Weekly Round-up on Tax and Corporate Laws | 15th to 20th August 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 15^th to 20^th August 2022, namely:

(a) Jurisdiction of the High Court is determined by the situs of the AO who has passed the order: Supreme Court;

(b) TCS provisions under Section 206C(1G) shall not apply to an NR buyer who does not have a PE in India: CBDT;

(c) Govt. amends incorporation rules; prescribes manner for conducting physical verification of registered office by RoC;

(d) CBIC issued a clarification on the BCD rate on import of display assembly of mobile phones; and

(e) Significance of Independence of an auditor. 

1. Jurisdiction of the High Court is determined by the situs of the AO who has passed the order: Supreme Court

In the instant case, the question that arose for consideration before Supreme Court was:

“Whether the jurisdiction of the High Court consequent upon administrative order of transfer of a ‘case’ under Section 127 from one Assessing Authority to another Assessing Officer located in a different State.”

There were diversified views of different High Court on this matter. The Delhi High Court in Sahara India Financial Corporation Ltd. [2007] 162 Taxman 357 (Delhi) and Aar Bee Industries Ltd. [2013] 36 taxmann.com 308 (Delhi) held that an administrative order of transfer of cases would also have the consequence of transferring the jurisdiction of the High Court.

Ruling

The Supreme Court held that the reasoning adopted by the Delhi High Court in the Sahara case was based only on the meaning attributed to the expression ‘cases’ in the Explanation to Section 127(4). The Delhi High Court was of the view that ‘cases’ must include within its sweep not only the cases pending before the Authorities but also the proceedings before the ITAT as well as a High Court.

The power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities. It has no bearing on the ITAT, much less on a High Court. If this submission is accepted, it will mean that the executive has the power to determine the jurisdiction of a High Court. This can never be the intention of the Parliament.

The jurisdiction of a High Court stands on its own footing by virtue of Section 260A, read with Section 269. While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice.

The Supreme Court held that appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated.

Even if the case or cases of an assessee are transferred in the exercise of power under Section 127, the High Court within whose jurisdiction the Assessing Officer has passed the order shall continue to exercise the jurisdiction of the appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year.

Read the Ruling

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2. TCS provisions under Section 206C(1G) shall not apply to an NR buyer who does not have a PE in India: CBDT

Section 206C(1G) provides for the collection of tax at source (TCS) from remittance under Liberalized Remittance Scheme (LRS) and the sale of an overseas tour package. As per this provision, tax is required to be collected by:

(a) An authorised dealer who receives an amount for remittance out of India under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India; and

(b) Seller of an overseas tour program package, who receives any amount from a person who purchases such package.

However, tax shall be collected by the authorised dealer on the amount or aggregate of the amount over Rs. 7 lakhs if the remittance is made for any purpose other than purchasing an overseas tour programme package. If the remittance is made for an overseas tour programme package, the threshold limit of Rs. 7 lakh shall not apply, and tax shall be collected on the total remittance amount.

The section also empowers the Central Government to notify a person wherein tax collection shall not be made under this provision.

Exercising such power, the Central Government had notified that provisions of Section 206C(1G) shall not apply to an individual who is not a resident as per Section 6 of the Income-tax Act and who is visiting India.

In the suppression of the above notification, the Central Government has notified that the provisions of Section 206C(1G) shall not apply to a person (being a buyer) who is a non-resident and does not have a permanent establishment in India.

Though the Govt. has withdrawn the previous notification, it has been clarified that transactions entered into from 30-03-2022 to 16-08-2022, wherein tax was not collected at source relying upon such notification, shall be treated as legally complying with the provisions of Section 206C(1G).

Read the Notification

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3. Govt. amends incorporation rules; prescribes manner for conducting physical verification of registered office by RoC

The MCA has notified the Companies (Incorporation) Third Amendment Rules, 2022, wherein a new Rule 25B has been inserted prescribing the manner of physical verification of the registered office of the company. ROC shall conduct physical verification of the Co.’s registered office in the presence of two independent witnesses of the locality where the Co.’s registered office is situated. Further, if required, ROC can also seek the assistance of the Local Police for such verification.

For the purpose of conducting physical verification of the company’s registered office, the Registrar shall carry the documents as filed on MCA 21 in support of the address of the registered office of the company.

Further, to check the documents’ authenticity, the same should be cross verified with the “copies of supporting documents of such address collected during the said physical verification, duly authenticated from the occupant of the property where the said registered office is situated.

(a) ROC to prepare a detailed report on physical verification of the Registered Office of the company

The Registrar is required to take a photograph of the company’s registered office during the physical verification. Once the verification is done, a detailed report on the physical verification with various information is also required to be prepared, which shall contain the following details:

• • Name and CIN of the company
  • Latest address of the registered office of the company as per MCA 21 record
  • Date of authorisation letter issued by the RoC
  • Name of the RoC
  • Date and time of visit for physical verification of the registered office
  • Location details along with the landmark
  • Details of the person available at the time of the visit
  • List of the documents attached (i.e., a copy of the agreement/ownership/rent agreement/NOC of the registered office).

(b) RoC shall send notice to directors of his intention to remove Co’s name from the register if he finds the registered office not capable of receiving communications

In case the company’s registered office is found to be incapable of receiving and acknowledging all communications and notices, the RoC shall send a notice to the company and all of its directors of his intention to remove the name of the company from the register of companies.

Further, before taking any action, the Registrar is required to request the company and its directors to send their representations along with the copies of relevant documents, if any, within 30 days from the date of the notice.

Read the Notification

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4. CBIC issued a clarification on the BCD rate on import of display assembly of mobile phones

The CBIC has earlier issued a notification to prescribe the concessional rate of basic customs duty (BCD) at 10% on Display Assembly of mobile phones. However, various instances of misdeclaration have been reported, and clarification was sought by the industry.

Now, the CBIC has issued a circular to clarify that 10% BCD shall be levied on the import of display assembly of mobile phones even if imported along with back support frame of metal or plastic. However, the BCD at the rate of 15% shall be levied if the sim tray, battery compartment, fingerprint or any other item is imported with the display assembly.

Read the Circular

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5. Significance of Independence of an auditor

SA200 (Overall objectives of the independent auditor) requires the auditor to comply with relevant ethical requirements relating to financial statement audit engagements, including those pertaining to independence. In the case of an audit engagement, it is in the public interest and, also required by the Code of Ethics, that the auditor shall be independent of the entity subject to the audit.

The auditor should be independent not only in his mind but also in his appearance. Independence enhances the auditor’s ability to act with integrity, be objective, and maintain an attitude of professional skepticism. The auditor’s independence from the entity safeguards the auditor’s ability to form an audit opinion without being affected by influences that might compromise that opinion.

SQC 1, Quality Control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services Engagements, sets out the responsibilities of the firm for establishing policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements, including those pertaining to independence.

Further, SA 220 sets out the engagement partner’s responsibilities with respect to relevant ethical requirements. These include evaluating whether members of the engagement team have complied with relevant ethical requirements, determining the appropriate action if matters come to the engagement partner’s attention, indicating that members of the engagement team have not complied with relevant ethical requirements, and forming a conclusion on compliance with independence requirements that apply to the audit engagement.

Section 141(3)(i) of the Companies Act, 2013 disqualifies an auditor who renders any service prohibited by Section 144. Section 141(4) further says that where an existing auditor incurs any of the disqualifications listed in Section 141(3) after his appointment, he shall immediately vacate his office as such auditor, and such vacation is treated as a casual vacancy.

However, while referring to the “Audit Quality Review Report” (AQRR) issued by “National Financial Reporting Authority” (NFRA), various instances were reported wherein the Audit Firm failed to comply with the provisions regarding auditor’s independence by violating Section 144 of the Companies Act, non-complying with the fundamental principles of the ICAI Code of Ethics and by non-complying with provisions of SA 200 and SQC 1. The violations had undoubtedly fatally compromised the independence in mind and independence in appearance.

Read the Story

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