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

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

1. Capital gain to be computed in year of builder’s consent if transfer of booking rights in property was subject to it;
2. CBIC issued notification to reduce GST rate on Solar Cooker, Milk cans etc. to 12%;
3. Supply of agricultural farm produce in packages of more than 25 kg or 25 litre not to be treated as ‘pre-packaged and labelled’;
4. CBIC exempts several services from levy of GST as recommended in 53rd GST Council Meeting;
5. CBIC exempts supply of goods falling under heading 2202 by Unit Run Canteen to authorised customers from compensation cess;
6. Allegations against Toyota for changing car delivery times deemed inter se dispute, not market-wide issue: CCI; and
7. Tax audit checklist on clause 17 of form 3CD under Income Tax Act, 1961.

1. Capital gain to be computed in year of builder’s consent if transfer of booking rights in property was subject to it

The assessee had booked one Villa with the builder vide allotment letter in 2005. However, before the property was completed and possession handed over to the assessee, the assessee agreed to sell the booking rights in March 2008. As per agreement, the transfer was to take place after receipt of the entire consideration and receipt of NOC from the builder.

The Assessing Officer (AO) contended that the transfer of rights in the said property took place in the Assessment Year (AY) 2008-09. On appeal, the CIT(A) confirmed the assessment of the capital gain in AY 2008- 09, applying section 2(47)(vi). Aggrieved by the order, an appeal was filed to the Delhi Tribunal.

The Tribunal held that as per section 2(47) of the Act, “transfer” in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of rights therein. It speaks about transfer, which involves transferring or enabling the enjoyment of any immovable property. The capital asset here being ‘booking rights of Villa’, transfer of the same happens on the extinguishment or transfer of the rights therein in favour of the other person, which on facts of assessee’s case happened in AY 2009-10.

Mere receipt of advance in terms of an agreement to sell subject to conditions precedent cannot possibly be treated on the same footing as sale or extinguishment or transfer at the time of agreement to sell under any of the clauses of section 2(47). The extinguishment of the rights of the assessee in respect of the said capital asset and the transfer thereof took place in the year when:

• Full and final payment towards sale consideration was received in April 2008, and original documents were handed over to the buyer; and
• The assessee wrote to the Builder to substitute its name by the name of the buyer, which the builder confirmed in May 2008

The agreement to sell was not a transfer and was subject to compliance with conditions by the buyer and by the Builder. The transfer was only to take place after compliance by the buyer of the buyer’s obligations and after permission to transfer by the builder.

In the agreement to sell, it was stated that upon the builder’s refusal of the transfer, the assessee had the right to cancel the agreement and refund the advance to the buyer. Further, even if permission is granted by the Builder, the seller has the right to refuse the transfer of the booking right on payment of double the advance received. This shows that the agreement was cancellable.

Thus, there was no transfer in the totality of facts and circumstances of the assessee’s case. The assessee was vested with all rights in the property until consideration was received and the Builder issued NOC. Thus, there was no extinguishment/relinquishment of the rights of the assessee. If this Agreement to sell is transferred, then capital gains shall be leviable on all the agreements to sell, even on receiving small advance/earnest money, which is not the case.

The transfer of booking rights contemplated in the agreement to sell was dependent upon the builder’s permission, which was granted only in May 2008. Thus, the transfer of booking rights would be completed only in AY 2009-10.  Therefore, AO was directed to delete the capital gain addition.

Read the Ruling

2. CBIC issued notification to reduce GST rate on Solar Cooker, Milk cans etc. to 12%

The CBIC has issued notification to reduce GST rate from 18% to 12% on several goods such as Solar Cooker, Milk cans, Cartons, boxes and cases of corrugated paper or paper board; or non-corrugated paper or paper board etc. with effect from 15th July, 2024. In this regard, Notification No. 02/2024- Central Tax (Rate) dated July 12th, 2024 has been issued.

Read the Notification

3. Supply of agricultural farm produce in package of more than 25 kg or 25 litre not to be treated as ‘pre-packaged and labelled’

The CBIC has issued notification to insert new proviso in exemption notification to provide that the supply of agricultural farm produce in package(s) of commodities containing quantity of more than 25 kilogram or 25 litre shall not be considered as a supply made within the scope of expression ‘pre-packaged and labelled’. A similar proviso is also inserted in Notification No. 1/2017-Central Tax (Rate). In this regard, Notification No. 03/2024- Central Tax (Rate) dated July 12th, 2024 has been issued.

Read the Notification

4. CBIC exempts several services from levy of GST as recommended in 53rd GST Council Meeting

The CBIC has issued notification to exempt several services from levy of GST as recommended in 53rd GST Council Meeting. There shall be no GST on supply of accommodation services having value of supply less than or equal to Rs. 20000 per person per month provided that service is supplied for a minimum continuous period of 90 days. Also, certain services provided by Ministry of Railways are made exempt from GST. In this regard, Notification No. 04/2024- Central Tax (Rate) dated July 12th, 2024 has been issued.

Read the Notification

Read the Taxmann’s Detailed 53rd GST Council Meeting Recommendations

5. CBIC exempts supply of goods falling under heading 2202 by Unit Run Canteen to authorised customers from compensation cess

The CBIC has issued notification to provide that supply of goods falling under heading 2202 by Unit Run Canteen to authorised customers would be exempted from levy of Goods and Services Tax Compensation Cess. In this regard, Notification No. 01/2024- Compensation Cess (Rate) dated July 12th, 2024 has been issued.

Read the Notification

6. Allegations against Toyota for changing car delivery times deemed inter se dispute, not market-wide issue: CCI

The CCI, in Balbir Singh Nagpal v. Toyota Kirloskar Motors (P.) Ltd. [2024] 164 taxmann.com 332 (CCI) ruled that allegations against Toyota for changing car delivery times were deemed inter-se disputes and did not have market-wide anti-competitive ramifications. Accordingly, there was no reason to analyse the abuse of the dominant position by the OPs, and no prima facie case of contravention of the provisions of Sections 3 and 4 was made against the OPs.

Brief facts of the case

In the instant case, the Informant filed the present information u/s 19(1) of the Competition Act, 2002, alleging contravention of the provisions of Sections 3 and 4 of the Act by Toyota Motors Pvt. Ltd. (OP-1) and Uttam Toyota (OP-2), collectively referred to as OPs.

OP-1 was the Indian arm of Toyota Motor Corporation, and OP-2 was an authorized dealer of OP-1, having a showroom in the Gautam Buddh Nagar District of Uttar Pradesh. As per the Information, the Informant booked a car with OP-2 on 25.11.2022.

The Informant filed the information alleging that OP-2 had assured him that the booked car would be delivered within two months from the booking date. However, when the booking receipt was issued to the informant, the same was changed to eight months.

Further, the Informant alleged that some customers who booked their cars on the same date or subsequent dates received their respective cars before the Informant. Also, the booked car, which was supposed to be delivered to the Informant as per his booking reference, was delivered to someone else.

The Informant also alleged that OP2 was forcing customers to purchase accessories at a price determined by them. Thus, there was a violation of Section 4 of the Competition Act. Further, by creating an artificial scarcity, ‘Resale Price Maintenance’ (RPM) was being imposed on end customers, thus having an ‘appreciable adverse effect on competition’ (AAEC) in violation of Section 3(4) of the Act.

In its response, OP-1 stated that despite the waiting period of 30-32 weeks, the Informant was delivered car on 05.04.2023. OP-1 further stated that the Informant accepted the booking slip with a waiting period of 30-32 weeks without any protest, and only after 4 months of issuance of the same, the Informant claimed that OP-1 had arbitrarily increased the waiting time for the delivery of the car.

OP-2 pointed out that the Informant was made aware of the long waiting period, and upon his request, OP-2 assured him that it would try its best to deliver the vehicle early. However, the Informant alleged that the conduct of OPs violated Sections 3 and 4 of the Act. The Informant prayed for interim relief u/s 33 of the Act along with other reliefs.

CCI observations

The CCI noted that the primary issue in the matter appeared to revolve around the waiting period for the delivery of the car booked by the Informant and the prices of accessories. Such allegations bear the tone and tenor of an inter-se dispute between the Informant and OPs and did not have market-wide anti-competitive ramifications in the facts and circumstances of the instant matter.

Normally, long waiting periods could not be the subject matter of antitrust scrutiny as they were dependent upon various factors, including reasons adduced by OP1 that the shortage of semiconductors was beyond the manufacturer’s control and was causing delays in the automobile industry.

CCI Ruling

The CCI held that the price of accessories was an outcome of demand and supply forces in the market and consumer preferences, among other factors. In the instant case, the Informant failed to highlight whether such prices are ‘unfair’ or ‘discriminatory’ in terms of the provisions of the Act. Accordingly, there was no reason to carry out an analysis of the abuse of the dominant position by the OPs.

Further, the CCI held that allegation pertaining to RPM requires the existence of an agreement amongst enterprises or persons at different stages or levels of the production chain in various markets in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services which causes or is likely to cause AAEC in India. However, the informant had not substantiated his allegation of RPM by providing evidence of the existence of any such agreement.

In view of the above, no prima facie case of contravention of the provisions of Sections 3 and 4 of the Act was made against OPs. Therefore, the CCI directed that the matter be closed immediately under Section 26(2) of the Competition Act. Consequently, no case for grant of relief sought u/s 33 of the Act arose.

Read the Ruling

7. Tax audit checklist on clause 17 of form 3CD under Income Tax Act, 1961

Clause 17 of Form 3CD requires the tax auditor to report the details of the transfer of land or building during the previous year when the consideration is less than the stamp duty value as per Section 43CA or Section 50C.

Section 43CA applies when someone sells land or buildings (not capital assets) for less than the value set by the state for stamp duty then the stamp duty value is considered the full sale value for tax calculations and if the sale value is up to 110% of the stamp duty value, the actual sale value can be considered instead. Whereas section 50C applies when someone sells capital assets like land or buildings for less than the state’s stamp duty value then the stamp duty value is deemed as the full sale consideration for tax purposes and if the sale value is up to 110% of the stamp duty value, the actual sale value can be considered instead.

Clause 17 requires reporting the details of the following transactions during the previous year:

• Transfer of land or building or both held by the assessee as a capital asset for consideration less than stamp duty value [Section 50C of the Income-Tax Act, 1961]
• Transfer of land or building or both held by the assessee as stock-in-trade for consideration less than stamp duty value [Section 43CA of the Income-Tax Act, 1961]

The tax auditor shall ensure the following checkpoints under clause 17 of form 3CD:

• Has the tax auditor obtained MRL from the assessee with a list of all land and buildings held as capital assets and land and buildings held as stock in trade?
• Has the tax auditor verified and classified the assets mentioned in the balance sheet and books of account as property plant and equipment, and inventories, including the transactions?
• Has the tax auditor verified the status of agreements to sell/JDAs against which advances were received in previous years and reported in clause 31(b) of tax audit reports of preceding previous years?
• Has the tax auditor checked whether the advance received against transactions completed during the year?
• Has the tax auditor checked whether transfer of land or building held as capital asset in a way of conversion of stock into trade or transfer is by way of compulsory acquisition under any law in force?
• If the answer to Point (5) is yes, then there is no need to report against this clause.
• If “transfer” is by way of development right under JDA, apply professional judgement as to whether it amounts to transfer of land or merely just a right in the land. If it is the latter, no need to report the same here. Any advances received under JDA/any consideration received in kind may be reported in Clause 31(b) along with the mode of receipt.
• If the transfer is other than any transfer point (5 ) and point (7) above then verify if transfers have been completed during the year under audit by execution of sale deed/possession u/s 53A of TOP Act.

1. 1. If so, report transfer details under clause 17 in tabular format given in utility if Stamp Duty Value exceeds consideration received or accruing. If the difference exceeds the safe harbor of 10%, report resulting capital gains or business income in Clause 16(a)/16(d) if the same is not credited in P&L.
   2. If not, there is no need for any reporting under Clause 17 in the current year. Reporting amounts/advances received in Clause 31(b) are sufficient.

• If transfers of land or buildings or both located in India are held as stock-in-trade then verify transfers have been completed during the year under audit by execution of sale deed/possession u/s 53A of TOP Act.

1. 1. If so, report transfer details under clause 17 in Tabular format given in utility if Stamp Duty Value exceeds consideration Received or accruing. If the difference exceeds Safe Harbour of 10%, report resulting capital gains or business income in Clause 16(a)/16(d) if the same is not credited in P&L.
   2. If not, no need for any reporting under Clause 17 the in current year. Reporting amounts /advances received in Clause 31(b) is sufficient.

• Has the auditor obtained a copy of the registered sale deed from the assessee in case the property is registered?
• If the property is not registered, verify the relevant documents from relevant authorities or obtain representation from a third-party expert like a lawyer or solicitor to verify compliance with Section 43CA or Section 50C.
• In exceptional cases where the tax auditor is not able to obtain relevant documents, he should report it as an observation in his report in Clause (3) of Form No. 3CA/Clause (5) of Form No. 3CB.
• If the assessee has disputed the stamp duty value adopted by the stamp valuation authority in appeal or revision proceedings, the suitable note may be incorporated in clause 17.

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