Weekly Round-up on Tax and Corporate Laws | 11th to 16th September 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from September 11^th to 16^th, 2023, namely:

(a) ITAT ordered Cognizant liable to pay DDT on its Rs. 19,000 crores buyback;

(b) GSTN issues advisory on time limit for reporting invoices on the IRP Portal;

(c) State Benches of Goods and Services Tax Appellate Tribunal are notified: Notification;

(d) GST Department would not be liable if Hotel Management were imposing any GST beyond prescription of Act: HC;

(e) RBI issues directions for a speedy release of property documents post-loan closure and

(f) Required Additional Comments by the Tax Auditor in Para 3 of Form 3CA and Para 5 of Form 3CB

1. ITAT ordered Cognizant liable to pay DDT on its Rs. 19,000 crores buyback

In a recent ruling, the Chennai ITAT has held that Cognizant Technology Solutions India (‘Cognizant’ or ‘assessee’) is liable to pay Dividend Distribution Tax (DDT) on Rs. 19,000 crores share buyback carried out through a scheme of arrangement. The ITAT held that the consideration paid by the company is the distribution of accumulated profits, attracting provisions of deemed dividend under Section 2(22) of the Income Tax Act, 1961 (‘IT Act’).

The matter dates back to the assessment year 2017-18. The assessee’s share capital was owned by four non-resident shareholders, three from the USA and one from Mauritius. The assessee acquired equity shares from all shareholders in compliance with a restructuring scheme approved by the Madras High Court. After the acquisition, the Mauritian entity became the majority shareholder with 99.87% shareholding and the remaining 0.13% retained by existing USA-based shareholders. Two USA-based shareholders completely liquidated their shareholding in this scheme.

The assessee withheld the tax from the consideration paid to the USA-based shareholders, considering it a capital gains transaction. However, due to the India-Mauritius tax treaty, the tax was not withheld from the consideration paid to the Mauritian shareholder.

The Assessing Officer (AO) held that consideration paid by the assessee for the purchase of own shares was nothing but a reduction of capital in terms of Sections 100-104/402 of the Companies Act, 1956. Consequently, the consideration received by the shareholders was in the nature of the deemed dividend under Section 2(22)(d), and the assessee is liable to pay dividend distribution tax (DDT) under Section 115-O. He rejected all arguments of the assessee and computed DDT on the total consideration of Rs. 19,080.26 crores paid to its shareholders and computed tax liability of Rs. 4,853.42 crores.

In this special write-up, the authors evaluated the order and explained its rationale. They have also added a table explaining the implications under the Income-tax Act if said transaction is executed at present.

Read the Article

Read the Ruling

2. GSTN issues advisory on time limit for reporting invoices on the IRP Portal

The GSTN has issued an advisory to inform taxpayers that the Government has decided to impose a time limit on reporting old invoices on the e-invoice IRP portals for taxpayers with AATO greater than 100 crores, and taxpayers in this category will not be allowed to report invoices older than 30 days on the date of reporting to ensure timely compliance.

Notably, this restriction will apply to all document types (Invoices/Credit notes/Debit notes) for which IRN is to be generated. It is also clarified that there will be no such reporting restriction on taxpayers with AATO of less than 100 crores.

Read the Update

3. State Benches of Goods and Services Tax Appellate Tribunal are notified

The Ministry of Finance has issued notification to provide that the Central Government, on the recommendation of the Goods and Services Tax Council, has constituted State Benches of the Goods and Services Tax Appellate Tribunal (GSTAT) after 6 six years of implementation of GST. Notably, 31 State benches are notified with effect from September 14, 2023. In this regard, Notification F. No. A-50050/150/2018-CESTAT-DoR dated September 14, 2023, has been issued.

Read the Notification

4. GST Department would not be liable if Hotel Management were imposing any GST beyond prescription of Act: HC

The Honorable Madras High Court has recently held that the Consumer Forum should not entertain any petition against the GST Department where hotel management was imposing GST on customers beyond the prescription of the Act. The High Court of Madras gives this ruling in the Joint Commissioner of State Tax, Commercial Taxes Department v. State Consumer Disputes Redressal Commission case.

Facts

In the present petition, the petitioner was the Joint Commissioner of State Tax, Commercial Taxes Department, and it was submitted that some consumers had filed cases before the Consumer Forum, citing the officials working in the Tirunelveli Commercial Taxes Division as opposite parties. It was contended that several hotels were levying GST tax on the curd supply. The forum directed the Hotel Management and the Assistant Commissioner of State Tax jointly or severally to pay Rs. 10,000/- for making a customer for putting the customer in distress.

High Court

The Honorable High Court noted that the Commercial Taxes Department executed its statutory function under the State GST Act and was not collecting any GST over and above what was prescribed in the GST Act. If Hotel Management were imposing any GST beyond the prescription of the Act, the petitioner Tax Department would not be liable for same, and the consumers had the right against Hotel Management but not against the Commercial Tax Department. Therefore, the Court directed to forebear from entertaining any petition against statutory authority.

Read the Ruling

5. RBI issues directions for speedy release of property documents post-loan closure

In the world of lending, fairness and transparency hold utmost importance. As per the ‘Fair Practice Code’ guidelines issued to various Regulated Entities (REs), it has always been a mandate for REs to release all property documents, both movable and immovable, once a loan is fully paid off.

However, recent observations by the RBI have unveiled disparities in these practices, resulting in customer complaints and disputes. To proactively address these concerns and promote responsible lending practices among REs, the RBI vide Circular No. RBI/2023-24/60DoR.MCS.REC.38/01.01.001/2023-24, dated 13.09.2023 has introduced a new set of directives.

These directives provide clear and comprehensive guidance to REs on promptly releasing property documents after the repayment or settlement of personal loans. These directives apply to all cases where the release of original property documents falls due on or after December 1, 2023. It’s a significant step towards a fairer and more customer-centric lending landscape

(a) Banks must release property documents and charges within 30 days of full settlement of loan

The Regulated entities (REs) are required to release all the original movable/immovable property documents and remove charges registered with any registry within 30 days after full repayment or settlement of the loan account.

In addition, borrowers must be allowed to collect the original documents associated with movable or immovable property, either from the bank branch where the loan account was managed or any other RE office where the documents are available, based on their preference.

(b) Timeline and place for returning original property documents to be mandatorily included in loan sanction letters

The timeline and place for the return of original movable/immovable property documents will be outlined in the loan sanction letters issued on or after the effective date.

(c) Banks must establish a procedure for returning property documents to legal heirs in case of borrower’s demise

In order to address the possibility of the sole or joint borrower’s demise, the REs must establish a well-defined procedure for returning the original movable/immovable property documents to the legal heirs.

(d) REs obligation to compensate for the delay in release of Movable/Immovable Property Documents

If there is a delay in releasing the original movable or immovable property documents or if the charge satisfaction form is not filed with the relevant registry within 30 days after the full repayment or settlement of the loan, the REs must promptly communicate the reasons for the delay to the borrower.

Further, if a delay is due to the REs’ fault, they must compensate the borrower at Rs 5,000 for each day of delay.

Further, in case of loss or damage to original movable/immovable property documents, either in part or in full, the REs must assist the borrower in obtaining duplicate/certified copies. They shall bear the associated costs in addition to paying the compensation.

However, in such cases, an additional 30 days will be available to the REs to complete this procedure and the delayed period penalty will be calculated thereafter (i.e., after a total period of 60 days).

Conclusion

In conclusion, these directives signify a major leap towards securing equitable and transparent lending practices. By introducing a precise and uniform process for releasing movable and immovable property documents upon loan repayment or settlement, the RBI aims to address customer grievances and disputes arising from inconsistent practices among regulated entities (REs) and elevate the overall customer experience.

Read the Circular

6. Required Additional Comments by the Tax Auditor in Para 3 of Form 3CA and Para 5 of Form 3CB

The recent amendment to Para 13.1 of the 2022 Guidance Note (GN) regarding the tax audit process has significant implications for tax auditors and their responsibilities. The amendment by the 2023 Guidance Note replaces “would also be well advised” with the more assertive term “should.” Consequently, tax auditors are now required to adhere to the Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI) and the “Guidance Note on Audit Reports and Certificates for Special Purposes” when performing audit procedures for verifying particulars in Form 3CD and reporting in Form 3CD.

To facilitate this compliance and ensure clarity on the responsibilities of both parties involved, it is imperative to incorporate specific remarks within the audit reports, as follows:

Assessee’s Responsibility for the Statement of Particulars in Form 3CD:

• The management of the assessee is primarily responsible for preparing the Statement of Particulars in Form 3CD, including the maintenance of relevant records and documents. This responsibility encompasses various aspects, such as designing and implementing internal controls, applying appropriate bases of preparation, and making reasonable estimates.
• Also, the management is accountable for ensuring compliance with the Income-Tax Act, 1961, Income-Tax Rules, 1962, and other relevant laws, including those mentioned in Form 3CD.

Tax Auditor’s Responsibility:

• The tax auditor is responsible for providing reasonable assurance regarding the accuracy and correctness of the particulars and amounts reported in Form 3CD. This includes verifying the accuracy of the information and ensuring that the amounts reported are extracted correctly from the audited financial statements and books of account.
• Examine the assessee’s audited books and other records and issue a report to provide reasonable assurance of the accuracy and correctness of the Statement of Particulars in Form 3CD.
• The tax auditor has audited the financial statements prepared from the books and records, and such audit was conducted in accordance with the relevant auditing standards.

or

The tax auditor has relied on financial statements and books of account audited by the statutory auditors.

• The tax auditor has complied with the ethical requirements of the Code of Ethics issued by the ICAI.
• The tax auditor has complied with quality control standards and ethical requirements during the audit process.

Restriction on Use

Form 3CA and Form 3CB reports emphasize that their purpose is solely to assist the assessee in complying with the requirements of section 44AB of the Income-Tax Act, 1961, for e-filing on the Income-tax Portal. These reports should not be used for any other purpose, and the tax auditors do not accept any additional liability beyond this specified purpose.

Read the Story