Weekly Round-up on Tax and Corporate Laws | 09th to 13th October 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 09th to 13th October 2023, namely:

(a) Form 60 cannot be submitted by a Co. or Firm involved in a transaction specified under Rule 114B: CBDT;

(b) GSTN provides a facility to enrol for the supply of goods through e-commerce operators by unregistered suppliers;

(c) Allahabad HC quashed the penalty levied on the truck, which was not on route to its destination;

(d) Managing partner of a firm who did not sign cheque could not be held vicariously liable for its dishonour: SC; and

(e) Accounting treatment for asset component replacement and its impact on deferred tax.

1. Form 60 cannot be submitted by a Co. or Firm involved in a transaction specified under Rule 114B: CBDT

The CBDT has notified the Income-tax (Twenty-fourth Amendment) Rules, 2023, amending rules related to obtaining and quoting Permanent Account Number (PAN). The amendments have been made in Rules 114B, 114BA and 114BB, which are discussed in the following paragraphs:

Amendment in Rule 114B

Rule 114B provides the list of various transactions in relation to which quoting PAN is mandatory. The second proviso to Rule 114B allows a person to furnish a declaration in Form No. 60 if he does not possess a PAN. The CBDT has amended this proviso to exclude a company or a firm from the eligibility to furnish Form No. 60.

Also, a new proviso has been inserted to allow a foreign company to furnish a declaration in Form No. 60 if such foreign company has no income which is chargeable to tax in India and does not have a PAN. This relaxation is available only with respect to the following transactions entered into with an IFSC banking unit:

• Opening an account [other than a basic savings bank deposit account] with the bank;
• A time deposit if the amount of deposit exceeds Rs. 50,000 in each transaction or Rs. 5 lakhs in aggregate during a financial year with bank, post office, Nidhi Co. or NBFC.

Amendment in Form 60

Form 60 has also been amended consequent to the changes in Rule 114B. Two extra fields have been introduced in Row 23 to capture the following information:

• Income chargeable to tax (for a foreign company).
• Income not chargeable to tax (for a foreign company).

Amendments in Rule 114BA and Rule 114BB

Rule 114BA lists the following three additional situations in which a person is required to obtain PAN:

• Cash deposit of Rs. 20 lakh or more with bank or post office;
• Cash withdrawal of Rs. 20 lakh or more with bank or post office;
• Open a current account or cash credit account with the bank or post office.

Further, Rule 114BB stipulates that a person must quote either his PAN or Aadhaar number if he enters into any of the above three transactions.

Both rules have been amended to offer clarity with respect to non-residents and foreign companies.

A new proviso has been inserted to provide that provisions of these rules do not apply if a non-resident or foreign company conducts transactions with an IFSC banking unit that involve deposits or withdrawals through means other than cash or opening a current account that is not a cash credit account. The benefit is available subject to the condition that a non-resident/foreign company has no income chargeable to tax in India.

Read the Notification

2. GSTN provides a facility to enrol for the supply of goods through e-commerce operators by unregistered suppliers

After the recent amendments to the GST Act, the rules and Notification No. 34/2023, dated 31-07-2023, persons supplying goods through e-commerce operators shall be exempt from mandatory registration under the CGST Act even if they supply goods through e-commerce operators subject to certain conditions.

The GSTN has accordingly developed the necessary functionality for the enrolment of unregistered persons for the supply of goods through e-commerce operators (ECOs). This functionality is now available on the portal. The unregistered persons who are desirous of enrolling on the GST portal for making supplies of goods through ECOs in any one State/UT can enrol on the portal.

Read the Update

3. Allahabad HC quashed the penalty levied on the truck, which was not on route to its destination

The Allahabad High Court has held that there is no specific provision under the GST Act requiring disclosure of the route for transporting goods, and a detention order issued on the ground that the truck was not on the route to its destination is liable to be set aside.

In the present case, the goods in transit were intercepted by the GST authorities. During the inspection of required documents, a seizure/detention order was issued on the ground that the truck was not on the route to its destination, and a penalty was levied as there was an intention to evade tax. The petitioner paid an amount under protest as demanded by authorities and filed an appeal against the demand order, but the same was also dismissed. Thereafter, it filed a writ petition against the order.

The High Court noted that interception and seizure of goods were not justified as documents accompanying goods were genuine. Moreover, no specific provision under the GST Act requires disclosure of the route for transporting goods, unlike earlier VAT Acts, which had such provision. The power of detention and seizure of goods could only be exercised when goods were not accompanied by genuine documents. Therefore, the Court held that the impugned order was to be quashed.

Read the Ruling

4. Managing partner of a firm who did not sign the cheque could not be held vicariously liable for its dishonour: SC

The Supreme Court held that in cases where a partner had not signed a cheque issued by a firm which was dishonoured, a mere averment in the complaint that the partner was managing affairs of the firm is insufficient to make him vicariously liable for the dishonour of cheque issued by the firm.

In the present case, the appellant filed an appeal before the Supreme Court seeking the quashing of the complaint against him made under Section 138 of the Negotiable Instruments Act, 1881. The appellant was named as an accused solely on the ground that he was a partner in the firm that issued the cheque.

The appeal was filed after the Punjab and Haryana High Court refused to quash the complaint in the exercise of powers under Section 482 of the Code of Criminal Procedure (CrPC).

Legal provisions

A close examination of Section 141(1) of the Negotiable Instruments Act, 1881 reveals the following:

Every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

As per the provisions mentioned above, it is clear that vicarious liability for the dishonour of a cheque by a ‘company’ would be attracted when the ingredients of Section 141(1) of the NI Act are duly satisfied.

On a plain reading of Section 141(1) of NI Act it becomes apparent that the phrases “was in charge of” and “was responsible to the company for the conduct of the business of the company” cannot be read disjunctively and ought to be read conjunctively due to the use of the word “and” in between.

Appellant contentions

The appellant set up twin grounds to seek the quashment of the complaint against him. Firstly, he resigned from the partnership firm on 28-05-2013, whereas the cheque was issued on 21-08-2015, 2 years after his resignation. Secondly, the complaint failed to meet the mandatory requirements of Section 141(1) of the Negotiable Instruments Act.

Supreme Court observations

The Supreme Court observed that the only averment in the complaint regarding the liability of the appellant was that he was a partner of the firm. However, it was not averred anywhere in the complaint that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed.

In fact, the complaint only stated that the accused, being the partners, were responsible for the day-to-day conduct and business of the company. It was also relevant to note that an overall reading of the complaint did not disclose any clear and specific role of the appellant.

Further, the Supreme Court also considered that the appellant had replied to the complainant’s notice by stating that he had retired from the firm two years before the issuance of the cheque.

Supreme Court Ruling

The Supreme Court held that the averments in the complaint were insufficient to attract the provisions under section 141(1) of the Negotiable Instruments Act to create vicarious liability upon the appellant.

Further, the Supreme Court also referred to the recent judgement in Ashok Shewakramani v. State of Andhra Pradesh [2023] 153 taxmann.com 277 (SC), whereby the Court concluded that “merely because somebody is managing the affairs of the company per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company”. Accordingly, the Supreme Court allowed the appeal.

Read the Ruling

5. Accounting treatment for asset component replacement and its impact on deferred tax

According to Paragraph 78 of AS 10 (Property, Plant and Equipment), under the recognition principle, if an enterprise capitalizes the cost of the part to be replaced in the carrying amount of PPE, then the enterprise shall derecognize the carrying amount of such part, regardless of whether the part had been depreciated separately.

However, sometimes, it is not practicable for an enterprise to determine the carrying amount of the replaced part. It may use the cost of the replacement as an indication of the cost of the replaced part at the time it was acquired or constructed. In such a case, the enterprise should use the discounting method to determine the initial value of the replacement part and depreciate it to find the current carrying value. Such calculated value should be used to derecognize the amount of replaced part from the carrying amount of the PPE.

Such replacement of components of PPE also gives rise to the deferred tax asset due to the difference in the provisions of the income tax and accounting principles. AS 10 mandates that when parts of an asset are replaced, the carrying amount of the replaced parts should be derecognized in accordance with the de-recognition rules outlined in the standard. Consequently, depreciation is calculated based on the derived carrying value. However, ICDS V does not provide guidance on how to treat the replaced part, specifically whether it should be derecognized or not. As a result, depreciation is computed using the carrying value derived without reducing the current carrying amount of the replaced part. This disparity gives rise to the creation of a Deferred Tax Asset in the financial statements.

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