Weekly Round-up on Tax and Corporate Laws | 15th to 20th January 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 15^th to 20^th January 2024, namely:

(a) Property not eligible for section 54F relief if it was predominantly being used for religious purposes: ITAT;

(b) Time limit for issuing notice under section 148 extended till 30-06-2021 is not applicable to AY 2013-14: Bombay HC;

(c) GSTN issued advisory on payment through Credit Card/Debit Card and Unified Payments Interface;

(d) No GST exemption on services provided in relation to grant or renewal of affiliation of colleges by University: HC;

(e) Govt. unveils Draft Indian Stamp Bill, 2023; proposes new legislation for a modern ‘Stamp duty’ regime; and

(f) Presentation of CSR Expenditure by a corporation should not be through the P&L Appropriation Account.

1. Property not eligible for section 54F relief if it was predominantly being used for religious purposes: ITAT

In a recent ruling, the Hyderabad Tribunal has ruled that a building didn’t qualify as a residential house under section 54F if same was primarily used for religious purposes, i.e., Mosque, Orphanage School, and Staff quarters.

Facts

The assessee filed his return of income offering long-term capital gains for the relevant assessment year and claiming exemption under section 54F for a building constructed in a specific area of Hyderabad. Subsequently, the case was selected for scrutiny, and the notice was issued to the assessee.

Assessing Officer (AO) contended that the assessee claimed deduction in respect of the property in the nature of a Mosque. The nature of the usage of the property was mentioned in the application filed by the assessee before the GHMC as “Madrasa activities and Mosque” only. The assessee was required to construct the residential house as per section 54F.

Dissenting with the assessee’s claim, AO disallowed the deduction claimed under section 54F, and the matter reached the Hyderabad Tribunal.

Ruling

The Tribunal held that the Income-tax Act does not define the term residential house. Judicial precedents and various dictionaries define the residential house as a house constructed for residence having a provision for a kitchen and toilet, etc. The assessee mentioned that the property consisted of Mosque, Orphanage School, and Staff Quarters in the application before GHMC.

Further, during the proceedings, the assessee did not provide evidence of raising any construction in the premises. Various inspections carried out by the Department officials led to a conclusion that the property was predominantly being used for religious purposes, namely Mosque, Orphanage School, and Staff quarters.

In addition, the report suggested that the 3rd floor was residential, but it was contrary to the statement of the assessee filed before the GHMC seeking regularization of the property. The statement clearly showed that the assessee had not used the property for residential purposes within the time granted by the statute. Therefore, the assessee was not entitled to any relief under section 54F.

Read the Ruling

2. Time limit for issuing notice under section 148 extended till 30-06-2021 is not applicable to AY 2013-14: Bombay HC

The assessee filed the instant writ petition challenging the issue of section 148 notice for the Assessment Year 2013-14. Assessee contended that the reopening notice was issued beyond the period of limitation.

Assessee also contended that CBDT’s Instruction 1/2022 to revive notice issued under the old regime was beyond jurisdiction, illegal, contrary to directions of the Apex Court given in the case of Ashish Agarwal v. ITO [2022] 130 taxmann.com 246 (SC).

The Bombay High Court held that a notice under section 148 could not be issued to reopen the assessment in a case where the right to reopen the assessment was already barred under the pre-amended Act on the date when new legislation came into force.

Therefore, where the limitation under Act (erstwhile section 149) for reopening the assessment for assessment year 2013-14 expired on 31-3-2020, notice issued in June 2021 in case of the assessee was barred by limitation. Thus, reassessment proceedings initiated pursuant to the judgment in Ashish Agarwal v. ITO [2022] 130 taxmann.com 246 (SC) will also be regarded as beyond the time limit.

Since the limitation under erstwhile section 149 for reopening the assessment for the assessment year 2013-14 expired on 31-3-2020,  CBDT Notification No.20/2021 would not apply to facts of the present case and even relate back theory of AO could not safeguard reassessment proceedings initiated after 1-4-2021.

Accordingly, section 148 notice dated 28-7-2022 issued pursuant to Ashish Agarwal v. ITO [2022] 130 taxmann.com 246 (SC) and CBDT Instruction No. 1/2022 to revive notice issued under the old regime was to be quashed and set aside.

Read the Ruling

3. GSTN issued advisory on payment through Credit Card/Debit Card and Unified Payments Interface

The GSTN has issued an advisory to inform that two new payment facilities have now been provided under e-payment in addition to net banking. The two new methods are Debit or Credit Cards and Unified Payments Interface.

The card facility includes Credit Card (CC) and Debit Card (DC), namely Mastercard, Visa, RuPay, and Diners (CC only) issued by any Indian bank. Currently, the facility is available in 10 states, and the remaining states are expected to join soon. In this regard, the GSTN has issued an Update dated January 19th, 2024.

Read the Advisory

4. No GST exemption on services provided in relation to grant or renewal of affiliation of colleges by University: HC

The High Court of Madras has recently held that composite supply of sale of applications for registration of course, inspection, etc., with “principal supply of affiliation” by the university to its constituent colleges is not exempted under Entry No. 66 of Notification No. 12/2017 – Central Tax (Rate). The Honorable Madras High Court gives this ruling in case of Sree Ramu College of Arts and Science v. Authority for Clarification and Advance Ruling.

Facts

The assessee was an educational institution affiliated with Bharathiar University that provided education services to its students. The university used to provide a ‘principal supply of affiliation’ to its constituent colleges along with a composite supply of sales of applications for registration of courses, inspection, etc.

The department held that the supply made by the university to the constituent colleges was not exempted in terms of Entry 66 of the Notification No. 12/2017-Central Tax (Rate). Aggrieved by the order, the petitioner filed a writ petition before the Madras High Court.

High Court

The High Court noted that Entry 66 to Notification No. 12/2017-Central Tax (Rate) was confined only to services relating to admission to or conduct of examination by educational institutions and not to services relating to the affiliation of constituent colleges. Therefore, even on a demur service relating to admission to, or conduct of examination by an Educational Institution as defined in Clause 2(y) to Notification No. 12/2017-CT (Rate) dated 28-06-2017 cannot apply to service provided in relation to grant or renewal of affiliation of the assessee to Bharathiar University.

Thus, the Court held that the instant writ petition was liable to be dismissed as there was no scope for interpreting exemption to cover services provided for affiliation purposes.

Read the Ruling

5. Govt. unveils Draft Indian Stamp Bill, 2023; proposes new legislation for a modern ‘Stamp duty’ regime

The Indian Stamp Act 1899 is a fiscal legislation that governs the levy of taxes in the form of stamps on instruments recording transactions. Stamp duties are levied by Central and State Governments. The Act has been amended from time to time to modernize stamp duty regulations; however, since it is a pre-constitution Act, certain provisions have become obsolete. Consequently, there was a proposal to repeal the old Act and introduce new legislation aligned with current needs and objectives. In this regard, the Govt. has released the Draft Indian Stamp Bill, 2023, in the public domain to seek public comments.

The newly drafted Indian Stamp Bill 2023 proposes significant changes, including electronic stamps, expanded definitions, broader lease criteria, revised market value determinations, clarifications on stamp duty liabilities, and exemptions for Special Economic Zones. This aligns with India’s commitment to modernizing its stamp duty regime.

The key highlights of the amendment are as follows:

(a) Embracing Electronic Stamps in the Impressed Stamp Definition

The draft bill now incorporates the inclusion of an electronic stamp (e-stamp) within the definition of an impressed stamp. ‘Electronic stamp’ refers to an electronically generated impression indicating stamp duty payment through electronic or other means, including digital/paperless e-stamp.

(b) Revised Definition: “India” includes Jammu and Kashmir post Article 370 abrogation

The Bill has proposed a new definition of India under clause (19) of section 2, which means the territory of India.

Note: It should be noted that the applicability of the Indian Stamp Act was extended to the whole of India via the Jammu and Kashmir Reorganisation Act, 2019, w.e.f. 31-10-2019. However, the reference to Jammu and Kashmir in the definition of India under Section 2(13A) was not omitted due to oversight. This error has been proposed to be corrected in the new Bill.

(c) Lease Redefined: Proposed Expansion to Encompass Diverse Agreements

The definition of a lease under clause 2(23) has been proposed to be expanded to include various agreements, such as any agreement to lease, any mining license or mining lease, and any leave and license agreement.

(d) Revised Criteria: Amendment of “Market Value” definition for Property Transfers and Mining Leases

The definition of “market value” under clause 2(25) is proposed to be amended to include the determination of market value concerning instruments related to the transfer of property rights and mining lease grants or renewals.

(e) Exemption from Stamp Duty for SEZs and revised duty calculation for certain Instruments

An amendment has been proposed in section 3, i.e., Instruments chargeable with duty. Now, no stamp duty shall be chargeable for instruments executed by, on behalf of, or in favour of the Developer or Unit in connection with the purposes of the Special Economic Zone. The exemption from duty for instruments related to ships or vessels registered under specific acts is proposed to be withdrawn.

(f) Increase in maximum Stamp Duty for counterpart or duplicate instruments

The maximum stamp duty chargeable is proposed to be increased from Rs. 1 to Rs. 100 on the counterpart or duplicate of any instrument chargeable with the duty for which the proper duty has been paid.

(g) Clarification on Stamp Duty Responsibility on Debentures and Gift Deeds

In the case of debentures and gift deeds, it is proposed to clarify under clause 39 that stamp duty shall be payable by the person drawing, making, or executing such instruments.

(h) Addressing Under-Valuation in various Instruments

Scope of Section 57A’s scope is proposed to be expanded to apply to any instrument of conveyance, exchange, gift, partition, or settlement. The time limit of 3 years for Collector’s suo motu inquiry into under-valuation is proposed to be removed. Appeals against the Collector’s orders will lie with the Chief Controlling Revenue Authority.

Read the Proposed Draft Indian Stamp Bill, 2023

6. Presentation of CSR Expenditure by a corporation should not be through the P&L Appropriation Account

The Department of Public Enterprises (DPE) Guidelines specify that Corporate Social Responsibility (CSR) and Sustainability Development expenditure should constitute 2% of the average net profit based on the last three financial years. Upon meeting these eligibility criteria, the corporation’s management has chosen to allocate such CSR expenditure from its profits. This allocation is facilitated through the Profit and Loss appropriation account, guided by the management’s rationale outlined below:

• CSR spending is not an expenditure related to business and, hence, is not to be considered in arriving at the profits of the entity.
• CSR expenditure is not considered as allowable expenses for computation of profit under the Income Tax Act.
• CSR spending is co-related with the net profits and is not considered part of the Profit and Loss Account.
• CSR spending is not a part of the Profit and Loss Account, but it is appropriation out of the net profits arrived at in the Profit and Loss Account.

However, the corporation’s statutory auditor held the view that the Profit and Loss appropriation account is designed for the allocation and distribution of net profit among partners, reserves, and dividends rather than for the allocation of Corporate Social Responsibility (CSR) expenditure. Consequently, the management has sought the Expert Advisory Committee’s (EAC) opinion regarding the appropriate presentation of CSR spending.

In this regard, the committee noted that no accounting standard specifically requires accounting for CSR expenditure otherwise than from the Profit and Loss Account. Therefore, CSR expenditure should be recognized through the Profit or Loss Account, viz., recognized as an expense in the corporation’s Statement of Profit and Loss. The committee also stressed upon one of the FAQs on Accounting for amounts to be incurred towards CSR pursuant to the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 which states that

“CSR expenditure would be recognized as an expense in the statement of profit or loss as and when such expenditure is incurred on the CSR activities”.

Therefore, the committee opined that expenditure incurred in the extant case by the corporation towards CSR activities should be recognized as an expense in the Statement of Profit and Loss or Profit and Loss Account of the corporation as and when such expenditure is incurred and not as an appropriation of profits in the Profit and Loss Appropriation Account.

Read the Story