Weekly Round-up on Tax and Corporate Laws | 03rd to 08th January 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 03rd to 08th January 2022, namely:

(a) Taxmann’s 35 expectations from the Union Budget 2022

(b) The Tribunal holds that day of arrival shall be excluded while counting days of stay in India for residential status

(c) High Court rejected the bail application of petitioner who was not in custody and already released on interim bail

(d) High Court ruled that actual payment to the supplier should be verified first before disallowing ITC

(e) The Bombay High Court rules that Section 33(5) of IBC doesn’t bar legal proceeding against a ship owned by Corporate Debtor in liquidation

(f) Exposure Draft of Revised Accounting Standard Issued by ICAI

1. Taxmann’s 35 expectations from the Union Budget 2022

If the pandemic does not force Delhi to go for another lockdown, the Finance Minister, Smt. Nirmala Sitharaman, will present her fourth Budget on 01-02-2022. If lockdown happens, there could be two possibilities: the Budget’s date is postponed or presented virtually. In either situation, it would be the first time in history. There is a third situation as well. Delhi sees the peak by 3rd week of January, and the Parliament functions normally for the Budget Session.

Every year, we release a document that includes our recommendations and expectations from the Union Budget. This year also, we have prepared a list of our apprehensions and recommendations for the upcoming Budget. We don’t focus on our demands from the Govt. for Industries but highlight the asymmetry and conflict between different provisions that should be plugged to bring clarity in the law.

At Taxmann, we believe that our responsibility is to highlight the gaps in the law and work as a bridge between the revenue, taxpayer, and tax professionals. Our 35 recommendations and expectations for Union Budget 2022-23 includes:

1.1. Tax Relief for COVID Patients and their Families

It is recommended that the scope of Section 80D should be expanded to every person (irrespective of age) to allow a deduction for expenditure incurred on medical treatment of Covid-19 for himself or a family member.

1.2. Taxability of Cryptocurrencies

Considering the size of the market, the amount involved, and the risk coupled with Cryptocurrencies, we expect that many substantial changes may be brought in the taxation of Cryptocurrencies. It includes TDS/TCS provisions on the sale and purchase of cryptocurrencies, higher tax rates on Crypto gains, etc.

1.3. Concessional Tax Regimes for Firm/LLPs

The Government has introduced concessional and alternative tax regimes for domestic companies, individuals, HUF and cooperative societies. However, partnership firms and LLPs are still taxed at a flat rate of 30%. It is recommended that Govt. should introduce corresponding concessional tax regimes for the firms and LLPs.

Read the complete list

Check out AIFTP's Handbook on Taxation of Partnership Firms & Limited Liability Partnerships: Frequently Asked Questions. This unique/one-of-a-kind book covers 360 frequently asked questions (FAQs) on the contentious subject of Taxation of Partnership Firms & Limited Liability Partnerships. It is the only publication in the country that exhaustively deals with the new provisions of Section 9B and Section 45(4) of the Income-tax Act, 1961 & General Law.

Here's a Sample Chapter for your Reference!

2. Day of arrival to be excluded while counting days of stay in India for the purpose of residential status: ITAT

The Ahmedabad Tribunal has delivered a conflicting ruling on the provisions related to the computation of residential status. The Tribunal has ruled that while counting days of stay in India, for determining the residential status in India as per Section 6, the day of arrival should be excluded.

Facts

The assessee was a non-resident Indian. He showed income from other sources being interest from REC Bonds and savings bank interest. He has also shown dividend income and salary earned from Oil Support Services, Dammam (outside India), interest on NRE FDR and LTCG, which were claimed as exempt from income tax.

However, on verifying the passport, the Assessing Officer (AO) contended that the assessee was resident in India, and thus, he was liable to pay tax on his entire income. The assessee contended that AO had considered both the date of arrival and the date of departure from India as a stay in India, which wasn’t correct. Only the departure date should be considered ‘stay in India’. However, the AO rejected the assessee’s contentions. On appeal, the CIT(A) also upheld the order of AO. The assessee filed the instant appeal before the Tribunal.

Ruling

The Tribunal held that different courts had already held that while counting days of stay in India for considering the status of “Resident”, the days of arrival have to be excluded.

The Bangalore Tribunal, in the case of Manoj Kumar Reddy [2009] 34 SOT 180 (Bangalore), has held that as per the General Clauses Act, the first day in a series of a day is to be excluded if the word from is used. Since for computation of the period, one has to import the word ‘from’ and, accordingly, the first day should be excluded.

Further, in the case of Fausta C. Cordeiro [2012] 24 taxmann.com 193 (Mum.), the Mumbai Tribunal has ruled that while deciding the non-resident status, the day of arrival in India is to be excluded if it is not an entire day.

Following these rulings, the Tribunal held that the date of arrival should be excluded in counting the days of stay in India of the assessee for Section 6.

Read the Ruling

Check out Taxmann's Taxation of Expatriate Employees & Regulatory Aspects! Comprehensive commentary to understand & comply with Tax & Regulatory aspects (along-with Case Studies) on Cross-Border Movement of Employees (Secondment Arrangements), and to arrive at the optimum employment structure holistically

Here's a Sample Chapter for your Reference!

3. HC rejects bail application of petitioner who was not in custody and already released on interim bail

The Allahabad High Court has held that a person, who has been released on interim bail, cannot be treated in constructive custody, as his movements are not restricted as per directions of the Court. If a person who has been released on bail is treated in custody, then it will be a mockery of justice. The Honorable High Court of Allahabad gives this ruling in the case of Vishal Gupta v. Union of India.

Facts

The assessee was arrested on the allegation that he had availed fake input tax credit to the tune of Rs. 32 crores. The charge sheet against the assessee was filed on 26-3-2021, and on the same day cognizance was taken by the Judicial Authority. Thereafter, in pursuance of guidelines issued by the High Power Committee, the assessee was released on interim bail on 26-5-2021. Later on, the assessee moved an application for default bail before Chief Judicial Magistrate. The Chief Judicial Magistrate rejected the default bail application on the ground that the assessee was not in custody. It filed a petition before the High Court seeking bail.

High Court

The Honorable High Court observed that custody means when a police officer arrests a person, produces him before the Magistrate and gets a remand to judicial or other custody, he can be stated in judicial custody. In the instant case, the petitioner has been released on interim bail, so he cannot be treated in constructive custody, as his movements are not restricted as per directions of the Court. If a person who has been released on bail is treated in custody, then it will be a mockery of justice. The bail always presupposes custody and can be granted only when a person is detained. Therefore, it was held that the petition filed by the assessee lacked merit and was required to be dismissed.

Read the Ruling

Check out Taxmann's GST Investigations Demands Appeals & Prosecution | It provides a lucid commentary on statutory provisions under the GST Law along with past & emerging jurisprudence, landmark cases, recent Orders, etc.
Here's a Sample Chapter for your Reference!

4. Payment to the supplier along with tax should be verified before disallowing ITC: Calcutta HC

The Honorable Calcutta High Court has recently held that benefit of ITC is to be granted if the purchases are genuine, supported by documents, payment along with tax actually made to supplier and transactions were made before cancellation of registration of suppliers. The High Court of Calcutta gives this ruling in the case of LGW Industries Ltd. v. Union of India.

Facts

The petitioner received notices from the department, and it was alleged that its suppliers were fake and non-existent. The department contended that the genuineness of suppliers was not verified before entering into transactions and refused to grant the benefit of input tax credit (ITC) on purchase from the suppliers and also asked the petitioner to pay the penalty and interest under relevant provisions of the GST Act. The petitioner filed a writ petition against the same.

High Court

The Honorable High Court observed that when the names of the suppliers as a registered taxable person were already available with the Government record and in the Government portal at the relevant period of transaction, then the petitioner could not be faulted if they appeared to be fake subsequently. Therefore, it cannot be said that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers in question. Thus, it was held that benefit of ITC to be granted if the purchases were genuine and supported by documents. It was directed to verify whether payment along with tax actually made to suppliers and transactions were made before the cancellation of registration of suppliers.

Read the Ruling

Check out Taxmann's Goods & Services Tax Cases – The GST Weekly. It helps you stay updated about the ever-changing world of GST Laws in the most authentic print-format.

5. Section 33(5) of IBC doesn’t bar legal proceeding against a ship owned by Corporate Debtor in liquidation: Bombay HC

In this significant ruling in the matter of Angre Port (P.) Ltd. v. TAG 15 (IMO. 9705550) [2022] 134 taxmann.com 48 (Bombay), the Bombay High Court held that a Shipping Company falling into liquidation under the Insolvency and Bankruptcy Code would not impact an ongoing Admiralty Suit against its Vessel/Ship as the two are distinct entities. The judgement clarifies the interplay between the bar against further suits and proceedings under Section 33 (5) of the IBC, 2016 and the Admiralty Act and the effect that insolvency proceedings would have on admiralty claims. The judgement also holds that Penal Birth Hire chargers are not in the nature of a penalty, and therefore damages would not have to be proved as required under Section 74 of the Indian Contract Act.

Brief Facts

Angre Port Private Ltd filed an interim application under the provisions of order XIII-A read with Order XII Rule 6 of the Code of Civil Procedure, 1908 seeking a summary judgment against TAG 15 (IMO. 9705550), the ship owned by Tag Offshore Ltd. for a sum of Rs.9,37,19,098 together with interest at the rate of 18% p.a. from 18th December 2020.

Plaintiff said that the vessel was docked at its port on 13th February 2019, and they had raised timely bills as berthing charges. The plaintiffs had also paid other expenses to secure the ship during a storm. Meanwhile, the company that owned the ship went into liquidation under the IBC and Defendant No. 2 was appointed as the Liquidator. Plaintiff initiated the Admiralty suit to recover the berthing charges and other costs.

High Court ruling

The High Court observed that Port authorities are not barred by Section 33(5) from invoking the Admiralty jurisdiction of High Court to enforce their maritime claim against a defaulting Ship/Vessel of a Corporate Debtor in liquidation and to recover the amount of the claim from the vessel by an admiralty sale of the vessel and for payment out of the sale proceeds. Section 33(5) only bars suit/legal proceedings against the corporate debtor in liquidation and not any suit/proceeding against vessel/ship of the corporate debtor under the Admiralty Act as the vessel/ship is treated as a separate legal entity.

What sub-section 5 of Section 33 contemplates is that subject to Section 52, when a liquidation order is passed against the Corporate Debtor, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor. Section 52 deals with the rights of the secured creditor in liquidation proceedings. The proviso to Section 33(5) stipulates that a suit or other legal proceeding may be instituted by the Liquidator, on behalf of the Corporate Debtor, with the prior approval of the Adjudicating Authority.

When one reads Section 33(5), it is ex-facie clear that the said provision prohibits the institution of a suit or other legal proceeding against the Corporate Debtor only. It does not in any way prohibit the institution of a suit or other legal proceeding against a ship/Vessel owned by the Corporate Debtor when invoking the Admiralty Jurisdiction of the High Court because under the Admiralty Act, the vessel is treated as a separate juristic entity which can be sued without joining the owner of the said vessel to the proceeding.

The action against the vessel under the Admiralty Act, is an action in rem and a decree can be sought against the vessel without suing the owner of the said vessel. Under the Admiralty Act, a ship, or a Vessel, as commonly referred to, is a legal entity that can be sued without reference to its owner.

The purpose of an action in rem against the vessel is to enforce the maritime claim against the vessel and recover the amount of the claim from the vessel by an admiralty sale of the vessel and for payment out of the sale proceeds.

It is the vessel that is liable to pay the claim. This is the fundamental basis of an action in rem. The Claimant/Plaintiff is not concerned with the owner, and neither is the owner a necessary or a proper party. In other words, the presence of the owner is not required for adjudication of the Plaintiff’s claim.

For this very reason, there is no requirement to serve the writ of summons on the owner of the vessel and the service of the warrant of arrest on the vessel is considered adequate.

For the purposes of an action in rem under the Admiralty Act, the ship/vessel is treated as a separate juridical personality, an almost corporate capacity having not only rights but also liabilities (sometimes distinct from those of the owner).

The fundamental legal nature of an action in rem, as distinct from its eventual object, is a proceeding against the res. Thus, when a vessel represents such res as is frequently the case, the action in rem is an action against the vessel itself.

The action is a remedy against the corpus of the offending vessel. It is distinct from an action in personam , which is a proceeding inter-parties founded on personal service on the defendant within the jurisdiction of the Court, leading to a judgment against the person of the defendant. In action in rem, no direct demand is made against the owner of the res personally.

Read the Ruling

Check out Taxmann's Corporate Laws (Set of 2 Vols.) | The most authentic & comprehensive book covering Amended, Updated & Annotated text of India's 15+ Corporate Laws, including Companies Act, SCRA, LLP Act, SEBI Act, FEMA, FCRA, IBC, RTI Act, etc.

6. Exposure Draft of Revised Accounting Standard Issued by ICAI

The Accounting Standards Board (ASB) of ICAI has issued an exposure draft of the following Revised Accounting Standards (AS) for comments which will be implemented together from a future date:-

(a) AS 103, Accounting for Amalgamations;

(b) AS 110, Consolidated and Separate Financial Statements;

(c) AS 111, Financial Reporting of Interest in Joint Ventures; and

(d) AS 28, Accounting for Associates and Jointly Controlled Entities.

Indian Accounting Standards (Ind AS) notified by MCA are applicable to a specified class of companies. Whereas Accounting Standards (AS) notified under Companies (Accounting Standards) Rules, 2021 and those issued by ICAI apply to all those entities where Ind AS is not applicable. However, it has been decided by the Accounting Standards Board to revise the current standards and maintain consistency in the numbering of AS with Ind AS numbering. Considering the same, exposure drafts of 24 revised standards have been issued so far.

The revision of these standards will apply to entities to whom Ind AS are not applicable.

The drafts are open for public comments by 3rd February 2022.

Read the story

Check out the New Accounting Standards (AS) which contains the updated Accounting Standards issued under the Companies (Accounting Standard) Rules, 2021, with effect from 01-04-2021. It also provides an overview of all changes incorporated in the new Accounting Standards vis-à-vis the previous version; in other words, it presents a comparative study of Accounting Standard Rules 2006 & Accounting Standards Rules 2021.

BONUS!

Register Now for Taxmann’s Live Webinar | Virtual World – Online Games, E-Commerce & Cryptocurrencies!

📅 15th January 2022 (Saturday) | 🕒 4:00 PM – 5:00 PM (IST)

📋 Coverage of the Webinar:
✔️ Online Gaming
✔️ E-Commerce
✔️ Cryptocurrencies
✔️ Question/Answers session

📋 Relevant for GST Practitioners