Weekly Round-up on Tax and Corporate Laws | 01st to 6th August 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 01st to 6th August 2022, namely:

(a) CBDT notifies forms to be furnished by a person claiming COVID-19 tax exemptions;

(b) CBDT notifies a list of documents to be submitted by an employee to claim an exemption for the sum received for COVID-19 treatment;

(c) Key Highlights of the Competition (Amendment) Bill, 2022;

(d) From 01-10-2022, e-invoice is mandatory for taxpayers having turnover exceeding Rs. 10 crores;

(e) CBIC issues clarification for GST applicability on liquidated damages, compensation, notice pay recovery, etc.;

(f) Clarifications regarding GST rates and classification based on recommendations of GST Council in 47th meeting; and

(g) An overview of Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014.

1. CBDT notifies forms to be furnished by a person claiming COVID-19 tax exemptions

Section 56(2)(x), inter-alia, provides that where any person receives any sum of money, without consideration and the aggregate value of such sum exceeds Rs. 50,000, then the whole of the aggregate value of such sum shall be chargeable to tax under the head income from other sources.

However, certain exceptions have been provided in this respect under proviso to said Section. The Finance Act, 2022 has inserted two new clauses (XII) and XIII) in the said proviso.

Clause (XII) provides that any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family in respect of any illness related to COVID-19, shall not be considered as income of such person.

Clause (XIII) provides that where any sum of money is received by a family member of a person who died due to COVID-19, the money so received shall not be considered as income of the family member provided it is received from the employer of the deceased person. The exemption amount shall be limited to Rs. 10 lakh in aggregate if the money is received from any other person.

However, the benefit of both the clauses shall be allowed subject to certain conditions as may be notified by the Government on this behalf. The board has notified the following conditions in this regard:

For the purpose of Clause (XII)

An individual shall be required to keep a record of the following document:

(a) The COVID-19 positive report of the individual or his family member, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an in-patient facility by a treating physician for a person so admitted; and

(b) All necessary documents of medical diagnosis or treatment of the individual or family member due to, or illness related to, COVID-19 suffered within six months from the date of being determined as a COVID-19 positive.

Such an individual shall be required to furnish a statement in Form No. 1 in respect of any amount received for any expenditure actually incurred by him for medical treatment or treatment of any member of his family for any illness related to COVID-19.

The statement in Form No. 1 shall be furnished to the Income-tax Dept. within 9 months from the end of such financial year or 31-12-2022, whichever is later.

For the purpose of Clause (XIII)

To claim the benefit of exemption, the death of the individual should be within six months from the date of testing positive or from the date of being clinically determined as a COVID-19 case, for which any sum of money has been received by the member of the family.

The family member of the individual shall keep a record of the following document:

(a) COVID-19 positive report of the individual, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an in-patient facility by a treating physician;

(b) A medical report or death certificate issued by a medical practitioner or a Government civil registration office, in which it is stated that the death of the person is related to COVID-19.

Further, the family member of the individual shall be required to furnish a statement in Form No. A in respect of any sum of money received on the death of such individual. Such form shall be furnished to Assessing Officer within 9 months from the end of such Financial Year or 31-12-2022 whichever is later.

Read the Notification

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2. CBDT notifies a list of documents to be submitted by an employee to claim an exemption for the sum received for COVID-19 treatment

The Finance Act, 2022 had inserted a new sub-clause (c) under clause (ii) of the first proviso to Section 17(2) to provide that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to Covid-19, shall not be taxable as perquisite in the hands of the employee.

The CBDT has notified conditions that shall be fulfilled by the employee seeking the benefit of this sub-clause. To claim the benefit, an employee is required to submit the following documents to the employer:

(a) The COVID-19 positive report of the employee or family member, or medical report if clinically determined to be COVID-19 positive through investigations, in a hospital or an in-patient facility by a treating physician of a person so admitted;

(b) All necessary documents of medical diagnosis or treatment of the employee or his family member for COVID-19 or illness relating thereto suffered within six months from the date of being determined as COVID-19 positive; and

(c) A certification in respect of all expenditure incurred on the treatment of COVID-19 or illness relating thereto of the employee or any member of his family.

The notification shall be deemed to have come into force from Assessment Year 2020-21.

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3. Key Highlights of the Competition (Amendment) Bill, 2022

The Competition (Amendment) Bill 2022 has been introduced in the Lok Sabha on 05-08-2022 to amend the Competition Act, 2002. The key amendment includes:

Regulation of combinations based on transaction value/deal value thresholds

The bill proposes to expand the definition of combinations to include transactions with a value above Rs 2,000 crores.

Reduction in the time period for approval of combinations from 210 days to 150 days

As per extant norms, any combination shall not come into effect until the CCI has passed an order or 210 days have passed from the day when an application for approval is filed, whichever is earlier. The bill proposes to reduce the time limit from 210 days to 150 days.

Modification in the definition of ‘control’ for classification of combination

The bill proposes to modify the definition of control to include the ability to exercise material influence over the management or affairs or strategic commercial decisions by one or more enterprises or groups over another group or enterprise.

CCI to be empowered to close inquiry if an enterprise offers settlement and commitment in anti-competitive proceedings

The bill proposes to permit CCI to close inquiry proceedings if the enterprise offers settlement (which may involve payment) or commitments (which may be structural or behavioural in nature).

Increase in the scope of the definition of “relevant product market”

As per the existing norms, the term “relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer. The bill widens the scope of the definition of relevant product market to include the production or supply of products and services considered substitutable by the suppliers.

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4. From 01-10-2022, e-invoice is mandatory for taxpayers having turnover exceeding Rs. 10 crores

The CBIC has increased the threshold limit for e-invoicing. Now e-invoice is mandatory for taxpayers whose aggregate turnover exceeds Rs. 10 crores in any of the preceding financial years from 2017-18 onwards, and this limit shall be applicable from 1st October 2022.

Read the Notification

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5. CBIC issues clarification for GST applicability on liquidated damages, compensation, notice pay recovery, etc.

The CBIC has issued a circular to provide clarifications on several contentious issues. With respect to taxability of liquidated damages, the CBIC has clarified that where the “liquidated damages” are paid to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract and there is no agreement, express or implied, by the aggrieved party receiving the liquidated damages, to refrain from or tolerate an act or to do anything for the party paying the liquidated damages, in such cases liquidated damages are mere a flow of money due to such breach. Such payments do not constitute consideration for a supply and are not taxable.

Also, the penalty imposed for violation of laws such as traffic violations or for violation of pollution norms or other laws is also not a consideration for any supply received and is not taxable. It is also clarified that amounts recovered by the employer from the employee for leaving the employment before the minimum agreed period are not taxable.

Read the Circular

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6. Clarifications regarding GST rates & classification based on recommendations of GST Council in 47th meeting

The CBIC has issued two circulars to provide clarifications regarding GST rates and classification based on the recommendations of the GST Council in the 47th meeting. Some major clarifications are as follows:

(a) It is clarified that past cases of payment of GST on supply of ice-cream by ice-cream parlours at 5% without ITC shall be treated as fully GST paid to avoid unnecessary litigation.

(b) It is also clarified that the movement of empty containers from Nepal and Bhutan after delivery of goods is a service associated with the transit cargo to Nepal and Bhutan and is therefore covered under the exemption.

(c) It is clarified that the sale of space for advertisement in souvenir book is covered under serial number (i) of Entry 21 of Notification No. 11/2017-Central Tax (Rate) and attracts GST at 5%.

(d) It is clarified that location charges or preferential location charges (PLC) paid upfront in addition to the lease premium for a long-term lease of land constitute part of the upfront amount charged for the long-term lease of land and are eligible for exemption.

(e) It is clarified that services by way of IVF are also covered under the definition of health care services for the purpose of the exemption notification.

(f) Electric vehicles, whether or not fitted with a battery pack, would attract a GST rate of 5% and treated sewage water would attract a nil rate of GST.

Read the Circular

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7. An overview of Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014

Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014 requires the auditor to comment on certain transactions relating to funds advanced/ received by entities. It is divided into the following three points:

(a) Where a company has given any loan or made an investment in any intermediary and that loan or investments are further transferred to the ultimate beneficiary, and the company has not disclosed this transaction in its financial statement. In that case, the management of the company will give representation to the auditor that no funds have been advanced or invested by the company or other intermediary with the understanding that the intermediary shall, either directly or indirectly, lend or invest in the ultimate beneficiary.

(b) Where any funding party made a loan or investment in the company, and the same is transferred by the company to the ultimate beneficiary and does not disclose this transaction in its financial statement. In that case, the management of the company will give representation to the auditor that, other than that disclosed in notes to accounts, no fund has been received by the company from any of its funding parties with the understanding that the company shall, whether directly or indirectly, lend or invest in its ultimate beneficiary.

(c) In aforesaid cases, the auditor must perform a reasonable audit procedure and based on such procedure, he must comment that nothing has come to the notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material misstatement.

Reporting Requirements under Schedule III

The MCA has mandated additional disclosures by companies by amending Schedule III. Now, funding parties are required to disclose details of the transactions of advances or loans or investment of funds to any other intermediaries with the understanding that the intermediary shall:

(a) directly or indirectly give a loan or make an investment in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries); or

(b) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.

The companies shall disclose the following in its financial statements:

(a) date and amount of fund advanced or loaned or invested in any intermediaries with complete details of each intermediary;

(b) date and amount of fund further advanced or loaned or invested by such intermediaries to other intermediaries or in ultimate beneficiaries along with complete details of the ultimate beneficiaries;

(c) date and amount of guarantee, security or the like provided to or on behalf of the ultimate beneficiaries;

(d) a declaration that relevant provisions of the FEM Act, 1999 and Companies Act have been complied with for such transactions and the same is not violative of the Prevention of Money Laundering Act, 2002.

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