Weekly Round-up on Tax and Corporate Laws | 07th to 12th March 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 07th to 12th March 2022, namely:

(a) Delhi Tribunal allows HRA exemption to husband paying rent to his wife

(b) RBI launches UPI for feature phones; enables payments without a smartphone or internet

(c) Bail can be granted to an accused of money laundering only if twin conditions of section 45(1) of PMLA are satisfied

(d) Delhi Govt. issues guidelines for unblocking of ITC after the expiry of one year

(e) Karnataka High Court allowed refund of Rs. 27 crores paid at odd hours during an investigation being not voluntary

(f) RBI bars ‘Paytm Bank’ from onboarding new customers

(g) Recognition of depreciation on Property, Plant, and Equipment when no manufacturing activity is carried out

1. Husband paying rent to his wife is entitled to claim HRA exemption: Delhi ITAT

The Delhi Tribunal has allowed the exemption for HRA under Section 10(13A) to the husband (assessee) paying rent to his wife. The Court has held that the Income-tax Act does not prohibit the HRA exemption for the rent paid to the spouse.

Facts

The assessee claimed the exemption for the HRA for paying rent to his wife from September 2012 to March 2013. During the assessment proceedings, the Assessing Officer (AO) asked the assessee to explain the capacity of his wife to purchase the property.

The assessee said that his wife had purchased the property for which he has given a loan of Rs. 87.50 lakhs to his wife, and the remaining amount was invested from her sources, i.e., the maturity of fixed deposits. However, the AO noticed that the assessee’s wife had no independent source of income to invest in FDs. Thus, he clubbed the rental income in the hands of the assessee.

Ruling

The Delhi Tribunal held that though the assessee’s wife had inadequate income, she had received a loan from the assessee. She also duly repaid that loan from the redemption of mutual funds and liquidation of fixed deposits. There is no bar on the part of the assessee to extend a loan from his known sources of income to his wife. Similarly, there is no bar on the assessee’s wife to repay the loan from her mutual funds and fixed deposits.

The assessee had paid house rent, and the recipient, the assessee’s wife, had declared the same under the head’s income from house property in her returns which was accepted by the revenue. The house was also registered in the name of the wife.

The observation that the wife had got inadequate income, and she couldn’t afford to purchase a house could not be accepted as the sources for purchase of the house in the hands of the wife were proved.

Further, CIT(A) contention that the husband cannot pay rent to the wife is devoid of any legal implication supporting any such contention. Hence, keeping in view the entire facts of the case, the benefit of HRA was to be allowed to the assessee.

Read the Ruling

Check out Taxmann's Yearly Tax Digest & Referencer | Set of 2 Volumes which is a Section-wise Case Book of Judgements of Supreme Court/High Courts/Income-tax Appellate Tribunal reported in 2021. It also includes Circulars & Notifications issued by the Dept. along with Words & Phrases taken from the reported case laws.

Here is a Sample Read for your Reference.

2. RBI launches UPI for feature phones; enables payments without a smartphone and internet

Introduction

Presently, the UPI system is limited to smartphones with internet connections only. Non-smartphone users cannot benefit from the UPI system, and in fact, users also require the internet to transfer money via the UPI system. Considering these factors, RBI vide Press Release No. 1830/2021-22, Dated 08-03-2022, has launched a new digital payment mode — Unified Payments Interface (UPI) called “UPI123Pay” for feature phones.

The UPI 123 Pay would allow users to make transactions through UPI via feature phones. The customers will be able to use all other features, except the scan and pay UPI option available for smartphones. The new digital payment mode does not need an internet connection for transactions.

How feature phone will make payments?

Users of feature phones will be able to make payments in four ways:

a) IVR System: The first mode of making a payment is through an IVR system, or voice-based system, where users can call the number provided by NPCI, initiate a secured call and complete a transaction.

b) Through a Mobile Application (App): An app would be installed on the feature phone through which several UPI functions, available on smartphones, will also be available on feature phones.

c) Missed Call mechanism: An option of ‘One missed call’ is also provided whereby phone users will be able to access their bank account and perform routine transactions such as receiving or transferring funds, regular purchases, bill payments, etc., by giving a missed call on the number displayed at the merchant outlet. The customers would receive an incoming call to authenticate the transaction by entering UPI PIN.

d) Sound-based Payments: The fourth mode of payment is a proximity sound-based payment. Transactions will be made using sound waves to make contactless payments.

A game-changer technology

Digital payments through UPI have grown manifold since its launch in 2016. The number of digital transactions exceeded 400 crores involving an amount of Rs 8.26 lakh crore in February alone this year, twice the number of transactions made the previous year.

There are roughly 40 crore feature phone users – for them, choices are substantially limited. It is essential to make UPI available offline and on feature phones. The launch of UPI123Pay will boost digital payments and will deepen the digital payments network, especially in rural areas.

Read the Press Release

Check out Taxmann's Online Store that strives to offer an enriched experience to our customers with a wide variety of publications.

Taxmann’s commitment to customers is highlighted in the points below:

• Product Specialists • Urgent Dispatches

• Expedited Deliveries • Safe Packaging

• Dedicated Customer Service Personnel

• Free Shipping On all orders above INR 500

• COD/POD Services Cash/Pay on Delivery, without any charges

• Secured Payment • Easy Returns

3. Bail can be granted to a money laundering accused only if twin conditions under Section 45(1) of PMLA are satisfied: HC

In this ruling in the matter of Gautam Thapar v. Directorate of Enforcement [2022] 136 taxmann.com 77 (Delhi), the High Court denied Bail to a money-laundering accused due to non-satisfaction of the twin conditions in Sec. 45(1) of PMLA. The Court ruled that Bail can be granted to a money-laundering accused only if the twin conditions under Section 45(1) of PMLA are satisfied.

Facts

In the instant case, an application was filed under Section 439 of Cr.P.C seeking regular Bail in a complaint filed under section 44/45 of the Prevention of Money Laundering Act, 2002.

The case was that after the removal of the MD and CEO of Yes Bank Ltd., certain complaints were filed assailing his role in the grant of various credit facilities to borrowers in violation of banking norms and against receipt of illegal gratification, which resulted in a considerable loss to the bank. One of these complaints was in relation to M/s. Oyster Buildwell Pvt. Ltd. ( ‘OBPL’), a real estate company, which was extended credit facilities to the tune of Rs. 514.27 crores, resulting in a loss of Rs. 466.51 crores to the bank.

As per the complaint, certain bank officials colluded with the applicant for the grant of term loan, which was ostensibly obtained by ‘OBPL’ to furnish security deposit in favor of Jhabua Power and Investments Limited (JPIL). However, in reality, the same was sought with malafide intentions to be siphoned off and diverted towards repayment of facilities availed of by Avantha Group companies and for meeting other expenses. The bank was fully aware of the real purpose for which the loan was obtained. Reportedly, public money under the garb of the term loan was siphoned off in this way, resulting in the generation of ‘proceeds of crime’ and its layering and ultimate projection as untainted money.

As a result, the complaint was registered under Sections 120B/406/420/468/471 by the CBI against OBPL, the applicant, and others, for having committed criminal breach of trust, cheating, criminal conspiracy, and forgery for diversion/misappropriation of the public money during the period from 2017 to 2019. The investigation in the case is stated to be still pending. The defendant applied for Bail.

High Court’s Ruling

The High Court observed that Bail could be granted to a money-laundering accused only if the twin conditions under Section 45(1) of PMLA are satisfied. Twin conditions for granting Bail are – (i) the Public Prosecutor shall be allowed to oppose the application for release, and (ii) where the Public Prosecutor opposes such application, the Court should be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offence and that he is not likely to commit any offence while on Bail.

“The Court stated that these twin parameters should be considered while granting Bail to a money laundering accused apart from aspects to be considered in matters of regular Bail under section 439 Cr.P.C.. For granting regular Bail under section 439 Cr.P.C., a Court must consider aspects, including but not limited to, the larger interest of the State or public, whether the accused is a flight risk, whether there is a likelihood of his tampering with evidence, whether there is a likelihood of his influencing witnesses, etc. Apart from these, another factor relevant to the question of Bail would be the gravity of the alleged offence and/or nature of the allegations levelled, which may serve as an additional test and can be applied while keeping in view the severity of the punishment that the offence entails.

The limitations so imposed were in addition to those imposed under Cr.P.C. and had an overriding effect over the provisions of the Code, in case there occurred any inconsistency between the provisions of the two. Though stringent, they were held by the Supreme Court to be mandatory. Apart from these, another factor relevant to the question of Bail would be the gravity of the alleged offence and/or nature of the allegations levelled, which may serve as an additional test and can be applied while keeping in view the severity of the punishment that the offence entails. Said the Court

On prima facie reading of the material placed on record and considering the parameters of Section 45(1) PMLA as well as the gravity of the alleged offences, the High Court observed that it cannot be held that the applicant was not guilty of the alleged offences or that he was not likely to commit any such offence while on Bail and, accordingly, dismissed the bail application.

Read the Ruling

Check out Taxmann’s Law Relating to Prohibition of Benami Property Transactions Act 1988 which covers the Section-wise Commentary along-with ready reckoner to Benami Law & Relatives in whose names, property can be purchased/held without Benami taint. This book also covers various FAQs on Benami Transactions.

Here is a Sample Chapter for your Reference.

4. Delhi Govt. issues guidelines for unblocking of ITC after the expiry of one year

The ITC blocked under Rule 86A of CGST Rules 2017 shall be unblocked after the expiry of one year in case no action has been taken by the proper officer. Now, the Delhi Government has issued detailed guidelines for unblocking of ITC and steps to be taken to protect the interest of revenue.

In case if GSTIN of a taxpayer is active, then a field visit shall be conducted, and SCN must be issued against the ITC wrongly or fraudulently availed. If a reply is found satisfactory and appropriate, ITC must be unblocked. Otherwise, the ITC to be unblocked and utilized against demand.

If GSTIN is already cancelled, then the reason for cancellation should be ascertained. If GSTIN is cancelled due to non-existing or non-functioning then SCN will be issued against the ITC wrongly or fraudulently availed and blocked ITC to be unblocked and utilized against demand. If cancelled due to other reasons, then ITC to the extent it is wrongly or fraudulently availed shall be unblocked and utilized against demand. In this regard, Circular No. F.3(429)/GST/Policy/2022/1067-1072 Dated 08-03-2022 has been issued.

Read the Circular

Check out Taxmann's PPT on Decoding of Critical Input Tax Credit Issues under GST | Tattvam Advisors, which includes:

✔️ITC on Immovable Property 
◦ Legal Provisions 
◦ What is Immovable Property? 
◦ Pre-GST Jurisprudence on Immovable Property 
◦ Principles 

✔️Case Studies 
◦ ITC on Construction of Factory 
◦ ITC on Prefabricated buildings/structures 
◦ ITC on Construction services for leasing 
◦ ITC on Telecommunication Tower
 
✔️Gift vis-à-vis- Sales promotion 
◦ Eligibility of ITC on Gifts & Free Samples 
◦ What is Gift 
◦ Types of Gifts given to the dealers 

✔️ Employee Related Expenses 
◦ Employee benefits 
◦ Relevant provisions

5. Karnataka HC allowed refund of Rs. 27 crores paid at odd hours during an investigation being not voluntary

The High Court of Karnataka has recently held that amount cannot be treated as paid voluntarily during an investigation if there was no communication in writing from the company to the proper officer about either self-ascertainment or admission of liability. The company is entitled to get a refund of Rs. 27 crores paid at odd hours during the investigation. This ruling is given in the case of Union of India v. Bundl Technologies (P.) Ltd.

Facts

The assessee was a company operating an e-commerce platform under the brand name “Swiggy”, and an investigation was initiated by the Director-General of Goods and Service Tax Intelligence (DGGI). During the investigation, approx Rs. 27 crores were paid. The assessee filed a refund application after the lapse of 10 months of investigation as no SCN was issued. Thereafter, it filed a writ petition to receive the refund of the amount deposited.

High Court

The Honorable High Court observed that there was no material on record to indicate that amounts paid at odd hours were on admission by the company about its liability. Moreover, there was no communication in writing from the company to the proper officer about either self-ascertainment or admission of liability by the company to infer that such payment was made voluntarily under Section 74(5) of the CGST Act. Also, the claim for refund of the amount paid during investigation and writ petition both were filed within two years. Therefore, it was held that the assessee reserved its right to seek a refund, and mere payment should not be treated as an admission of liability.

Read the Ruling

Taxmann's Research | GST Module is a sure-shot way to Supercharge your Practice which includes:
• [95,000+ Case Laws] with Integration, Headnotes/Case-Digest
• [75+ Acts/135+ Rules] related to GST & other Indirect-tax laws with See More feature
• [GST Tariff] HSN/SAC-wise rates of all Goods & Services
• [330+GST Forms] This Forms section features GST/CGST/SGST/UTGST
• [16,000+ Notifications & 5,500+ Circulars] with a unique tool i.e. 'Notifications-in-Force', which provides you with a list of effective In-force Notifications
• [3,000+ Articles] to navigate the grey areas of the law.

6. RBI bars ‘Paytm Bank’ from onboarding new customers by taking action under Section 35A of the Banking Regulation Act, 1949

The RBI vide its Press Release, 2021-2022/1850, dated 11-03-2022 has directed Paytm Payments Bank Ltd to stop onboarding of new customers with immediate effect. RBI has taken such action against Paytm exercising its powers under section 35A of the Banking Regulation Act, 1949. The RBI also directed Paytm to appoint an IT audit firm to conduct a comprehensive audit of its IT system. RBI said that onboarding of new customers by Paytm Payments Bank Ltd would be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. RBI said that action was taken on the basis of certain material supervisory concerns observed in the bank.

Section 35A of the Banking Regulation Act, 1949 empowers the Reserve Bank to give directions to banking companies when it is satisfied that it is necessary to give direction in the public interest; or in the interest of banking policy; or to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company, or to secure the proper management of any banking company generally. Banking companies are bound to comply with the directions issued by the RBI.

Read the Press Release

Check out Taxmann's Corporate Professionals Today which is a weekly in-print Journal that is delivered at your doorstep every week.

The detailed focus subject areas of the Journal are as follows:

• Direct Tax Laws • Goods & Services Tax (GST)

• Company & SEBI Laws • Insolvency & Bankruptcy Code

• Foreign Exchange Management Act (FEMA) • Accounts & Audit

Here is a Sample Read for your Reference.

7. Recognition of depreciation on Property, Plant, and Equipment when no manufacturing activity is carried out.

National Financial Reporting Authority (NFRA) raised a few observations vide Report No. NF-20011/24/2021, Financial Reporting Quality Review Report (FRQRR) that contains instances of non-compliances or errors in Ind AS financial statements.

The NFRA observed that the companies did not provide the depreciation on plant and machinery on the grounds that no manufacturing activity was carried out during the financial year.

Ind AS 16 and AS 10, Property, Plant and Equipment states that “Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.” It also includes technical and commercial obsolescence as one of the factors to be considered in estimating the useful life of an asset.

It was then concluded that non-provision of depreciation on plant and machinery simply due to the reason of not carrying any manufacturing activity during the year is contrary to the provisions of Ind AS 16 and AS 10.

Read the Story

Check out Taxmann's Ind AS Ready Reckoner which is a simple & practical workbook on Ind AS [as amended by the Companies (Indian Accounting Standards) (Amendment) Rules 2021] to guide the members in practice/employment in their day-to-day works. This book will help the professionals to cope-up with various developments in the accounting standards’ area.

Here is a Sample Chapter for your Reference.