilization and
demobilization expenses comprised a substantial part of
the payment and, therefore, fell within the definition of
royalty under Article 12.3(b)46 of the India-Singapore
Use of equipment for rendering DTAA. It was further held that the installation was
services without giving control ancillary and subsidiary to the use of equipment or
and dominion of the same to the enjoyment of the right for such use and, therefore, the
recipient of services does not payment for installation was held to be falling under the
constitute royalty. definition of FTS in terms of Article 12(4)(a)47 of the India-
Singapore DTAA. The order passed by the AAR was
44. Technip Singapore Pte. Ltd. v. Director of Income Tax (2016) 70 taxmann.com 233 (Delhi HC).
45. As per the contract between IOCL and TSPL, SPM It is a floating equipment/ device that serves as a loading/ offloading station and a mooring point for
oil tankers for loading/ offloading crude and other petroleum products to/ from the onshore refinery process platform. SPMs are connected to an on-
shore refinery process/ platform through a submarine platform.
46. As per the India Singapore DTAA, the term "royalties" means payments of any kind received as a consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience,
including gains derived from the alienation of any such right, property or information;
(b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) (i.e.
the incidental lease of ships or aircraft used in such transportation) or 4(c) (i.e. the use, maintenance or rental or containers (including trailers and
related equipment for the transport of containers) in connection with such transportation) of Article 8.
47. As per the India- Singapore DTAA, the term FTS means payments of any kind to any person in consideration for services of a managerial, technical or
consultancy nature (including the provision of such services through technical or other personnel) if such services :
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is
received ; or
(b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the tech-
nology contained therein ; or
(b) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring
the service to apply the technology contained therein.
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challenged by the Assessee by way of a writ petition before the control over the equipment brought by the Assessee was to
HC. remain with the Assessee. Further, while the SPM system was
supplied by IOCL, the task of installation, testing and pre-
ISSUES commissioning was the work of the Assessee. The system was
to be capable of satisfactorily functioning as a complete
Whether the payments made for services rendered by the terminal for discharge of crude oil from vessels to the onshore
Assessee to IOCL in relation to offshore construction work was tank farm. The Assessee was to supply marine spread
taxable as royalty or FTS? specialized manpower and equipment, installation tools and
tackles, consumables, labour, logistic supplies, planning,
ARGUMENTS/ ANALYSIS engineering, documentation, etc. Further, the Assessee was
also responsible for taking over all the IOCL supplied project
The Assessee submitted that the AAR had erred in holding materials from the place designated by IOCL, which was
that the installation activity was ancillary and subsidiary to the required for installation of the complete SPM system. Thus,
use of the equipments, when the primary purpose of the the Delhi HC did not agree with the view taken by the AAR that
offshore construction work was installation of the IOCL the de facto control of the equipment was with IOCL.
supplied SPM. It was also submitted that IOCL had no right to
use to control the movement or operation of any equipment, No permanent establishment
vessels, etc. which belonged to the Assessee. The equipments
were being used by the Assessee for rendering the services in It was remarked by the Delhi HC that the AAR was not called
relation to the offshore construction work and, therefore, IOCL upon to decide whether in the context of the contract with
had no control or dominion over the movement of the vessel IOCL, the Assessee had any PE in India. The finding of the AAR
or the equipment brought to the site and used by the that the Assessee had a PE in India was rendered in the
Assessee for rendering aforesaid services. It was further context of Contract between the Assessee and another Indian
pointed that as per the Contract, in case of any damage or entity. Therefore, it was not open for the IRA to contend that
loss to the property, equipment, etc. supplied to IOCL while the Assessee cannot take advantage of the absence of a
being installed or during the movement, the responsibility finding by the AAR as regards the existence of a PE qua the
would be of the Assessee. It was thus submitted that in the contract with IOCL. The IRA was unable to counter the factual
light of these facts, income earned by the Assessee from the position that the Assessee had no fixed place PE in India.
Contract in question did not fall within the ambit of royalty Further, as per Article 5(3) of the India-Singapore DTAA, the
under Article 12.3(b) of the India-Singapore DTAA. Assessee can be said to have a PE in India only if the
installation or construction activity is carried on in India for a
The IRA on the other hand contended that although the AAR period exceeding 183 days in any fiscal year. The Assessee
may not have given a finding as to whether the Assessee had had a presence in India for only 41 days during the relevant
established a PE in India in respect of the contract with IOCL, fiscal year for rendering the services to IOCL. Additionally, the
it could not take advantage of the fact and claim that the AAR Assessee had no project office in India. It was therefore, held,
did not hold that the Assessee has a PE in India in relation to that since the IRA was not able to show that TSPL had a PE in
the contract with IOCL. It was further pointed that a large India, the income earned by the Assessee from the contract
percentage of the consideration related to supply/ use of the with IOCL cannot be brought to tax in India in terms of Article 7
equipment (68% of the total consideration being for of the India- Singapore DTAA.
mobilization/ demobilization and 25% for actual installation).
Also, it was not necessary that the equipment should be in the Mobilisation and demobilisation charges
direct dominion and control of the IOCL for the payment to
constitute the royalty. As long as the equipment can be It was observed by the Delhi HC that for the payment to be
exploited by or by the order of IOCL, the requirement of characterized as royalty for use of the equipment, factually,
dominion/ control would stand satisfied and the payment for the equipment must be used by IOCL. In the present case,
the same would qualify as royalty. In this regard, the decision there is no finding that the equipment had actually been used
of the AAR in the case of Ishikawajma-Harima Heavy by IOCL. There is a difference between the use of the
Industries Ltd. was relied, wherein it was held that the equipment by the Assessee for IOCL and the use of the
payment of mobilization and demobilization fell under the equipment by IOCL. Since the equipment was used for
definition of royalty under Article 12.3(b) of the India- Italy rendering services to IOCL, it could not be converted to a
DTAA and the payment for installation was FTS under Article contract for hiring of equipment as royalty. Therefore, the
12.4(a) of the India Italy DTAA. Delhi HC was unable to concur with the AAR finding that the
consideration received by the Assessee from IOCL for
DECISION mobilization and demobilization should be characterized as
royalty.
Recharacterisation of the Contract

Installation charges
The Delhi HC observed that from the Contract, it was evident
that IOCL did not have dominion or control over the equipment It was observed that since the mobilization and demobilization
and that at all times, during the execution of the Contract; the charges could not be construed to be royalty, the question of
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treating the work of installation as ancillary to such work and

the payment for the same as FTS does not arise. In terms of SIGNIFICANT TAKEAWAYS
the Contract with IOCL, the Assessee provides services in
connection with the construction and installation of SPM The AAR had ruled that the payment made for use of
which did not involve any transfer of technology, skill, equipment, i.e., the barges, mobilization and demobilization
experience or know-how, to enable the IOCL to undertake such comprised a substantial part of the payment and, therefore,
activities on its own. Further, the contention of the IRA that the would fall within the definition of royalty under Article 12.3
work of mobilization/ demobilization and the work of (b) of the DTAA. However, the Delhi HC reversed the position
installation are separate components was not borne out of the taken by the AAR after examining the relevant facts of the
Contract. Thus, the Assessee was right in contending that the case and concluding that IOCL did not have dominion or
services rendered by it to IOCL under the contract fell under control over the equipment. It was further observed that of
the exclusionary portion of Explanation 2 to section 9(1)(vii) of the terms of the Contract provided that at all times during
the IT Act, i.e. consideration for any construction, assembly, the execution of the work, the control over the equipment
mining or like project undertaken by the recipient. Accordingly, would remain with the Assessee only. It was also succinctly
pointed out by the HC that there is a difference between the
the AAR finding on FTS was rejected by the Delhi HC.
use of the equipment for IOCL and the use of the
equipment by IOCL. In the instant case, the equipment was
It was also observed that the AAR had proceeded on a factual
being used for rendering services to IOCL, the Contract
misconception that the dominion and control of the
cannot be re-characterised to hiring of the equipment and
equipment were with IOCL and that it was erroneously
use thereof by IOCL. Therefore, payments made for
concluded that the payment for such mobilization and
rendering such services could not be treated as royalty.
demobilization constituted royalty. Consequently, since the installation of the SPM system was
considered to be ancillary and subsidiary to the use of the
In view of the above observations, the HC held that no part of
equipment, it could not be construed to be FTS.
the income earned by the Assessee from the contract with
IOCL can be taxable in India. It is well known that mere use of the equipment for
rendering of services would not be taxable as royalty and it
must be necessarily determined whether the person
receiving the services has any control or dominion over the
equipment being used. Thus, in order to determine whether
a particular payment constitutes royalty or not, a fact
specific analysis would essentially be required to be
undertaken.
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DIRECT CONTRIBUTION In Visvesvraya Technological University48, the SC held that exemption u/s 10
(23C)(iiiab) of the IT Act could not be availed as the university was neither
FROM THE directly nor substantially financed by the government.
GOVERNMENT IS A FACTS
MANDATORY Visvesvraya Technological University (the Assessee) was constituted under

the Visveswaraiah Technological University Act, 1994 (VTU Act). The
PREREQUISITE FOR University exercises control over all government and private engineering
AVAILING EXEMPTION colleges within Karnataka. Notices under section 148 of the IT Act were issued
to the Assessee for the AYs 2004-2005 to 2009-2010. Assessee filed the
UNDER SECTION 10 returns declaring nil income by claiming that it was a university financed by
the government and, therefore, eligible for exemption under section 10(23C)
(23C)(IIIAB) OF THE IT (iiiab) of the IT Act. Claim of exemption was negatived by the AO which was
upheld by the CIT(A), ITAT and also by the HC. Aggrieved by the decisions of the
ACT lower authorities, the Assessee preferred an appeal before the SC.
ISSUES
Whether the Assessee was entitled to avail the exemption under the
provisions of section 10(23C)(iiiab) of the IT Act?
ARGUMENTS/ANALYSIS
The IRA argued that the benefit under section 10(23C)(iiiab) of the IT Act was
given only to the educational institutions which were primarily funded by the
government. However, in the instant case, the facts suggest that the
governments contribution to the Assessee university hardly constituted 1% of
its total receipts. It was further submitted that the Assessee university had
more than 100 private colleges/institutions affiliated under it and the surplus
generated by the Assessee university was to the extent of INR 500 crores
which was far in excess of what had been held as permissible (6 to 15%)
surplus by the SC in the case of Islamic Academy49 case. Therefore, the
Assessee university should not be given any benefit enshrined under section
10(23C)(iiiab) of the IT Act.
The Assessee argued that the surplus generated by it were being used only for
educational purposes by way of enhancing infrastructure facilities, increasing
the number of courses being offered, etc. It was the contention of the
Assessee university that all fees collected from the students were within the
purview of Sec. 23 of the VTU Act and the contributions received from various
third parties were eligible for deduction under section 80G of the IT Act. It was,
therefore, contended that such receipts must be understood to be funds made
available by the government as contemplated by the provisions of section 10
(23C) (iiiab) of the IT Act.
DECISION
Universities earning significant The SC held that there are two prerequisites for claiming
portion of their revenue through exemption under section 10(23)(iiiab) of the IT Act: (a)
private sources are not entitled The assessee should exist solely for educational
to claim exemption under section purposes and (b) it should be wholly or substantially
10(23C)(iiiab) of the IT Act. financed by the government. It held that the Assessee
university satisfies the first condition as it exists solely
for educational purposes and not for purposes of profit
48. Visvevaraya Technoogical University v. ACIT (2016) 384 ITR 37 (SC).

49. Islamic Academy of Education and another v. State of Karnataka and others (2003) 6 SCC 697 (SC).
50. Queen's Educational Society vs. Commissioner of Income Tax (2015) 8 SCC 47 (SC).
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by relying on Queens Educational Society50 wherein it was

held that the educational institution should carry out the SIGNIFICANT TAKEAWAYS
activity of educating persons primarily, the fact that it made a
surplus would not lead to the conclusion that it would cease to This decision of SC categorically denies outright exemption
exist solely for educational purposes. Distinction must be available under section 10 (23C) (iiiab) of the IT Act to the
drawn between making of a surplus and an institution being educational universities which collect fees and donations,
carried on for profit. The ultimate test was whether on an apart from the governments contribution. It is a bane even
overall view of the matter, the objective of the institution was for many of the state owned universities which, inter alia,
collect fees and donations as they cannot contend that they
to make profit as opposed to educating persons.
are substantially financed by the government.
In respect of the second requirement, the SC held that the
funds received from the government contemplated under It is noteworthy that there is no yardstick prescribed for
section 10(23C)(iiiab) of the IT Act must be direct grants/ determining the term substantially financed by the
contributions from governmental sources and not the fees government. What constitutes substantial for this purpose
collected under the statute or the donations which were may depend on the facts and circumstances of the case
eligible for deduction under section 80G of the IT Act. In the and in the absence of any explicit provision, may ultimately
instant case, the direct contributions received from the have to be decided by the courts.
government hardly exceeded 1% of the Assessee universitys
total received contributions. Thus, the SC concluded that the
Assessee university was neither wholly nor partially financed
by the government and thus, it was held by the SC that the
Assessee is not eligible to claim exemption under section 10
(23C) of the IT Act.
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Indirect Tax
COMMON EXCISE In Triveni Engg. & Industries Ltd.51, the CESTAT held that the functioning of
sugar mill and its co-generation plant located across public road were to be
REGISTRATION CAN BE treated as interlinked as one factory and hence a common registration could
be taken for both.
GRANTED IF TWO
FACTS
FACTORIES ARE
In this case, Triveni Engg. & Industries Ltd (Assessee) owned a sugar mill
CONNECTED THROUGH and was engaged in manufacturing sugar and molasses which were excisable
OVERHEAD CONVEYER goods. On the other side of the road just opposite the sugar mills of the
Assessee, there was a co-generation power plant which used bagasse as the
fuel. The co-generation power plant was connected to the sugar mill through
an overhead conveyer by which bagasse was transferred to the co-generation
power plant for the generation of electricity. The electricity generated was in
turn used in the sugar mill for its entire operation and if surplus, was sold to
the State Electricity Board.
The Assessee applied for common central excise registration for the sugar mill
and the co-generation power plant claiming that the power plant was a part of
the factory (i.e. the sugar mill).
The IRA rejected the request of the Assessee for common registration, and in
view of the same, observed that the Assessee was not eligible to claim
CENVAT credit of the taxes paid on procuring the capital goods and input
services used in the co-generation power plant.
ISSUES
(a) Whether the Assessee was eligible to claim CENVAT credit of the taxes
paid on the capital goods received by it for setting up of the co-generation
power plant and the various input services covered by Rule 6(5) of CCR
which were utilized in respect of co-generation power plant?
(b) Whether a common central excise registration could be granted under

Rule 9 of Central Excise Rules, 2002 to the sugar mill and the co-
generation power plant?
ARGUMENTS/ANALYSIS
The Assessee contended that the co-generation power plant in which the
capital goods, and input services were used was part of the sugar mill.
In this regard, the Assessee relied on CBECs supplementary instructions

issued under Rule 31 of Central Excise Rules, 2002, wherein it is indicated
that a separate registration is required in respect of separate premises, except
in cases where two or more premises are actually part of the same factory
(where processes are interlinked), but are segregated by public road, canal, or
railway-line.
Common registration under Further, the Assessee contended that the sugar mill and
central excise permissible where co-generation power plant (connected through overhead
processes undertaken in conveyer by which bagasse is transferred to co-
different units are generation power plant where it was used in the boiler for
generation of electricity) constitute one factory as the
interconnected and they fall

within single range. operation of the sugar mill is dependent upon the
electricity generated by the co-generation power plant
and the operation of co-generation power plant is
51. Triveni Engg. & Industries Ltd. v. CCE., Meerut-I 2016 (42) S.T.R. 186 (CESTAT- Delhi).
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dependent upon the supply of bagasse received from the used partly in the sugar mill and partly sold during the off-
sugar mills. season to the Andhra Pradesh Electricity Power Grid, CENVAT
credit of the taxes paid on the capital goods used in the co-
The representative of the IRA contended that the electricity generation plant of the sugar mill was admissible.
generated at the power plant was used to run the machines to
produce sugar and molasses alone. Electricity was not semi-
finished goods used in the manufacture of final product of the SIGNIFICANT TAKEAWAYS
sugar mill and therefore, there was no interlinked process
involved in the instant case to lead to the conclusion that the The procedure of taking registration under central excise
registration has been amended vide Circular no.
co-generation plant was an extended premises of sugar mill.
1016/4/2016-CX, dated February 29, 2016, to provide that
centralized registration would be permissible where the
It was further contended that the raw materials for both the
process undertaken in different units are interconnected
units were not common; in case of the sugar mill, the main
and they fall within a single range, and the units are not
raw material was sugarcane which had nothing to do with the
operating under any area based exemption notification. This
generation of power. legal position is a welcome change from the erstwhile
requirement of obtaining single premise registration for
In addition, it was contended that during off-season the
each factory, even in cases where such factories undertake
electricity generated in the co-generation power plant was not
interlinked processes.
used for manufacture of excisable goods but it was sold
outside the factory, the Assessees request for common
central excise registration for sugar mill and co-generation
power plant was rejected. Consequently, the IRA had correctly
held the view that the capital goods meant for co-generation
power plant were not used within the factory of manufacturer
i.e. the sugar mill, and therefore, the same would not be
eligible for credit. Similarly, input service credit on the services
of installation, erection and commissioning of plant and
machinery of co-generation plant, and repair and maintenance
of co-generation power plant covered by Rule 6(5) of CCR
would not be eligible for CENVAT credit.
DECISION
The CESTAT held that, when sugar mill and co-generation

power plant were connected through an overhead conveyer by
which the bagasse generated in the sugar mill is transferred to
co-generation power plant where it is used in the boiler for
generation of electricity and the electricity generated in the co-
generation power plant was used in the sugar mill for its
operation. Only surplus electricity was sold to the state
electricity board. It also noted that it was an undisputed
position that the administration/work management of the
sugar mill and co-generation power plant was common. Hence
the functioning of the sugar mill and its co-generation plant
located across the public road had to be treated as interlinked
and as one factory. The CESTAT concluded that a common
registration has been wrongly denied to the Assessee and
consequently, the Assessee was eligible to claim the CENVAT
credit of the taxes paid on procurement of capital goods and
input services used in the co-generation power plant.
Furthermore, it was observed that no evidence had been

produced to show that co-generation power plant was
functioning during the off-season when there was no supply of
bagasse. Further, reliance was placed by the CESTAT on the

case of Nizam Deccan Sugars Ltd.52, wherein it was held that
even if power generated in the co-generation power plant is
52. Nizam Deccan Sugars Ltd., 2008 (227) E.L.T. 122 (Tri.).
29
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ATTACHMENT AND In Atchaya Engineering Pvt. Ltd. 53, the HC held that it was not permissible for
the IRA to attach and recover the service tax due from the bank account of the
RECOVERY OF SERVICE company merely because the director of the company was a proprietor in a
firm which had outstanding service tax dues.
TAX DEMAND FROM
FACTS
BANK ACCOUNT OF A
The director of M/s. Atchaya Engineering (Assessee) was the proprietor of
COMPANY AS AGAINST M/s. Atchaya Enterprises (Firm), which was engaged in the business of
THE DUES providing erection, commissioning and installations services, and registered
accordingly with the service tax authorities. In proceedings initiated against
RECOVERABLE FROM A the firm, service tax along with interest and penalty was demanded. Pursuant
to an adverse order, the firm filed an appeal.
PROPRIETORSHIP
In the meanwhile, the IRA issued a notice attaching the bank account of the
CONCERN IS ILLEGAL Assessee on the ground that the Firm had not paid the service tax as
AND IMPERMISSIBLE demanded in the adjudication order.
Consequently, the Assessee filed a writ petition requesting issuance of

directions to the IRA to refrain from taking any coercive recovery proceedings
against the Assessee for recovery of dues payable by the Firm.
ISSUES
Whether the bank account of the company where the proprietor of the firm is a
director, could be attached for the recovery of dues of the proprietorship
concern?
ARGUMENTS/ANALYSIS
The Assessee contended that the bank account of another entity cannot be
attached for the dues of some other entity. The Assessee relied on the
judgments in the cases of Freezair India (P) Ltd. v. Commissioner of Central
Excise, Delhi-154 and Rupali Dyeing & Printing Mills v. Union of India55, in
support of its contentions.
The representative of the IRA contended that the Assessee was incorporated
only to circumvent the demand made by the IRA against the proprietorship
concern i.e. the firm. Further, it was contended that since the director of the
Assessee was the proprietor of the firm, the IRA had no other option except to
attach the bank account of the Assessee.
DECISION
The HC observed that Assessee was incorporated as a private limited company

on June 23, 2011. The show cause notice was issued to the
firm, on February 29, 2012, and the adjudication order
was passed on February 25, 2014, demanding service
tax. Though the said order was passed as against the
Recovery of service tax demand firm, the IRA proceeded against the Assessee, which is a
impermissible by way of private limited company, by attaching its bank account.
attachment of bank account of
proprietor. Accordingly, it was held that when the Assessee is a
separate and independent entity, the bank account of the
53. Atchaya Engineering Pvt. Ltd. v. Addl. Commissioner 2016-TIOL-662-HC-MAD-ST.

54. Freezair India (P) Ltd. v. Commissioner of Central Excise, Delhi-1 2014 (304) E.L.T. 360 (Del).
55. Rupali Dyeing & Printing Mills v. Union of India 2005 (187) ELT.178 (Guj).
30
BACK
Assessee cannot be attached for the dues of the

proprietorship concern, i.e. the firm.
Following from the ratio of the present case despite there
being a confirmed demand against a firm, the bank account
of a company wherein the proprietor of the debtor firm is a
director, cannot be attached by the IRA to recover the dues
payable by such debtor Firm . Therefore, now in case of
group entities, it shall be ultra vires for the IRA to attach the
bank accounts of one group entity so as to recover the
unpaid dues of another group entity.
31
BACK
IT IS PERMISSIBLE FOR In Sports and Leisure Apparel Ltd. 56, the CESTAT held that CENVAT credit of
input services availed at the retail outlet is available to the manufacturer in so
A MANUFACTURER TO far as the place of removal for such goods is the retail outlet of the
manufacturer.
AVAIL THE CENVAT
FACTS
CREDIT OF INPUT
Sports and Leisure Apparel Ltd (Assessee) manufactured readymade
SERVICES AVAILED AT garments and discharged duty on the goods manufactured under section 4A
ITS RETAIL OUTLET of the CEA on Maximum Retail Price (MRP) basis, at the time of clearance at
its factory gates. The Assessee cleared goods from their factory on stock
transfer basis to warehouses where certain quantity of the goods were sold to
customers while the rest were transported to its retail outlets for sale.
The Assessee claimed CENVAT credit of service tax paid on input services
availed at its own retail outlets from where goods were actually sold. The IRA
challenged the eligibility of such CENVAT credit on the grounds that the said
services were availed after the removal of goods from the factory.
ISSUES
Whether the Assessee would be eligible to claim the CENVAT Credit of the
input services used at its retail outlets from where sales were effected?
ARGUMENTS/ANALYSIS
The Assessee contended that by virtue of definition of place of removal given

under section 4 (3)(c) of the CEA, the place of removal in the Assessees case
would be the retail shops from where goods were sold. Consequently it was
argued that the Assessee would be eligible to claim CENVAT Credit of the input
services upto the place of removal i.e. the retail outlets.
The Assessee relied on CBEC Circular No. 137/3/2006-CX4 dated February

02, 2006, wherein it was clarified that the expression place of removal
defined under section 4 of the CEA was applicable to MRP based assessments
under section 4A of the CEA for the purposes of availing CENVAT credit as well.
The representative of the IRA contended that the place of removal was the
factory gate as the duty was paid at the time of clearance from factory. The
services availed at the retail shops of the Assessee were beyond the place of
removal. Hence, CENVAT credit of the service tax paid on the services used at
the retail stops was not admissible.
DECISION
The CESTAT observed that in terms of the CCR as applicable, a manufacture of

the goods up to the place of removal, was admissible. The words 'place of
removal' has not been defined in CCR but by virtue of
Rule 2 (t) of CCR, the definition given in section 4 (3) (c)
of the CEA should be followed.
CENVAT credit of input services In terms of the definition of place of removal under the
availed at retail outlets of CEA a depot, premises of a consignment agent or any
manufacturer is admissible. other place or premises from where excisable goods are
to be sold, after their clearance from the factory, can be

the place of removal. Central excise duty in all cases has
to be paid at the time of clearance from the factory but it
56. Sports and Leisure Apparel Ltd. v. CCE, Noida 2016-TIOL-887-CESTAT-All.
32
BACK
does not mean that place of removal in all cases should be

the factory gate. In the instant case, since the goods were not SIGNIFICANT TAKEAWAYS
sold at the factory gate but at the retail outlets, by virtue of the
provisions of section 4 (3) (c) (iii) of the CEA the place of In view of the judgment of the CESTAT, if delivery of goods is
removal would be the retail outlets from where goods are sold. on a for destination basis, then the point of sale will be
In case of destination based deliveries, the point of sale would treated as the place of removal of goods, and CENVAT
be treated as the place of removal and CENVAT credit of credit up to such place of sale will be admissible. In a
situation where goods are sent to depot for ultimate sale
input taxes paid up to such place of sale would be admissible.
and services are availed to transport such goods, the
CENVAT credit of such services is also available. Therefore,
In view of the above observations and settled proposition of
the CENVAT credit of services availed by a manufacturer
law, Assessee correctly availed CENVAT credit on input
post the clearance of goods from the factory, up to its retail
services availed at the retail outlets which was the place of
outlet/depot, till the time of sale from such retail outlet/
removal in the instant case. depot, including the services availed at such retail outlet/
depot shall be available to such manufacturer, for set off
against his output tax liability.
33
BACK
SUBSIDIES RECEIVED In Varad Fertilizers Pvt. Ltd. 57, the CESTAT held that subsidy received from the
government cannot be said to be additional consideration for the computation
FROM THE of the value of services for the levy of Service Tax.
GOVERNMENT DO NOT FACTS
FORM PART OF GROSS In this case, Varad Fertilizers Pvt. Ltd. (Assessee) has received
transportation subsidy from the Government of India. The IRA sought to
VALUE OF SERVICE FOR include the amount of subsidy as part of the gross value received for services
THE COMPUTATION OF rendered and levy service tax on the same. On adjudication, the demand of
service tax on the subsidy amount was confirmed along with interest and the
SERVICE TAX imposition of penalty.
ISSUES
Whether the subsidy amount should be added to the gross value of service?
ARGUMENTS/ANALYSIS
The Assessee contended that the quantification of demand is incorrect, for the
reason that the Assessee received transportation subsidy from the
government and such amount should not be treated as part of the gross value
of the Goods Transport Agency (GTA) service provided, and service tax
should not have been demanded on this amount.
In this regard, the Assessee placed reliance on the judgment of the SC in the
case of Mazagon Dock Ltd.58
The representative for the IRA contended that the value of subsidies received
from the government should form part of the gross value of services for the
levy of service tax. Further, it is contended that the aforementioned judgment
was distinguishable as it related to valuation of excisable goods whereas the
present case is of service tax.
DECISION
The CESTAT observed that the SC in the case of Mazagon Dock Ltd. (supra),
held that subsidy from the government cannot be said to be additional
consideration as it is not received from a buyer, either directly or indirectly.
Hence, the subsidy amount was not includible in the price of goods for
purpose of excise.
Therefore it was held that the gross amount of the service could only be the
value which was paid by the service recipient and that the ratio of the SC
judgment was directly applicable to the instant case.
Subsidies from government not

liable to Service Tax.
57. Varad Fertilizers Pvt. Ltd. v. CST, Aurangabad 2016-TIOL-1031-CESTAT-MUM.

58. Commissioner of Central Excise, Bangalore v. Mazagon Dock Ltd. 2005 (187) E.L.T. 3 (SC).
34
BACK
In view of the judgment of the CESTAT, only the amount paid

by the service recipient for the services provided shall form
part of the gross value of the service for the purpose of levy
of service tax. Any subsidy received by the service provider
from the government in relation to such service provided
shall be excluded from the value of services for the purpose
of levy of service tax.
35
BACK
NO SERVICE TAX In Shapoorji Paloonji and Company Pvt. Ltd. 59, the HC held that Indian Institute
of Technology (IIT) is a Governmental Authority as it has been set up by an
PAYABLE ON act of the Parliament. Therefore, the service provider would be entitled to the
refund of any service tax paid on the construction services provided by it to IIT.
CONSTRUCTION
FACTS
SERVICES PROVIDED
Shapoorji Paloonji and Company Pvt. Ltd. (Assessee) was appointed as the
TO IIT contractor for construction of the academic complex of IIT. Pursuant to the
same, the Assessee registered itself with the service tax authorities, and
started paying of service tax on the construction activity undertaken for IIT.
Subsequently, the Indian audit and account department, raised an audit

objection to the effect that a service provider undertaking construction activity
for educational institutions was not required to pay service tax. In terms of the
audit objection, the Assessee claimed that neither the Assessee nor IIT was
liable to discharge service tax on the construction activity undertaken by the
former. Accordingly, the Assessee claimed refund of the tax already paid.
The IRA rejected the stand of the Assessee.
ISSUES
Whether construction services provided by the Assessee to IIT were exempt

from the levy of service tax?
ARGUMENTS/ANALYSIS
The Assessee contended, in view of the audit objections, that it was not
required to discharge service tax on the construction services provided by it to
the IIT. In this regard, it relied on Notification No. 25/2012, dated June 20,
2012, issued by the Government of India, exempting the services provided to
the government, a local authority or a governmental authority by way of
construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation, or alteration of a civil structure or any other
original works meant predominantly for use other than for commerce, industry,
or any other business or profession, from the levy of service tax.
The representative of the IRA contended that the construction activity was a
taxable service under the provision of section 65 of the FA and in order to avail
the exemption under Notification No.25/2012, dated June 20, 2012 the
specified service must be provided to government or local authority or
governmental authority. The expression Governmental Authority has been
defined by Notification No. 2/2014 dated January 30, 2014, and IIT, being a
body corporate under a central statute would not be covered by the exemption
dated June 20, 2012, as it is not a Governmental Authority within the
meaning of the term Governmental Authority, defined vide Notification dated
January 30, 2014. Thus the service tax is payable by the
Assessee. Further reliance was placed on a Circular
issued on September 19, 2013, by CBEC, clarifying the
ambit and scope of levy of service tax, pursuant to a
IIT is Governmental Authority;
representation by several educational institutions. Under
construction services provided to
the said Circular, the services provided to institutes is
IIT are exempt from the levy of
related to construction work are not exempt from the
service tax.
payment of service tax.
59. Shapoorji Paloonji and Company Pvt. Ltd. v. Commissioner, Cu. C.Ex. and ST, Patna and Ors. 2016-TIOL-556-HC-Patna-ST.
36
BACK
Furthermore, it was contended that only an authority with 90%

or more participation by way of equity or control to carry out SIGNIFICANT TAKEAWAYS
any function entrusted to a municipality under Article 243W of
the Constitution of India alone is the Governmental Authority, In view of the judgment of the Patna HC, institutions such as
IIT which have been established under the Act of the
entitled to exemption from benefit of service tax.
Parliament or the state legislature, qualify within the
meaning of the term Governmental Authority for the
DECISION
purposes of levy of service tax.
The HC held that IIT has been set up by an Act of Parliament
In respect of such bodies, the condition that 90% or more by
viz. Institutes of Technology Act, 1961 as an institute of
way of equity / control to carry out any function entrusted to
national importance under Article 248 of Constitution of India
municipality under Article 243W of Constitution of India is
read with List I of Seventh Schedule. Hence, IITs qualify as
not a mandatory requirement to qualify within the meaning
Governmental Authority as defined under clause 2(s) of
of the term Governmental Authority for claiming the
amended Notification No. 25/2012-ST dated June 20, 2012.
benefit of exemption from the levy of service tax.
Further, the HC rejected IRAs stand that condition of 90% or
Accordingly, this is a landmark judgment providing relief to
more participation by way of equity / control to carry out any
similar service providers engaged in the activity of providing
function entrusted to municipality under Article 243W of
construction, installation, erection, etc. services to similar
Constitution of India is a sine qua non to qualify as
educational institutions established under Central/ State
Governmental Authority for claiming exemption. It held that
Acts. It clarifies the dilemma of the industry in relation to the
the condition of participation is applicable only to an authority
satisfaction of either/both of the aforementioned conditions
established by government and not set up by Act of Parliament
by an educational institution, so as to qualify as a
or state legislature. Hence, the Assessee/ IIT were entitled to
Governmental Authority.
refund of service tax amount already deposited.
37
BACK
SERVICES BY AN In Franco Indian Pharmaceutical Pvt. Ltd. case 60, the CESTAT held that where
the employer company is not charging any margin on the payment (i.e.
EMPLOYEE TO JOINT reimbursement of the expenses (costs) of the employee) from the other
employer company, the said payment would not amount to consideration for
EMPLOYERS, WHO the purpose of charging service tax under the Finance Tax Act, 1994.
SHARE HIS COSTS, FALL FACTS

OUTSIDE THE PURVIEW Franco India (Assessee) was a manufacturer of pharmaceutical products
OF LEVY OF SERVICE and used its own marketing network for promotion and marketing of its
products. The marketing network of the Assessee was also utilized by three
TAX. other group companies. The Assessee sent its employees on deputation to
such group companies, and once the job of the group company was done, the
said employees were called back by the Assessee, or sent to other group
companies.
The Assessee recovered the costs/ expenses incurred by it on account of the

engagement of its employee with a group company, from such group company,
as agreed under an agreement executed between the companies.
ISSUES
Whether the recovery of expenses by the Assessee, was in the nature of

consideration for services rendered by the Assessee, under the category of
business auxiliary services?
ARGUMENTS/ANALYSIS
The Assessee contended that the infrastructural facility for marketing the
products was available with them, and they in turn shared it with the other
group companies. The Assessee recovered the cost attributable to the salary,
bonus, demands and incidental expenses of the employees who were deputed
to the group companies, for marketing such group companies products.
Therefore, the Assessee abstained from paying service tax on such an
arrangement. It also relied upon the judgments in the cases of K.Raheja Real
Estate Services Pvt. Ltd.61 and Mahindra and Mahindra Contech Ltd.62.
On the other hand, the IRA contended that the Assessee has been promoting
and marketing the products of the other group companies which were totally
different entities. Having different identities, the marketing of their products by
the Assessee would amount to providing of services under the category
Business Auxiliary services (BAS). In addition, the IRA argued that if not
under BAS, the said services would fall under the category of Manpower
Recruitment or Supply Services.
DECISION
In the absence of any margin or
mark up charged over and above The CESTAT examined the various clauses of the
the payment received from the agreement executed between the Assessee and its group
other employer-company, the companies, and observed that the Assessee was merely
payment received by the deputing its employees to the group companies for the
employer company will not specific period and recalled them after the job was
partake the character of completed. Therefore, such activity does not amount to
consideration for a service. BAS.
60. Franco Indian Pharmaceuticals Pvt. Ltd. v CST, Mumbai 2016-TOIL-885-CESTAT-MUM.

61. K.Raheja Real Estate Services Pvt. Ltd. v. Commissioner of Central Excise, Mumbai 2013-TOIL-2363-CESTAT-MUM.
62. Mahindra and Mahindra Contech Ltd. v. Commissioner of Service Tax, Mumbai 2014 (35) STR 634 (Tri- Mum)
38
BACK
The CESTAT also took note of the draft Circular dated July 27,
2012, wherein it has been stated that an arrangement where SIGNIFICANT TAKEAWAYS
the staff is employed by one or more entities who share the
cost, or where one entity pays the salary and other expenses The issue relating to joint employment has been in much
of the employee, and subsequently, recovers it from the other dispute. The CESTAT, in this case, has clarified that, where
employer, such recoveries will not be liable to service tax as it the intention of the employer company is not to earn a mark-
up or margin on costs charged from the other employer i.e.
is merely a case of cost-reimbursement.
group companies in the instant case, but to share the cost
on actual, there is no provision of service of any sorts to
On the basis of above observations, the CESTAT held that the
Assessee and its group companies, had agreed to share the such other companies.
cost of the employment on an actual basis by dividing the cost
amongst themselves, in such a manner where the Assessee In light of the aforementioned, now in cases where group
and its group companies only bear their respective parts of entities jointly engage the services of one or more
the cost. This indicates that the Assessee had no intention of employees, and one such entity bears all the costs for the
rendering any service to the other group companies. The services of such employee(s), and subsequently, recovers
CESTAT held that if it were the intention of the Assessee to such costs from the other employers among the group, on
provide any service to the other group companies, the actual basis, such amount recovered is outside the meaning
Assessee would have charged a margin or mark up on the of the term consideration and the activity of such group
payment made by the other group company. entity recovering the costs is not in the nature of service.
Since, the employees in the instant case had not signed the
joint employment agreements, the CESTAT went on to clarify
that merely because the employers have not signed the
appointment letter jointly, and only one of them signed the
same, and then sent the employees to other companies for
work, it would not make a difference to the taxability aspect,
or otherwise to the employment contract. The moment an
employee agrees for such deputation to the other company,
knowing that his emoluments shall be paid by such
companies jointly, his contract with the single employer would
transform into a contract of joint employment with several
employers.
39
BACK
SALES MADE FROM A In Larsen and Toubro Ltd 63, the Division Bench of Gujarat HC held that
Bombay High, an Exclusive Economic Zone is not a part of any state of the
STATE TO THE EXCUSIVE Union of India, and therefore, any sale of goods from Hazira (Gujarat) to
Bombay High will not amount to inter-state sale but export sale. Hence, no CST
ECONOMIC ZONE IS can be levied on such sale.
NOT A CST SALE FACTS
Larsen and Toubro Ltd (Assessee) had entered into contract with Oil and
Natural Gas Corporation (ONGC) for the commission of turnkey projects at
Bombay High, situated in Exclusive Economic Zone of the coast of India. In this
regard, the question of charging CST on such transaction, came up for
consideration before the VAT Tribunal wherein the VAT Tribunal followed the
decision of the Gujarat HC, in an earlier case of the Assessee (L&T)64, and
held that a transaction of works contract with ONGC is an export sale and is
not liable to CST. Thereafter, aggrieved by the order of the VAT Tribunal, the
IRA went in appeal before the Gujarat HC.
ISSUES
Whether the sale of goods, in pursuance to a works contract, from Hazira to

Bombay High (an Exclusive Economic Zone) is exigible to CST?
ARGUMENTS/ANALYSIS
Both the parties to the present case agreed that the issue involved in the
present case, is identical to that in the earlier case of L&T (supra). Therefore,
the HC, in the instant case, followed the findings of L&T judgment (Supra),
wherein the Division Bench of HC had examined the question as to whether
the territorial jurisdiction of India extends to the Exclusive Economic Zone.
The Gujarat HC observed that in the earlier case of L&T (supra), the Gujarat HC
had examined the various provisions of Maritime Zones Act. The Gujarat HC
had noted that the Bombay High is situated at about 180 km from the shores
of India, which as per section 7 of the Maritime Zones Act is a part of the
Exclusive Economic Zone. Further, sub-section 7 of section 7 empowers the
Central Government to issue notifications to extend certain laws to any part of
the Exclusive Economic Zone and to make such provisions as may be
necessary for the enforcement of such enactments.
The Gujarat HC further noted that the language used in clause (b) of sub-
section (7) of section 7 to the Maritime Zones Act is significant as it provides
that law, so notified, shall be extended as if, the Exclusive Economic Zone or
the part thereof, for the purpose of such law, is a part of the territory of India.
However, it is not the same thing as to suggest that an Exclusive Economic
Zone becomes part of the territory of India.
In light of the above, the Gujarat HC was of the opinion

that Bombay High does not form part of any State of the
Union of India. Therefore, when the sale of goods takes
Sale of goods from a state to place at Bombay High, for which the goods moved from
Bombay high, located in the Hazira to Bombay High, such movement does not get
Exclusive Economic Zone is not covered within the expression movement of goods from
exigible to CST. one State to another contained in clause (a) of section 3
of CST Act.
63. State of Gujarat v. Larsen and Toubro Ltd. 2016-VIL-325-GUJ.

64. Larsen and Toubro Ltd. v. Union of India and others 2011-VIL-46-GUJ.
40
BACK
Further, the Division Bench of the Gujarat HC in the L&T

Judgment (Supra) observed that whenever required, the SIGNIFICANT TAKEAWAYS
Central Government issues notifications extending different
taxing statutes to designated areas, continental shelf and In this judgment, the Gujarat HC held that CST is applicable
Exclusive Economic Zone. Such notifications have been issued only to sales involving the movement on goods from one
extending the IT Act, 1961, Customs Act and the CTA, CEA and state to another. However, the Gujarat HC did not conclude
the CETA, service tax and the provisions contained in FA. its finding on the issue whether sale made to the Exclusive
However, the Division Bench of the Gujarat HC observed that Economic Zone would be export, and left the question open.
no such notification has been issued extending the provisions
of CST Act to Exclusive Economic Zone. Hence, the question of
applicability of CST Act to Exclusive Economic Zone does not
arise at all.
DECISION
The Gujarat HC following its decision in the case of L&T

(supra), held that sale of goods involving the movement of
goods from Hazira to Bombay High is not liable to CST.
41
BACK
TRANSFERABLE In M/s Sumer Corporation65, the CESTAT held that since appellant has already
encashed some Transferable Development Right and obtained considerable
DEVELOPMENT RIGHT amount therein, therefore Transferable Development Right would be a
valuable consideration and the same would be chargeable to sales tax.
MAY NOT NECESSARILY
FACTS
BE IMMOVABLE
M/s Sumer Corporation (Assessee) is engaged in the business of
PROPERTY AND WOULD construction of buildings and tenements for the Slum Rehabilitation Authority
FORM OTHER (SRA). The Assessee constructed buildings for SRA and received
Transferable Development Rights (TDR) rather than money, as
VALUABLE consideration. Subsequently, the Assessee realized money from the sale of a
part of the TDR received.
CONSIDERATION
ISSUES
Whether the TDR received by the Assessee for the construction of buildings
and tenements, is in the nature of other valuable consideration for the
purpose of the levy of VAT under the Maharashtra VAT Act,2002 (MVAT)?
ARGUMENTS/ANALYSIS
The Assessee asserted that in the said transaction, no money consideration

was received by them. In fact, no contract value in terms of money was fixed. It
was claimed by the Assessee that the transaction was in the nature of barter
and could not be taxed under the MVAT Act.
It was contended by the Assessee that for the purpose of charging VAT, there
should be money consideration against the transfer of ownership in goods. In
this regard, the Assessee relied on the judgment of the on M/s. Devi Dass
Gopal Krishnan and Others66 wherein it was held by the SC that The
expression valuable consideration takes colour from the preceding
expression cash or deferred payment and therefore would mean some other
monetary payment in the nature of cash or deferred payment.
On the contrary, the representative for the IRA argued that after the
amendment in clause (29A) in Article 366 of the Constitution of India, the
definition of sale includes deemed sale. It was further argued that the case
of Devi Dass (supra) would not be applicable, as it was prior to the
constitutional amendment and definition of sale as mentioned in the MVAT
Act, 2002. Moreover, it was pointed out that TDR is itself a money
consideration.
DECISION
The VAT Tribunal examined the provisions of MVAT Act and held that the word
other valuable consideration used in the definition of sale in section 2(24)
under the MVAT Act would include anything that would
directly or indirectly fetch some element of money or any
other consideration. The Tribunal observed that TDR, in
TDR can be converted into the present case, could be converted into money and that
money and therefore would be the Assessee had in fact encashed some TDR and
valuable consideration for the obtained consideration. Therefore, it concluded that TDR
purpose of charging sales tax could be regarded as valuable consideration for the
under MVAT Act. purpose of the levy of VAT.
65. M/s Summer Corporation v. The State of Maharashtra 2016-VIL-17-TRB.

66. M/s. Devi Dass Gopal Krishnan and Others 22 STC 430 SC.
42
BACK
In the present case, the VAT Tribunal went into the details of
the nature of the TDR and took a different view than that
existed earlier. In the earlier judgment of Chheda Housing
Development case67, it was observed that the TDR, being an
immovable property, could not be levied to sales tax.
However, in this case the VAT Tribunal drew a distinction

and held that since, the TDR in the present case is not only
related to the land but also to the construction of
tenements, the same could not be said to be purely for
immovable property. Hence, the VAT Tribunal held that the
TDR in the instant case would be taxed to VAT being transfer
of the TDR.
67. Chheda Housing Development v. Bibijan Seikh Farid (2007) 3MhLJ 402
43
BACK
THE DOCTRINE OF In Eldeco Housing & Industries P Ltd. 68, wherein the assessee paid service tax
erroneously, after collecting the same from its customers, on a transaction not
UNJUST ENRICHMENT liable to service tax, the CESTAT held that although the assessee was not
entitled to refund, the customers of the Assessee, who purchased the flats
IS ATTRACTED ONLY IN and paid the service tax, were entitled to refund.
THE CASE OF TAX AND FACTS

NOT DEPOSIT. Eldeco Housings (Assessee) had constructed and sold some flats to various
buyers and as advised by the IRA, had deposited service tax on such
construction during the period 2006-07. However, subsequently, in view of the
Circular No. 332/35/2006TRU dated August 01, 2006, the Assessee filed
refund claim for the service tax paid by him in the relevant year as no service
tax was payable by the Assessee in so far as it had constructed the flats on its
own account and subsequently, sold the flats. The said refund claim was
allowed by the adjudicating authority after examining the provisions of unjust
enrichment.
Subsequently, the Assessee filed a refund claim for the amount of service tax
which had been collected from the customers claiming that the said amount of
service tax had been erroneously paid by them. The customers had moved
before consumer courts for refund of service tax from the Assessee.
ISSUES
Whether the refund claim pertaining to the amount of service tax collected
from the customers be hit by the principle of unjust enrichment?
ARGUMENTS/ ANALYSIS
The Assessee contended that since its refund claim was allowed in view of the
clarification by the CBEC that service tax was not payable on the said
transaction, the refund of the rest of the amount may also be granted either to
them or directly to the buyers of the flats.
However, the IRA alleged that this was a case of unjust enrichment and no
efforts had been made by the adjudicating authority to verify the deposit of
this amount by the Assessee, or whether the amount in dispute was actually
received by the Assessee from its customers. The IRA further alleged that the
refund claim was time barred, and therefore, should not be allowed.
DECISION
The CESTAT observed that since CBEC had already clarified that service tax
was not payable on the transactions of the Assessee with respect to
construction and sale of flats during the financial year 2006-07 in the very first
place, any deposit of tax made by the Assessee would take the character of a
deposit and would not amount to tax. Since, the doctrine
of unjust enrichment is attracted only in the cases of
payment of tax, the same would not be applicable to the
In cases where service tax is not
case of the Assessee. Therefore, the CESTAT allowed the
payable on a transaction, any
deposit of tax made erroneously refund.
by the assessee, takes the
Further, in so far as the first refund claim was filed by the
character of deposit and does

not amount to tax. Assessee within the prescribed period of limitation i.e.
one year, therefore, the contentions of the IRA, with
68. Eldeco Housing & Industries P Ltd v. CCE, Lucknow 2016-VIL-455-CESTAT-ALH-ST.
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respect to the second refund claim being filed post the period
of limitation, was rejected by the CESTAT.
Following from the aforementioned judgment, any amount
paid towards a misconstrued tax liability, shall not partake
the nature of tax. Such amount is in the nature of a deposit,
liable to be refunded to the Assessee who has erroneously
discharged such amounts. The doctrine of unjust
enrichment shall be applicable only to cases of payment of
tax. In cases where the amount paid is not in the nature of
tax, the provisions of the doctrine of unjust enrichment
would also not be applicable.
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INCIDENTAL VOLUME In the Akqa Media India Pvt. Ltd.69, the AAR held that the volume discounts,
which are paid at the discretion of the media owner, are not chargeable to
DISCOUNTS ARE NOT service tax.
CONSIDERATION FOR FACTS
PROVIDING SERVICE Akqa Media India Pvt. Ltd (Assessee) carried out the activities of an
advertising agency and provided services in relation to placement of
advertisements on various mediums, for its clients. The Assessee had two
business models. Business model 1 was with respect to advertisements in
traditional media on behalf of the advertiser and business model 2 was with
respect to buying and selling of the advertisement inventory in non-traditional
media.
In business model 1, the Assessee was paying service tax on commission

charged from the clients while in business model 2, the Assessee paid service
tax on gross amounts charged from the advertiser and took credit of the same
subsequently.
Apart from its commission, the Assessee also received an incentive/volume

discount from the media owners. The parameters for providing such
incentives/ volume discount were decided by the media owners unilaterally,
and such discounts were purely gratuitous.
ISSUES
Whether incidental receipt of incentives/volume discounts by the Assessee

from media owners should be regarded as a consideration for providing a
service, under the FA; and if yes, then on what value would the service tax be
applicable?
ARGUMENTS/ ANALYSIS
The Assessee contended that the incidental receipts of incentives/ volume

discounts by the applicant from the media owner were merely a gratuitous
payment as that there was no obligation, either contractual or otherwise, on
the media owners to pay incentives / volume discounts to the Assessee. No
service was provided or agreed to be provided by the applicant to the media
owners. Therefore, it was contended by the Assessee that no service tax was
payable on such incentives.
In this regard, the Assessee relied on the case Grey Worldwide India Pvt. Ltd.70
wherein it was held that no service tax was payable on such incentives/
volume discounts received by the advertising agency from the media owners.
Similar arguments were put forth with respect to business model 2 by the
Assessee.
On the contrary, the representative for the IRA contended

that the volume discount received by the applicant were
Incidental volume discount for the services provided to the media owner as the
which is not fixed and is to be invoices were issued in the name of assessee by the
given at the discretion is media owner. Thus, there was a contractual relationship
gratuitous and therefore, shall for provision of service between the Assessee and the
not be considered as providing media owner rendering the transaction exigible to service
services.
tax.
69. Akqa Media India Pvt. Ltd v. CST, Mumbai 2016-VIL-12-ARA.

70 Grey Worldwide India Pvt. Ltd.2015 (37) S.T.R 597 (Tri.- Mumbai).
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DECISION
It was observed by the AAR that incidental receipt of
The AAR followed the finding in the Grey Worldwide case
incentives/volume discounts from media owners would not be
(supra) and has not given any different reasoning this case.
regarded as consideration for providing a service, as defined
Therefore, the position of law prevalent in relation to the
under the FA, and shall not be liable to service tax under
incidental incentives/ volume discounts wherein the
either of the business models. discount is not fixed and is discretionary, has been
maintained.
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NEITHER THE OFFICERS In M/s Mega Cab Pvt. Ltd.71, the Delhi HC struck down rule 5A(2) of the
Service Tax Rules to the extent it grants the power to the officers of the
OF THE SERVICE TAX Service Tax Department (Department) or Comptroller and Auditor General of
India (CAG) to seek documents and conduct an audit, as being
DEPARTMENT NOR THE unconstitutional and ultra vires to the provisions of the FA.
CAG HAVE THE POWER FACTS

TO AUDIT THE M/s Mega Cabs (Assessee) was engaged in the business of running a radio
RECORDS OF THE taxi service and selling advertisement space. The Additional Commissioner
(Audit) was issued a letter seeking information for conducting audit of the
ASSESSEE records under Rule 5A of the ST Rules. The Assessee took the stand that the
Department had no power to conduct an audit under the service tax laws.
Despite that, the Assessee was informed that the officers had been deputed to
conduct the audit/verification of the Assessee's records for the period 2010-
11 to 2013-14.
Aggrieved by this, the Assessee filed a writ petition before the Delhi HC
challenging the constitutional validity of provisions of rule 5A(2) being ultra-
vires to section 72A of the FA.
ISSUES
Whether rule 5A(2) is ultra-vires section 72A and section 92 of the FA?
ARGUMENTS/ANALYSIS
The Assessee argued that section 72A of the FA only contemplated that a
special audit of the Assessee may be undertaken by a Cost Accountant or a
Chartered Accountant, on the direction of the Commissioner. Rule 5A(2),
although purportedly amended to overcome the defect pointed out by the
Court in Travelite (India) v. Union of India72, still permits any officer of the IRA,
an audit party deputed by the Commissioner or the CAG to ask for the
production by the Assessees books of accounts etc. on demand. Therefore,
it was argued by the Assessee that rule 5A(2) not only expands the list of
person who could seek records for audit but also does not satisfy the
safeguards incorporated in the above provisions.
The Assessee further contended that section 94 (2) (k) of the FA did not permit
rules to be made in respect of examination of accounts and records by any
officer of the Department. If the provision were so interpreted it would suffer
from the vice of excessive delegation.
On the other hand, it was contended by the representative of the IRA that rule
5A(2) has to be read in continuation of and consequent to sections 72, 73 and
73A of the FA. Rule 5 A (2), so read cannot be said to be ultra vires the FA.
With regard to the loophole, it was contended that the
amendment was in the nature of a validating law which
was only to plug a loophole and correct the defects
Rule 5A(2) of the ST Rules, pointed out by the HC
1994 which empowers the
officer of the Department/ CAG
DECISION
to seek documents from the
Assessee has been held to ultra- The HC examined the power granted under section 73 in
vires section 72A of the FA. detail. It was observed that the scheme of section 72A
was that in the first instance the Commissioner had to
71. M/s Mega Cab Pvt. Ltd. v. Union of India 2016-VIL-282-DEL-ST.
72. Travelite (India) v. Union of India 2014 (35) STR 653 (Delhi).
48
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record reasons to believe that the Assessee who is liable to

pay service tax was covered under one of the three SIGNIFICANT TAKEAWAYS
contingencies mentioned therein. In such cases, the
Commissioner may direct an Assessee to get his accounts The Delhi HC struck down the rule 5A(2) of the ST Rule,
audited either by a Chartered Accountant or a Cost Accountant 1994 which granted uncanalised powers in the hands of the
officers of the IRA, without any statutory backing under the
nominated by such Commissioner.
FA. Even the CAG was earlier empowered to seek document
and audit the private companies or individual service
However, rule 5A(2), as amended in 2014 vide Notification
providers while the same is only empowered to audit the
No. 23/2014 ST, exceeded the scope of the provisions
accounts of the government. This landmark judgment
under the FA. It was observed by the HC that the rule 5A(2) not
comes as a relief to the Assessees who were earlier
only expands the list of person authorised to seek documents,
subjected to unnecessary harassment due to the process of
it also enlisted such documents which were nowhere listed in
audit by the officers of the IRA, that too without furnishing
rule 5(2) of the ST Rules or any where in the provisions under
the FA. The HC was of the view that that the Central any reason for such audits.
Government cannot arrogate to itself powers which were not
contemplated to be given to it by the Parliament when it
enacted the FA. Hence, it was held that rule 5A(2), to the
extent that it authorizes the officers of the IRA, the audit party
deputed by a Commissioner or the CAG to seek production of
the documents mentioned therein on demand is ultra vires
the FA and, therefore, struck it down to that extent.
Further, with respect to the power to make rules under section

94, the HC held that the expression verify under section 94
(2)(k) of the FA, is not wide enough to permit the audit of the
accounts of the Assessee by any officer of the IRA. It was
observed that there is a distinction between auditing the
accounts of an Assessee and verifying the records of an
Assessee. Audit is a special function which has to be carried
out by duly qualified persons like a Cost Accountant or a
Chartered Accountant only.
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NO TAX CAN BE LEVIED In Suresh Kumar Bansal v. Union of India 73, the Delhi HC held that no service
tax could be levied on sale of under-construction property in the absence of
IN THE ABSENCE OF any provision under the law or under any rules to determine the value of
taxable services in composite contracts involving sale of land.
PROPER MECHANISM
FACTS
FOR VALUATION.
Suresh Kumar Bansal (Petitioner) had entered into agreement with builder
to buy flats in a multistory group housing project. The builder, in addition to the
consideration for the flats also recovered service tax from the Petitioners.
Aggrieved by this, the Petitioner challenged the constitutional validity of
section 65 (105)(zzzh) of the FA which levied tax on construction of
complexes.
ISSUES
Whether levy of service tax on services 'in relation to construction of complex'

as defined under section 65 (105)(zzzh) of the FA and explanation to section
65(105)(zzzh) is ultra vires the Constitution of India?
ARGUMENTS/ANALYSIS
The Petitioner contended that their agreement with the builder is a composite
contract for purchase of immovable property. So if at all there is a levy of
service tax on such contract, the power of Parliament to levy tax would be
limited to only on the service component after excluding the value of goods as
well as the value of land from such contracts. Since, there was no provision
under the FA provision for ascertaining the service component of the said
agreement, the Petitioner contended that in absence such specific provisions,
the levy would be beyond the legislative competence of the Parliament.
Lastly, it was contended by the Petitioner that in the flat buyer agreement, the
services were rendered only after the execution of the flat buyer's agreement.
Prior to the date of execution of such agreement, in absence of the service
recipient, the service in relation to construction of a complex, if any, is
rendered by the builder to itself and cannot be subjected to service tax.
On the contrary, the department argued that the concerned legislative

amendment introduced by the Finance Act, 2010, namely, insertion of
explanation to section 65(105)(zzzh) which provided that construction of a
complex which is intended for sale, wholly or partly, by a builder or any person
authorised by the builder before, during or after construction shall be deemed
to be service provided by builder to buyer; and clause (zzzzu) which provided
for levy of service tax on providing preferential location by the builder to the
buyer, were valid and enforceable.
DECISION
While the legislative
competence of the Parliament to In the present case, the HC examined the levy of service
tax the element of service tax on agreement for sale of flat prior to the completion of
involved cannot be disputed but flat. The HC observed that the arrangement between the
the levy itself would fail, if it does buyer and the developer was not for procurement of
not provide for a mechanism to services simplicitor. Such an agreement between a flat
ascertain the value of the buyer and a builder/developer of a complex was
services component which is the essentially, one of purchase and sale of developed
subject of the levy. property. By a legislative fiction, such agreements, were
imputed with a character of a service contract. It was held
73. Suresh Kumar Bansal v. Union of India 2016 VIL 284 DEL ST.
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that the works involved in construction of a complex were

treated as being carried by the builder on behalf of the buyer. SIGNIFICANT TAKEAWAYS
However, indisputably the arrangement between the buyer
and the builder was a composite one which involved not only The Delhi HC, in this judgment held that no service tax
the element of services but also goods and immovable could be levied in the absence of the provisions under the
property. Thus, while the legislative competence of the law to determine the value of taxable services especially in
Parliament to tax the element of service involved could not be composite contracts. This judgment have a left a huge
disputed the levy itself would fail, if it did not provide for a impact on the real estate industries which is now required to
mechanism to ascertain the value of the services component claim for the refund of service tax paid on construction of
which is the subject of the levy. complex services during the relevant period.
The HC observed there was no provision for ascertaining the

service element involved in the composite contract. Whilst rule
2A of the ST Rules provides for mechanism to ascertain the
value of services in a composite works contract involving
services and goods, the said Rule did not cater to
determination of value of services in case of a composite
contract which also involved sale of land.
The HC reiterated the settled principle of taxing statutes which

states that the statute should clearly and unambiguously
convey the three components of the tax law i.e. the subject of
the tax, the person who is liable to pay the tax and the rate at
which the tax is to be paid. If there is any ambiguity regarding
any of these ingredients in a taxation statute then there is no
tax in law. Therefore, the impugned explanation to the extent
that it sought to include composite contracts for purchase of
units in a complex within the scope of taxable service was set
aside. Accordingly, the Court directed that any such amount
deposited for taxable service as defined in section 65(105)
(zzzh) of the FA shall be refunded to the Assessees with
interest at the rate of 6% from the date of deposit till the date
of refund.
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Non-Judicial Updates
Direct Tax
1. Interest on refund of excess TDS deposited under section printing and publishing constitutes manufacture or
195 of the IT Act production of an article or thing and, therefore, the
assessee would be entitled to claim additional
The CBDT vide Circular No. 7/2007 dated October 23, depreciation under section 32(1)(iia) of the IT Act.
2007, had delineated the procedure for refund of TDS
under section 195 of the IT Act. However, there was still
confusion regarding whether a resident deductor is
entitled to claim interest under section 244A of the IT Act 3. Allowability of bad debts even if debt is not established to
on the refund of excess TDS deposited under section 195 be irrevocable
of the IT Act.
Section 36(1)(vii) of the IT Act provides77 that deduction of
The SC in the case of Tata Chemicals Limited74 had held bad debts shall be allowed in the year in which such debt
that if a resident deductor is entitled for a refund of or part thereof was actually written off as irrecoverable in
excess TDS under section 195 of the IT Act, then it has to the tax payers books of accounts, subject to the
be refunded along with interest under section 244A of the conditions prescribed under section 36(2) of the IT Act,
IT Act, from the date of payment of such tax. which inter alia provided that such debts should have
been taken into account in computing the income of
In line with the said decision and with a view to put an end previous year(s).
to this contentious issue, the CBDT has issued a Circular
No. 11/2016 dated April 26, 2016, clarifying that in case Despite this, disputes were arising on the issue of
any refund of taxes is due to a resident deductor in allowability of bad debt on the ground that debt had not
respect of any tax withheld by it under section 195, it been established to be irrevocable. The SC in the case of
would also be entitled to interest under section 244A of TRF Ltd.78 has held that post April 1, 1989, for allowing
the IT Act from the date of payment of tax. deduction of any bad debt it is not necessary to establish
that the debt has become irrevocable.
Following the above decision of the SC, the CBDT has

2. Printing and Publishing activity constitutes manufacturing issued a circular (Circular No.12/2016 dated May 30,
activity for the purposes of claiming additional 2016) clarifying that the claim of bad debt is allowable if it
depreciation is written of as irrevocable in the books of accounts of the
taxpayer for that previous year, subject to fulfilment of the
Under section 32(1)(iia) of the IT Act, an assessee conditions provided under section 36(2) of the IT Act.
engaged in the business of manufacture or production of
an article or thing, is entitled to claim additional
depreciation. Whether the activity of printing and
publishing will fall under the category of manufacturing 4. Rules notified for Direct Tax Dispute Resolution Scheme
activity so as to entitle the taxpayer to additional
depreciation has been a contentious matter. The Direct Tax Dispute Resolution Scheme (Scheme)
was introduced by the Finance Act, 2016 in order to
On the said issue, the Kerala HC75 and the Delhi HC76 reduce pending tax litigation. The taxpayers have a
have held that the activity of printing and publishing can window of seven months (i.e. from June 1, 2016 to
be construed as manufacturing activity and, therefore, the December 31, 2016) to avail the Scheme. Under the
assessee is eligible for additional depreciation. These Scheme, the taxpayers can settle their pending disputes
decisions have not been contested further by the tax by making payment towards prescribed tax, interest and
authorities. To put an end to this controversy, the CBDT penalty.
has issued a circular (i.e. Circular No.15/2016 dated May
19, 2016) clarifying that the business of printing or
74. Union of India v. Tata Chemical Ltd. (2014) 43 taxmann.com 240 (SC).
75. DCIT v. Mathrubhoomi Printing & Publishing Co in ITA No. 23 of 2015 (Kerala HC).
76. CIT v. Delhi Press Patra Prakashan Ltd. (2013) 355 ITR 14 (Delhi HC).
77. Applicable from April 1, 1989.
78. TRF Ltd. v. CIT (2010) 323 ITR 397 (SC).
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The Direct Tax Dispute Resolution Scheme Rules, 2016 (f) Any excess FTC available against the tax payable
(Rules) have been notified by the Central Government under the MAT/ AMT provisions as compared to the
vide Notification No.35/2016 dated May 26, 2016, tax payable under the normal provisions shall be
prescribing the forms to be used by the taxpayer and the ignored while computing the credit for MAT/ AMT;
designed tax authority for carrying out the provisions of
this Scheme. (g) List of documents required for claiming the FTC:
(i) Statement of income offered for tax for the

previous year in the foreign jurisdiction, and of
5. Final Rules for granting Foreign Tax Credit foreign taxes deducted or paid in the foreign
jurisdiction in a prescribed form (Form No. 67)
With a view to bring clarity with respect to issues arising in
claiming foreign tax credit (FTC), the CBDT vide (ii) Certificate/statement specifying the nature of
Notification No.54/2016 dated June 27, 2016 has income and the amount of tax deducted at
amended the IT Rules to provide for a separate segment source / paid from any of the following:
of FTC Rules, 2016. The new rules will be effective from
April 01, 2017. Tax authority of a country or specified
territory outside India
A draft version of these rules was issued earlier which
have now been released on April 18, 2016 in their final
Person responsible for deduction of such tax
form. Some of the key aspects of the rules are as follows:
(a) FTC shall be available against the amount of tax, Self declaration by assessee*
surcharge and cess payable under the IT Act, but not
for any payment made towards interest, fee or *Self declaration by assessee shall be valid if it is
penalty; accompanied by documentary proof for payment/
deduction of tax;
(b) FTC shall not be allowed against disputed foreign tax.
However credit from disputed tax shall be allowed in a (h) Furnishing of documents
year in which such income is offered / assessed to
tax in India, provided: (i) These documents (i.e. Form 67 and certificate/
statement) are required to be provided by due
(i) Evidence towards settlement of dispute and date of filing of return of income under section
payment of foreign tax to be furnished within 139(1) of the IT Act,
prescribed time,
(ii) Form 67 would also be required in a case where
(ii) Undertaking that no refund of foreign tax paid, the carry backward of loss of the current year
has directly or indirectly, been claimed or shall be results in refund of foreign tax for which credit
claimed; has been claimed in any earlier years.
(c) FTC shall be computed separately for each source of While the provisions for claiming FTC were always
income arising from a particular country. The amount contained in the IT Act as well the tax treaties, there was
of credit is the lower of tax payable under the IT Act lack of clarity on the procedural approach for claiming
for a given income and the foreign tax paid with FTC. Thus, the FTC Rules are a welcome relief for the
respect to such income; Indian taxpayer earning significant income from abroad
which have suffered withholding. The notified rules
(d) FTC shall be determined by conversion of the provide clarity on timing mismatches across jurisdictions,
currency of payment of foreign tax at the telegraphic foreign exchange fluctuation, disputed foreign income and
transfer buying rate as on the last date of the month ease in documentation requirements.
immediately preceding the month in which such tax
has been paid/ deducted; However, there are various other concerns which have not
been dealt in these FTC rules such as ability to claim
(e) In case where any tax is payable under the provisions underlying tax credit for dividend distribution tax, buy back
of MAT or AMT, then the FTC shall be allowed against tax, claiming of credit in case of taxation in multiple
such tax as it would be allowed against tax payable jurisdictions, etc. Thus, it is hoped and expected that
under the normal provisions;
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revised and more comprehensive version of these rules No. 23/2016 dated June 24, 2016), to clarify the
shall be released shortly. following:
(a) TCS is not applicable on sale of motor vehicles by

manufacturers to dealers/ distributors;
6. Taxability of income / loss arising from transfer of unlisted
shares (b) TCS of 1% is applicable to sale of any motor vehicle of
value exceeding INR 10 lakhs and is not restricted to
The CBDT had earlier issued a Circular No. 6/ 2016 dated luxury cars only;
February 29, 2016, laying down the guiding principles to
characterise the gains from sale of listed shares and (c) Governments departments, embassies, consulates
securities, either as business income or capital gains. This and United Nations shall not be liable to levy TCS;
circular clarified that the tax officer would not dispute any
income arising from transfer of listed shares and (d) TCS is applicable to each sale of motor vehicle and
securities held for more than 12 months, if the same was not to the aggregate value of sale made during the
treated as, and offered to tax under the head capital year;
gains, subject to genuineness of the transaction being
established. However, this circular did not deal with the (e) TCS provisions apply to an Individual who was liable
treatment of gains in case of unlisted shares. to audit under section 44AB of the IT Act, during the
FY immediately preceding the FY in which the motor
The CBDT has now issued an instruction on May 02, car is sold;
2016, clarifying that the income from transfer of unlisted
shares, for which no formal market exists for trading, will (f) TCS provisions are not dependant on the mode of
be considered under the head capital gains, irrespective payment, i.e. whether cash or cheque;
of the period of holding. However, this would not be
necessarily applied in following situations where: (g) In case of sale of motor vehicles in excess of INR 10
lakhs, TCS will be applicable at the rate of 1% (not
(a) the genuineness of transactions in unlisted shares 2%), irrespective of the mode of payment. On the sale
itself is questionable; or of a motor vehicle in cash in excess of INR 2 lakhs,
but less than INR 10 lakhs, TCS will apply at the rate
(b) the transfer of unlisted shares is related to an issue of 1%;
pertaining to lifting of corporate veil; or
(h) TCS will not be levied if the cash receipt does not
(c) the transfer of unlisted shares is made along with the exceed INR 2 lakhs, even if the sale consideration
control and management of underlying business. exceeds INR 2 lakhs;
Although, the instruction is a welcome development since (i) TCS is to be collected on the cash component of the
it brings clarity on the issue of taxability of gains arising sales consideration and not the entire sale
from the transfer of unlisted shares, the risk of litigation consideration.
with the tax officers in respect of situations envisaged in
(c) above, where the transfer of unlisted shares is made
along with the control and management of the underlying 8. Expenditure on scientific research
business, especially in the cases of transfer of strategic
divestments, cannot be ruled out. Thus, it is important for The CBDT has issued a Notification No. 29/2016 dated
the CBDT to clarify this aspect at the earliest. April 28, 2016, amending the IT Rules with respect to
scientific research expenditure under section 35 of the IT
Act. The amendments have come into force from July 01,
2016.
7. Applicability and scope of Tax Collection at source (TCS)
amendments relating to sale of motor vehicles The amendments includes, amendments in the forms of
reporting to the prescribed authority, introduction of
In view of number of queries raised about the scope of the electronic filing of form in relation to the approval of in-
provisions and the procedure to be followed with regard to house R&D facility, introduction of new form (form no.
the amendments made to section 206C of the IT Act vide 3CLA) to be issued by the accountant, certifying that the
the Finance Act, 2016, the CBDT has issued certain accounts have been satisfactorily maintained and
circulars (Circular Nos.22/2016 dated June 8, 2016 and expenditure is in consonance with DSIR guidelines etc.
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9. General Anti-Avoidance Rules 11. Rules and FAQs in relation to Income Declaration
Scheme, 2016 (IDS)
The general anti-avoidance rules (GAAR) provisions were
introduced in the Direct Taxes Code in year 2009 to curb The IDS has been introduced in the Finance Act, 2016
the impermissible avoidance arrangements entered into and is effective from June 1, 2016 for a period of 4
by the taxpayer to avoid taxes. months (i.e. till September 30, 2016). The CBDT has
issued various notifications and circulars79 in relation to
Thereafter, the GAAR provisions were introduced in the IDS, laying down various compliances (including the
Finance Act, 2013 and were to be effective from April 01, forms) to be undertaken by the person making
2014. However, the Finance Act, 2015 deferred the declaration. Further, the CBDT has also issued various
application of GAAR provisions to April 1, 2017. FAQs, clarifying various aspects, including the
determination of fair market value of various assets, etc.
In year 2013, the CBDT had earlier introduced Rule 10U
under the IT Rules in relation to the GAAR. The CBDT has
now amended these rules, vide Notification No. 49/2016
dated June 22, 2016, as follows: 12. Determination of fair market value and reporting
requirements in relation to indirect transfer of shares of
(a) The GAAR provisions will not apply to any transfer of Indian companies
investments made on or before April 01, 2017
(earlier it was on or before August 30, 2010). The Finance Act, 2012 amended the provisions of section
9(1)(i) of the IT Act, to provide that share or interest in a
(b) The GAAR provisions will not apply to any foreign entity that derives, directly or indirectly, its value
arrangement in respect of tax benefit obtained from substantially from the assets located in India, would be
the arrangement on or after April 01, 2017 (earlier it deemed to be situated in India. Accordingly, the gains
was April 01, 2015). arising on transfer of such share or interest in a foreign
entity would be deemed to accrue or arise in India.
Post the introduction of GAAR, various stakeholders had Further, the Finance Act, 2016 has provided that the
made representations to the government, requesting to Indian concern through which the foreign entity holds
apply the GAAR prospectively and grandfathering the assets in India, is required to furnish information in a
existing structures/ investments. The government has prescribed manner.
accepted the grandfathering date for investments and to
bring certainty and predictability to the Indian taxation In relation to the above, the CBDT has vide Notification
regime. No.3 /2016 dated June 28, 2016 notified detailed rules
for determination of the fair market value (FMV) and
reporting requirements by the Indian concern and the
same are effective from June 28, 2016. The rules for
10. Equalisation Levy Rules determination of the FMV are as under:
The Finance Act, 2016 has inserted provisions related to Nature of asset Method for Valuation
equalisation levy which provides that a levy of 6% is to be computation of Report by
deducted from the amounts paid towards specified FMV
services to a non-resident, not having a permanent
establishment in India. Share of a listed Observable price Not applicable
Indian company on stock
The CBDT vide Notification No. 38/2016 dated May 27, (without any, direct exchange
2016, has issued Equalisation Levy Rules, 2016, laying or indirect, right of
down the procedural framework for various compliances management or
to be undertaken by the taxpayer and the appeals process control in an Indian
to be followed for such levy. These Rules have become company)
effective from June 01, 2016.
79. Notification No. 33/2016 dated May 19, 2016, Circular No. 16/17 of 2016, dated May 20, 2016, Circular No.19 of 2016 dated May 26, 2016, Circular
No.24 of 2016 dated June 27, 2016, Circular No.25 of 2016 dated June 30, 2016.
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Nature of asset Method for Valuation Nature of asset Method for Valuation
computation of Report by computation of Report by
FMV FMV
Share of a listed (Market Not applicable Any assets other Price that would Report of a
Indian company capitalization than the above fetch if asset is merchant
(with any direct or based on sold in the open banker or an
indirect right of observable price market on the accountant
management or + Book value of specified date as determining
control in an Indian liabilities81 on determined by a the value
company80) specified date)/ merchant banker
total number of or accountant.
outstanding Liability, if any,
shares should also be
considered in
Shares of an Indian FMV as on the Report of a such estimation
company which are Specified Date merchant
not listed on a determined in banker or an
recognized stock accordance with accountant In case of transfer FMV is the market Merchant
exchange, as on the any determining of assets of a capitalisation of banker or an
Specified Date internationally value of foreign company the foreign accountant
accepted pricing assets in between persons company82 based
methodology for accordance who are not on the full value of
valuation of with any connected persons the consideration
shares on arms internationally for transfer of
length basis. accepted share or interest.
Liabilities, if any, valuation Book value of
should also be methodology liabilities, as
considered in certified by a
such merchant banker/
determination accountant,
should also be
Interest in a Proportional Report of a taken into account
partnership firm or value on merchant
limited liability specified date banker or an In case of transfer FMV is the market Not required
partnership (LLP) or determined in accountant of shares of a capitalisation of
association of accordance with determining foreign company the foreign
persons (AOP) any value of listed on the stock company based
internationally assets in exchange between on the observable
accepted accordance connected persons price. Book value
valuation with any of liabilities of the
methodology. internationally company or the
Liability, if any, accepted entity on the
should also be valuation specified date
considered in methodology should also be
such taken into account
determination
80. Right to management or control has been defined to include right to appoint majority of directors or to control management or policy decisions
exercisable by the person(s) acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or
shareholders agreements or voting agreements or in any other manner.

81. Book Value of the liabilities means the value of liabilities as shown in the balance sheet of the company or the entity as the case may be, excluding the
paid-up capital in respect of equity shares or members interest and the general reserves and surplus and security premium related to the paid up
capital.
82. The rate of exchange for the calculation in foreign currency, the value of the assets located in India and expressed in rupees shall be the telegraphic
transfer buying rate of such currency as on the specified date.
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(b) Form no. 49D - Indian concern has to furnish this

Nature of asset Method for Valuation form within a period of 90 days from the end of the FY
computation of Report by in which the indirect transfer takes place. In case,
FMV where more than one Indian concern are constituent
In case of transfer FMV is the FMV of Report of a entities of a group, then this form may be furnished
of shares of a the foreign merchant by any one designated Indian concern.
foreign company company as on banker or an
not listed on any the specified as accountant Finally, the government has issued the much awaited
stock exchange determined by a determining rules, providing guidance on determination of the FMV
between connected merchant banker value of and various other related aspects. As stated earlier, these
persons or accountant. assets in rules came into effect from June 28, 2016 and thus, there
Value of liabilities accordance is an ambiguity as to whether these rules would also apply
of the company or with any to indirect transfers that have taken place before this
the entity should internationally date.
also be accepted
considered for valuation As far as reporting by the transferor and the Indian
determination of methodology. concern is concerned, it does not clarify whether the
FMV in above transferor is required to report cases where it is eligible to
claim exemption under the relevant tax treaty in respect
of capital gains arising from such indirect transfers.
Where the FMV has been determined on the basis of
interim balance sheet83, then the FMV shall be
appropriately modified after the finalisation of the
relevant financial statements in accordance with the 13. Exemption to Start-ups from so-called angel investment
applicable laws and all the provisions of this Rule shall
tax
apply accordingly.
Section 56(2)(viib) of the IT Act states that where a
For determining the FMV of any asset located in India, company, in which public are not substantially
being shares of an Indian company or an interest in a interested84 (generally referred as closely held company),
partnership firm or association of persons, all assets and receives any consideration from a resident for issue of
business operations of the said company or the shares and such consideration exceeds the face value,
partnership firm or the association of persons, shall be then the difference between the consideration received
taken into account, irrespective of whether such assets or and the FMV of the concerned shares shall be taxable in
business operations are located in India or outside. the hands of the company as income from other sources.
The Rules provide that the income from indirect transfer However, the above provisions are not applicable where
of shares is taxable in India on a proportionate basis (i.e. the consideration is received by a company from certain
the proportion FMV of assets located in India bears to the class of persons as may be notified by the Central
FMV of total assets of the foreign entity). Further, the Government. Extending this benefit, the CBDT has notified
Rules provide that where the transferor fails to provide (vide Notification No.45/2016 dated June 14, 2016) that
the necessary information for determining the income, a start-up company85 would qualify for exemption from
then the income from indirect transfer shall be
the section 56(2)(viib) of the IT Act.
determined in such manner as the AO deems appropriate.
In line with its ambitious plan to boost entrepreneurship
The CBDT has also introduced the following forms: and job creation in the country, the government has
extended the scope of exemption to start-ups by keeping
(a) Form no. 3CT- Transferor has to obtain and furnish them away from the purview of section 56(2)(viib) of the
this form along with the income tax return. This form IT Act. This is a huge relief for start-ups because they
has to be signed and verified by an accountant, receive funding from several resident angel investors and
providing the basis of apportionment as prescribed domestic funds who are not registered as venture capital
and certifying the correctness of the computation. funds and the value at which such investments are made
is often far in excess of their respective market values.
83. Balance Sheet has been separately defined for the purpose of this Rule.
84. Section 2(18) provides for the definition of a company in which public are substantially interested.
85. A start-up company is a company which fulfils the conditions specified in the CBDT Notification No. G.S.R.I 80(E) dated February 17, 2016.
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14. Relief to non-residents from furnishing of PAN
Section 206AA of the IT Act provides that any person who

is entitled to receive any amount on which tax is
deductible at source, shall furnish his PAN to the
deductor, failing which a higher withholding tax rate
(maximum being 20%) is applicable.
In order to reduce the compliance burden on non-

residents, Rule 37BC has been inserted vide Notification
No. 53 /2016 dated June 24, 2016 with effect from June
01, 2016. The Rule provides that the provisions of section
206AA of the IT Act would not apply in case of non-
residents receiving interest, royalty, FTS and payments for
the transfer of capital asset, subject to the non resident
furnishing the following documents/ information:
(a) Name, email-id, contact number;
(b) Address in the country of residence
(c) TRC, if the law of country of residence provides for

such certificate; and
(d) Tax Identification Number (TIN) in the country of

residence. Where TIN is not available, a unique
identification number is required to be furnished
through which the deductee is identified in the
country of residence.
These details obtained from the deductee would be

required to be reported in the withholding tax return to be
filed by the deductor in the prescribed form i.e. Form no.
27Q.
This demonstrates the governments resolve to simplify

the taxation regime to promote the ease of doing
business in India and also to introduce a taxpayer friendly
regime. The notification will provide much expected relief
to non-resident recipients of such income and will
encourage non-residents to enter into business
transactions in India without any significant administrative
hassle or the fear of incurring a higher withholding tax.
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GLOSSARY
ABBREVIATION MEANING
AAR Honble Authority for Advance Rulings
ACIT Learned Assistant Commissioner of Income Tax
AO Learned Assessing Officer
AY Assessment Year
CA Companies Act, 1956
Customs Act Customs Act, 1962
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 Honble Customs, Excise and Service Tax Appellate Tribunal
CETA Central Excise Tariff Act, 1985
CIT Learned Commissioner of Income Tax
CIT(A) Learned Commissioner of Income Tax (Appeal)
CST Central Sales Tax
CST Act Central Sales Tax Act, 1956
CTA Custom Tariff Act, 1975
DCIT Learned Deputy Commissioner of Income Tax
DRP Dispute Resolution Panel
DTAA Double Taxation Avoidance Agreement
FA The Finance Act, 1994
FTS Fees for Technical Services
FY Financial Year
HC Honble High Court
INR Indian Rupees
IRA Indian Revenue Authorities
IT Act Income Tax Act, 1961
ITAT Honble Income Tax Appellate ITAT
IT Rules Income Tax Rules, 1962
Ltd. Limited
MAT Minimum Alternate Tax
PE Permanent Establishment
Pvt. Private
SC Honble Supreme Court
ST Rules Service Tax Rules, 1994
TDS Tax Deducted at Source
TPO Transfer Pricing Officer
TRC Tax Residency Certificate
UK United Kingdom
USA United States of America
VAT Value Added Tax
VAT Tribunal Honble VAT Tribunal
59
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ACKNOWLEDGEMENTS
We acknowledge the contributions received from S R Patnaik, Mekhla Anand, Kalpesh Unadkat, Shruti KP, Akhil Gupta,
Thangadurai V.P., Shiladitya Dash, Rupa Roy, Kiran Jain, Niyati Dholakia, Darshana Jain and Bipluv Jhingan, 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
Email: cyril.shroff@cyrilshroff.com
S. R. Patnaik
Partner
Email: sr.patnaik@cyrilshroff.com
This Newsletter is provided free of charge to subscribers. If you or anybody you know would like to subscribe to Tax Scout, please
send an e-mail to taxscout@cyrilshroff.com, providing the name, title, organization or company, e-mail address, postal address,
telephone and fax numbers of the interested person.
If you are already a recipient of this service and would like to discontinue it or have any suggestions and comments on how we can
make the Newsletter more useful for your business, please email us at taxscout@cyrilshroff.com.
Cyril Amarchand Mangaldas

v floor, peninsula chambers, peninsula corporate park, lower parel, mumbai - 400 013
60 | email: cam.mumbai@cyrilshroff.com
tel: 022 2496 4455 | fax: 022 2496 3666

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T A X SCOUT A quarterly update on recent developments in Taxation Law

August 8, 2016 (April 2016 - June 2016)

2016 Cyril Amarchand Mangal-

Mumbai | New Delhi | Bengaluru

Constitution of PE under the India-USA DTAA 19

Loan waived is taxable as business income 21

Consideration from offshore construction services not taxable as royalty/ FTS 23

No service tax payable on construction services provided to IIT 36

Incidental volume discounts are not consideration for providing service 46

No tax can be levied in the absence of proper mechanism for valuation 50

Allowability of bad debts even if debt is not established to be irrevocable 52

Rules notified for Direct Tax Dispute Resolution Scheme 52

Final rules for granting foreign tax credit 53

Taxability of income / loss arising from transfer of unlisted shares 54

Expenditure on scientific research 54

General Anti-Avoidance rules 55

Equalisation levy rules 55

Rules and FAQs in relation to Income Declaration Scheme, 2016 55

Exemption to start-ups from so-called angel investment tax 57

Relief to non-residents from furnishing of PAN 58

2016 Cyril Amarchand Mangal-

In terms of the Model Law works contracts would be treated as a service.

Input tax credit

One of the main objectives of introducing GST is to remove the cascading

further needs to clarify on the mechanism for smoother Conclusion

Transition of ongoing contracts

The Model Law contains specific transitional provisions for the

Talking of the transitional credits, credits on capital goods,

2016 Cyril Amarchand Mangal-

Case Law Updates

AND HENCE NOT FACTS

The IRA contended that salary paid or allowed to an employee by or on

distributed to their employees.

Accordingly, tips paid by them would not, therefore, fall within

RESPECT OF SALE FACTS

Whether consideration received directly by shareholders on transfer of

The Assessee contended that the terms of the scheme of

company. paid-up value of INR 17.64 crores to them, the same

6. Sadanand S. Varde v. State of Maharashtra (2001) 247 ITR 609 (Bom).

This judgment also reiterates the age-old principle of

2016 Cyril Amarchand Mangal-

11. Solomon v. Solomon & Co. (1897) A.C.22 (H.L).

Whether the impugned Instruction issued by the CBDT is sustainable under

The Delhi HC held that the impugned Instruction, relying

same time, it has to be ensured that such instructions or

(i) UCO Bank case13, wherein the SC only interpreted the

In conclusion, it can be stated that although the tax payers

2016 Cyril Amarchand Mangal-

NOT A TRANSFER FACTS

Whether the transfer of business of firm to a company in consideration of

gains tax, subject to fulfilment of certain conditions.

HC decision in case of Artex Mfg. Co.19, wherein it was held

The Gujarat HC held that there was no transfer and even if it

The Court factually distinguished the reliance placed by the

The primary requirement for invoking the sub-section 45(4) of

AY Project Date of 143 Date of 142 AAR filing date

2008- Maharani 25.09.09 30.08.09 10.10.11

2010- Bidadi, 25.08.11 23.11.12 23.09.11

(b) Whether clause (i) of the proviso to section 245R(2)

Delhi HC explains the meaning ARGUMENTS/ ANALYSIS

justification in creating such a classification that had no nexus

provision of the IT Act shall apply.

With regard to the aspects of constitutionality of Article 14

2016 Cyril Amarchand Mangal-