Weekly Round-up on Tax and Corporate Laws | 03rd to 08th April 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 3^rd to 8^th April 2023, namely:

(a) Employer to deduct tax as per new tax regime if the employee does not intimate about opting the old regime: CBDT;

(b) Searches conducted before 01-06-2015 would be covered under amendment by FA 2015 in Section 153C: SC;

(c) Govt. warns media platforms to refrain from displaying advertisements related to online betting;

(d) Authorities are not required to establish the intention to evade payment of tax for detaining goods without documents: HC;

(e) Proper officer cannot direct customers of the assessee to stop further payments to the assessee: HC; and

(f) Classification and Valuation of “Advance to Foreign Supplier under Dispute” when the matter is pending litigation.

1. Employer to deduct tax as per new tax regime if the employee does not intimate about opting the old regime: CBDT

Section 115BAC of the Income-tax Act provides concessional tax rates to eligible assessees subject to the condition that their total income is computed without claiming specified exemption or deduction and additional depreciation.

Section 115BAC has been amended by the Finance Act 2023 to give more incentives in the new tax scheme so that the taxpayers unhesitatingly move from the old to the new tax scheme.

The Finance Act 2023 has also inserted a new sub-section (6) in Section 115BAC to make the new tax scheme a default scheme for eligible assesses. If the eligible assessee wants to pay tax as per the normal regime, he will have to opt out of the new tax scheme in a prescribed manner.

The CBDT has received representations expressing concerns regarding tax to be deducted at source (TDS) on salary income as the employer would not know if the employee would opt out from taxation under Section 115BAC or not.

To avoid genuine hardship, the CBDT has issued the following directions for the employers:

(a) The employer shall seek information from each employee regarding his intended tax regime. Each employee shall inform the employer regarding his intended tax regime for each year. Upon receiving such intimation, the employer shall compute the employee’s total income and deduct tax at source thereon according to the option exercised.

(b) If the employee does not make an intimation, it shall be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime. Thus, the employer shall deduct tax in accordance with the rates provided under Section 115BAC.

(c) The intimation made to the employer would not amount to exercising the option in sub-section (6) of Section 115BAC for opting out of the new tax regime. The employee shall be required to do so separately on or before filing the income-tax return under Section 139(1).

Read the Circular

2. Searches conducted before 01-06-2015 would be covered under amendment by FA 2015 in Section 153C: SC

In a significant ruling on search cases, the Supreme Court has given retrospective effect to the amendment made to Section 153C by Finance Act, 2015. The object and purpose of Section 153C are to address persons other than the searched person. The Apex Court held that the amendment to Section 153C shall apply to searches conducted before 1-6-2015.

A search was conducted in 2013 on the premises of a business group. During the search proceedings, no original document was received by the AO belonging to the assessee. Only a hard disk containing references to the assessee’s name was seized.

Assessee-individual filed its return of income for the relevant assessment year by declaring business income from a partnership firm and other incomes. After the search proceedings, the AO initiated the proceedings under Section 153C against the assessee based on seized material. A Panchnama was prepared before 01-06-2015. However, notice was issued under Section 153C after 01-06-2015.

Section 153C pertains to the assessment of the income of any other person. Under the unamended Section 153C, the proceeding against other persons (other than the searched person) was based on the seizure of books of account or documents seized or requisitioned “belongs or belong to” a person other than the searched person. The Finance Act 2015, w.e.f., 01-06-2015, amended Section 153C by replacing the words “belongs or belong to” with the words “pertains or pertain to”.

On receiving notice, the assessee claimed that there were only references to the assessee’s name, and thus the AO could not have initiated proceedings under the amended provisions of Section 153C. The matter reached the Apex Court.

The Supreme Court held that the Delhi High Court, in the case of Pepsico India Holdings Private Limited [2014] 50 taxmann.com 299 (Delhi) interpreted the expression “belong to”. The High Court observed and held that there is a difference and distinction between “belong to” and “pertain to”. The HC gave a very narrow and restrictive meaning to the expression/word “belongs to” and held that the ingredients of Section 153C have not been satisfied.

The observation made by the Delhi High Court led to a situation where, though incriminating material pertaining to a third party/person was found during search proceedings under section 132, the Revenue could not proceed against such a third party.

This necessitated the legislature to clarify by substituting the words “belongs or belong to” for the words “pertains or pertain to” and to remedy the mischief that was noted pursuant to the judgment of the Delhi High Court.

If the assessee’s submission is accepted, i.e., although the incriminating materials were found from the premises of the searched person, they may still not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted before the amendment. In this case, the very object and purpose of the amendment to Section 153C, which is to substitute the words “belongs or belong to” for the words “pertains or pertain to” shall be frustrated.

Any interpretation which may frustrate the very object and purpose of the Act/Statute shall be avoided by the Court. If the interpretation as canvassed by the assessee was accepted, in that case, even the object and purpose of the section shall be frustrated.

Section 153C is a machinery provision that has been inserted to assess persons other than the searched person under Section 132. As per the settled position of law, the Courts, while interpreting machinery provisions of a taxing statute, must give effect to its manifest purpose by construing it in such a manner as to effectuate the object and purpose of the statute.

Therefore, the amendment brought to Section 153C vide Finance Act 2015 shall apply to searches conducted under Section 132 before 01-06-2015, i.e., the date of the amendment.

Read the Ruling

3. Govt. warns media platforms to refrain from displaying advertisements related to online betting

The government has issued an advisory warning to media platforms against displaying advertisements related to online betting. The government expressed strong disapproval of promoting online betting sites and urged all media platforms to immediately cease the broadcast or publication of such content in compliance with the government’s stance on the matter.

Earlier, the Ministry of Information and Broadcasting had also issued an advisory dated 13-06-2022 taking strong exception to the publication or transmission of advertisements and promotional content of betting platforms or sites on various media platforms. Further, the Ministry strongly advised the media to refrain from transmitting such content, including their depiction as news websites or other activities in a surrogate manner.

The advisory highlights that betting and gambling are considered illegal activities, and therefore any form of advertisement or promotion of such activities on any media platform is a violation of various statutes, including the Consumer Protection Act, 2019, the Press Council Act, 1978, and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.

Despite these guidelines, the Ministry has received reports of news publishers, including mainstream English and Hindi newspapers, publishing advertisements and promotional content for betting sites. Such actions clearly violate the statutes and various norms and guidelines issued by the Ministry. Furthermore, they go against the spirit of the advisory previously issued by the Ministry.

The Ministry observed that certain news publishers had featured advertisements for a betting platform that promoted the viewing of a sports league on its platform. This activity seems to potentially infringe upon copyright laws as it may involve the unauthorised use of protected content. Examples of such violations were provided for reference.

As a result of the non-compliant practices mentioned above, the Ministry of Information and Broadcasting has expressed strong concern and urged all stakeholders, including media platforms and online advertising intermediaries, to immediately refrain from displaying any form of such advertisements or promotional content.

Also, the advisory highlights that non-adherence to the aforementioned guidelines and regulations may have serious consequences, not only in terms of the credibility of the media but also in terms of the larger public interest. In this context, the advisory clearly indicates that the government reserves the right to take appropriate action under the various statutes in the event of any violation.

Read the Advisory

4. Authorities are not required to establish the intention to evade payment of tax for detaining goods without documents: HC

The Punjab and Haryana High Court has held that GST Authorities are not required to establish the intention to evade payment of tax if goods are intercepted during transit and documents accompanying goods are not in compliance with provisions of the GST Act. The authorities have the power to detain such goods and demand payment tax and penalty thereunder.

The petitioner was engaged in the manufacturing of Pharmaceuticals. The department intercepted the vehicle and detained the goods of the petitioner on the ground that Part B of the E-Way bill was not entered. The order of detention was passed, and goods were released after furnishing bank of guarantee.

The petitioner filed an appeal against the detention order, but the Appellate Authority rejected the appeal. It filed a writ petition to challenge the orders passed by the authorities and contended that there was no intention to evade tax, and the penalty should not be levied.

The High Court noted that the goods were intercepted during transit and documents accompanying the goods were not in compliance with provisions of the GST Act. In the instant case, the authorities were within their power to detain goods and demand a penalty since e-way bills along with tax invoices and delivery challans were produced by the driver of the vehicle, but Part B of E-Way bill was not entered.

The Court also noted that the authorities are not required to establish the intention to evade payment of tax for detaining goods under Section 129 of the CGST Act, 2017. The petitioner had already made payment under Section 129(3); therefore, all proceedings with respect to the notice were deemed to have been concluded. Thus, there was no ground to interfere in the impugned order, and the petition was dismissed.

Read the Ruling

5. Proper officer cannot direct customers of the assessee to stop further payments to the assessee: HC

The Andhra Pradesh High Court has held that the proper officer under Section 70(1) cannot direct customers of the assessee to stop further payments to the assessee. The proper officer cannot exercise powers under Section 70 to direct the party to stop payment.

The petitioner filed a writ petition before the High Court to challenge the notices issued by the proper officer to the customers of the petitioner. It was contended that the proper officer had no power to direct customers to stop making payments to the petitioner.

The High Court noted that as per Section 70 of CGST Act, 2017, the proper officer has the power to summon any person whose attendance is considered necessary either for giving evidence or producing a document or any other thing in any inquiry. As per Section 83, the Commissioner may order provisional attachment of any property, including a bank account belonging to the taxable person.

However, in the instant case, one of the portions in the impugned notice issued under Section 70 stated that “in view of the above explanation, you are hereby requested to stop all further payments from here onwards until the clearance is given by the undersigned”. Therefore, it was held that such a direction was beyond the jurisdiction; thus, the same was liable to be set aside.

Read the Ruling

6. Classification and Valuation of “Advance to Foreign Supplier under Dispute” when the matter is pending for litigation

Para 69 of Ind AS 1 (Presentation of Financial Statements) classifies a liability as current when an entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

An Indian company had contracted a foreign supplier for goods. However, due to the low specification, the goods were not accepted and were returned back to the supplier, and a dispute arose between both parties. It has been categorised as a current liability since the foreign supplier of the goods does not have an unconditional right to defer settlement of the liability for at least 12 months beyond the reporting period. The Indian customer had also categorised the “advance to the foreign supplier under dispute” as a current asset in its financial statement in order to harmonise the accounting treatment with the foreign supplier. The audit revealed non-compliance with Ind AS 1 Para 66, which states that an entity shall classify an asset as current when it expects to realise the asset within 12 months after the reporting period. The company sought the opinion of EAC as to whether the company is correct in classifying the advance to the foreign supplier as a current asset.

The Expert Advisory Committee (EAC) has noted that since recovery against the advance has not been made by the company even after 25 years, and the fact that the company has provided for the provision against its doubtful recovery in full, which has not been reversed at the current reporting date strongly indicates that the amount of advance is not realisable in entirety within the next 12 months after the reporting period. Accordingly, Committee is of the opinion that the presentation of advance given to the foreign supplier as a current asset or non-current asset depends on expectations of realisability within 12 months from the reporting period. The company should classify the advance as a current asset only to the extent it is expected to be realised within the next 12 months, and the balance amount should be classified as a non-current asset.

Read the Story