Weekly Round-up on Tax and Corporate Laws | 13th to 18th June 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 13th to 18th June 2022, namely:

(a) CBDT issues guidelines in respect of deduction of tax under Section 194R;

(b) No tax to be deducted under Section 194-I TDS from payment of rent to a unit located in IFSC for the lease of aircraft: CBDT;

(c) CBIC issues procedures relating to sanction, post-audit and review of refund claims;

(d) No confiscation of imported goods where IEC was not mentioned on the Bill of Entry due to delay in the grant by Dept.: CESTAT;

(e) As a matter of right, a person can’t claim to have his lawyers present during the recording of his statement under Section 50 of PMLA: HC; and

(f) Effect of digital currency in the financial sector and how to recognise it in the financial statements.

1. CBDT issues guidelines in respect of the deduction of tax under Section 194R

The Finance Act, 2022 has inserted a new Section 194R requiring the deduction of tax at source (TDS) from the benefit or perquisite in respect of business or profession. Section 194R is applicable with effect from 01-07-2022.

To remove difficulties in implementing the provisions of Section 194R, the CBDT has issued 10 questions and answers to clarify the scope of the provision. The key take away from the guidelines are provided below:

No need to check if the amount is taxable under Section 28

Section 194R requires a person responsible for providing any benefit or perquisite to a resident to deduct tax at source. The guidelines clarify that there is no requirement to check whether the amount is taxable in the hands of the recipient or under which provision.

Provision applicable even if benefit or perquisite is paid in cash

The guidelines clarify that there is no requirement that the benefit or perquisite must be in kind for Section 194R to operate. The provisions of Section 194R attract even when the benefit of or perquisite is paid wholly in cash.

Capital assets also covered

Many courts have held that benefits or perquisites are taxable even though they are in the nature of a capital asset. Accordingly, a capital asset like cars, land, etc., given as benefit or perquisite would be covered within the ambit of tax deduction under Section 194R.

Sales discounts, cash discounts, and rebates are out of scope

No tax is required to be deducted under Section 194R on sales discounts, cash discounts, and rebates allowed to customers.

Govt. entities are exempt

The provision of Section 194R shall not apply if the benefits or perquisites are provided to a government entity that is not carrying on business or profession.

Valuation of benefit/perquisite

The guideline has clarified that the valuation of benefit/perquisite shall be based on the fair market value of the benefit or perquisite. However, if the deductor has purchased the benefit/perquisite before providing it to the recipient, the purchase price shall be the value for such benefit/perquisite.

Further, if the deductor manufactures such items, then the price that it charges from its customers for such items shall be the value of the benefit/perquisite.

GST shall not be included in the valuation of benefit/perquisite

The CBDT has clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under Section 194R.

TDS on reimbursement cost incurred by service provider

The Board has clarified that the expenses incurred by the service provider while rendering service are part of his business expenditure and deductible while computing total income. Thus if any expenses incurred by the service provider are met by the service recipient, then the same shall be treated as benefit or perquisite.

However, if the invoice has been obtained in the name of the service recipient and the reimbursement has been made to the service recipient, it will not be considered as a benefit/perquisite for Section 194R.

Dealer conference – whether benefit/perquisite?

The following expenditure pertaining to deafer/business conference would be considered as benefit or perquisite:

• • Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference.
  • Expenditure incurred for family members accompanying the person attending dealer/business conference.
  • Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

How to compute the threshold limit for FY 2022-23?

Section 194R is applicable with effect from 01-07-2022. The Board has clarified that the threshold limit of Rs. 20,000 to trigger TDS under section 194R shall be counted from 01-04-2022. Thus, if the aggregate value of the benefit or perquisite provided or likely to be provided exceeds Rs. 20,000 during the financial year 2022-23 (including the period up to 30th June 2022), the provision of Section 194R shall apply. However, the benefit or perquisite provided on or before 30-06-2022 would not be subjected to tax deduction under Section 194R.

Read the Guidelines

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2. No tax to be deducted under Section 194-I TDS from payment of rent to a unit located in IFSC for the lease of aircraft: CBDT

Section 194-I provides that any person, including specified individual and HUF, paying rent to a resident person in respect of plant, machinery, land, building, or furniture shall deduct tax therefrom. The tax shall be deducted if the sum paid or payable during the financial year exceeds Rs. 2,40,000.

The CBDT has exempted the payment of lease rent or supplemental lease rent made to a unit located in the IFSC for the aircraft lease from tax deduction under Section 194-I.

The exemption is available subject to the fulfilment of certain conditions such as:

• • The lessor shall furnish a statement-cum-declaration in Form No. 1 to the lessee giving details of previous years relevant to the 10 consecutive assessment years for which the lessor opts for claiming deduction Section 80LA.
  • The lessee shall not deduct tax on payment made or credited after the date of receipt of Form No. 1 and furnish the particulars of all the payments made to the lessor on which tax has not been deducted in the TDS statement.
  • The exemption shall be available during the previous years relevant to the ten consecutive assessment years as declared by the lessor in Form No. 1, for which deduction under Section 80LA is being opted. The lessee shall be liable to deduct tax on payment of lease rent for any other year.

Read the Notification

Checkout Taxmann's Deduction of Tax at Source with Advance Tax and Refunds which provides legal analysis of the provisions relating to TDS, TCS, Advance Tax and Refunds under the Income-tax Act. It also includes guidance on all practical problems supported by illustrations, case laws, etc. This book is amended by the Finance Act 2022.

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3. CBIC issues procedures relating to sanction, post-audit and review of refund claims

The CBIC had observed that the speaking orders are not issued in several cases where refunds are sanctioned in full. To ensure uniformity in procedure and enable effective monitoring, the CBIC has issued detailed procedures for sanction, post-audit and review of refund claims under GST.

Also, the post-audit shall be conducted only for refund claims amounting to Rs. 1 lakh or more, and it should be concluded within 3 months from the date of issue of the Form GST RFD-06 order.

Read the Instruction

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4. No confiscation of imported goods where IEC was not mentioned on the Bill of Entry due to delay in the grant by Dept.: CESTAT

The CESTAT has held that if the appellant filed a bill of entry without IEC, due to a delay in granting an IEC number by Government Department, an order of confiscation of imported goods shall be set aside.

Facts

The appellant had filed a Bill of Entry for clearances of imported goods. The imported goods were declared liable for confiscation as the appellant had not mentioned IEC in the bill of entry with the option to redeem the same on payment of a fine of Rs. 2.5 lakh. The appellant preferred an appeal before the Commissioner (Appeals), who upheld the order of confiscation and reduced the redemption fine and penalty from Rs. 2.5 lakh to Rs. 1.5 lakh. It filed an appeal before the CESTAT.

CESTAT

The CESTAT observed that as per normal practice and procedure, the IEC code is made available to the applicant within two working days. However, in the instant case, the grant of the IEC code was delayed for reasons beyond the control of the appellant and such code was finally issued by the office of DGFT after 11 days of delay. The appellant had to file the bill of entry on the arrival of goods without the IEC code. Admittedly, the appellant paid the appropriate duty for the release of the imported goods for home consumption, and it had applied for the IEC number at the proper time. Therefore, it was held that the order of confiscation and redemption fine was liable to be set aside, and the penalty was also reduced from Rs. 2.5 lakh to Rs. 1,000.

Read the Ruling

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5. As a matter of right, a person can’t claim to have his lawyers present during the recording of his statement under Section 50 of PMLA: HC

In the instant case, the petitioner filed an appeal before the High Court against the impugned order passed by the Trial Court. The Trial Court held that “during the time of enquiry/interrogation from the accused, one Advocate of the accused shall be allowed to remain present at a safe distance from where he can see the accused but not hear him”.

The core issue raised in the matter was whether the respondent has a right to the presence of his lawyer during the recording of his statements under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA), at a safe distance from him where the lawyer can see the accused and not hear him. In this regard, various judgements were cited by the learned counsels of the appellant and the respondent.

Section 50 of the PMLA pertains to the powers of an investigating officer in relation to the summons, production of documents, giving evidence, etc. Further, Section 50(2) of the PMLA empowers the Director, Additional Director, Joint Director, Deputy Director or Assistant Director to summon any person for the purposes of giving evidence or producing records.

The Counsel referred to the judgement in the case Poolpandi and Others v. Superintendent, Central Excise and Others 1992 (3) SCC 259, whereby it was held that the Court didn’t find force in the argument that if a person is called away from his own house and questioned in the atmosphere of the customs office without the assistance of his lawyer or his friends, his constitutional right under Article 21 shall be violated.

The High Court observed that as there is neither any FIR nor any complaint against a person, he cannot, as a matter of right, claim to have his lawyers present during the recording of his statement under Section 50 of the PMLA, especially when his entire recording of statement is video and audio graphed which certainly would dispel the apprehension of any coercion or threat to him.

Further, it was observed that if a litigant in a particular case can produce credible material to indicate the real and live apprehension of a possible threat, coercion being employed while recording his statement, the High Court can always permit visible, however, not an audible range during the course of recording of the statement.

The High Court held that since no apprehension is raised in the present matter, such direction ought not to have been given by the Trial Court in recording of statement.

Therefore, the impugned direction of the Trial Court’s order allowing one Advocate of the accused to remain present with him during the time of enquiry/interrogation stands stayed. Accordingly, the appeal was disposed of.

Read the Ruling

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6. Effect of digital currency in the financial sector and how to recognise it in the financial statements

The simple meaning of the term ‘digital currency’ is a form of currency that exists only in digital or electronic form and can operate independently of a Central Bank. In 2009, the digital currency Bitcoin was launched by an anonymous developer or group of developers using the name Satoshi Nakamoto.

Effect of Digital Currency on Financial Market

Digital currencies are rapidly changing the nature of money, which could threaten the financial system’s stability. For businesses, digital currency is going to be a welcome change.

Accounting of digital currency

Until now, no accounting guidance is available for accounting the digital currency. Thus, the accountants have no alternative but to refer to existing accounting standards.

Accounting standards that might be used for accounting of digital currency

At first, it might appear that digital currency should be accounted for as cash because it is a form of digital money. However, it cannot be considered equivalent to cash because it cannot readily be exchanged for any good or service.

Further, it might appear that digital currency should be accounted for as a financial asset at fair value through profit or loss in accordance with Ind AS 109 (Financial Instruments). But digital currency does not meet the definition of a financial instrument.

However, digital currencies do appear to meet the definition of an intangible asset in accordance with Ind AS 38 (Intangible Assets). It states an intangible asset is an identifiable non-monetary asset without physical substance. Ind AS 38 states intangible asset as an identifiable if it is separable or arises from contractual or other legal rights. An asset is separable if it can be sold individually in an open market. Therefore, it appears that the most appropriate classification of digital currency is an intangible asset, as per Ind AS 38.

Also, in some organisations, digital currency is accounted for in accordance with Ind AS 2 (Inventories) because Ind AS 2 applies to inventories of intangible assets. If an entity holds the digital currency for sale in the ordinary course of business, the same can be treated as inventory.

Read the Story

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