This weekly newsletter analytically summarizes the key stories reported at taxmann.com during the previous week from 15^th to 20^th November 2021, namely:

(a) Mumbai Tribunal rules that BCCI isn’t engaged in commercial activities as funds generated from IPL are used for promoting cricket;

(b) CBIC issued a clarification in respect of applicability of Dynamic Quick Response (QR) Code;

(c) Supreme Court held that condition of pre-deposit for filing of appeals under Section 43(5) of RERA is not discriminatory;

(d) Insolvency Professional handling voluntary liquidation is not required to seek NOC from Income-tax department, clarifies IBBI;

(e) High Court rules that no provisional attachment order is allowed once final order in Form GST DRC-07 is passed; and

(f) Treatment of Aviation turbine fuel maintained in the storage tank, which is not held for sale.

1. BCCI isn’t engaged in commercial activities as funds generated from IPL are used for promoting cricket: ITAT

The Mumbai Tribunal has allowed relief to BCCI and directed CIT to grant registration under Section 12A citing that BCCI is still promoting the game of cricket. The Court has ruled that the prime character of popularising cricket is not lost just because a sports tournament is structured to make it more popular, resulting in more paying sponsorship and greater mobilization of resources.

Facts

Assessee-Board of Control for Cricket in India (BCCI) had been granted registration under Section 12A on 12-02-1996. However, it applied for fresh registration as it amended its memorandum of association and rules and regulations to implement the ‘Justice Lodha Committee’ recommendation.

However, its application for fresh registration under section 12A was rejected by the Commissioner of Income (CIT). The CIT opined that BCCI is conducting business for profit by commercial exploitation of the game of cricket through franchisee ownership in terms of the 20-20 format of IPL. Thus, BCCI is squarely covered by the proviso to section 2(15). Hence, its claim of being covered by the last limb, i.e., advancement of any other object of the general public utility, cannot be held as ‘charitable purpose’. Aggrieved-assessee filed the instant appeal before the Mumbai Tribunal.

Ruling

The Mumbai ITAT held that the basic character of popularising cricket is not lost just because a sports tournament is structured in such a manner to make it more popular, resulting in more paying sponsorship and greater mobilization of resources.

It is indeed possible that the predominant object remains the promotion of cricket but that activity is done in a more effective and financially optimal manner. There is no conflict in the cricket becoming more popular and the cricket becoming more entertaining after the introduction of the IPL tournament.

As long as the object of promoting cricket remains intact, the assessee cannot be said to be not following the object of promoting cricket. It will not impact the eligibility of the assessee just because the operational model of a cricket tournament, whether IPL or any other tournament, is more entertaining, more economically viable, and provides economic opportunities to all those associated with that tournament.

All the funds available at the disposal of BCCI, including the additional funds generated by holding IPL tournaments, are employed for promoting cricket, and that really matters. Improvising the game’s rules, adding entertainment value, and making it economically attractive may be a purist’s nightmare, but the same factors can also be viewed as radical and innovative ideas to popularise a game.

Therefore, the assessee is entitled to the continuance of its registration under section 12A, and the order passed by the CIT stands quashed.

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2. CBIC issued a clarification in respect of applicability of Dynamic Quick Response (QR) Code

The CBIC has received various references from trade and industry for clarification on the applicability of the Dynamic Quick Response (QR) Code where the service recipient is located outside India and place of supply of the service is in India as per IGST Act, 2017.

The CBIC has issued a clarification that where an invoice is issued to a recipient located outside India, for which the place of supply is in India, and the payment is received by the supplier either in convertible foreign exchange or in Indian Rupees wherever permitted by the RBI, then such invoice may be issued without having a Dynamic QR Code. This relaxation has been provided since, in such cases, the Dynamic QR code cannot be used by the recipient located outside India for making payment to the supplier.

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3. Condition of pre-deposit on promoters for filing of appeals under section 43(5) of RERA is not discriminatory: SC

The Supreme Court in the case of Newtech Promoters & Developers versus State of UP and others [2021] 132 taxmann.com 137 (SC) has constitutionally validated the provisions of RERA. The Supreme Court held that the condition of pre-deposit imposed on promoters for filing of appeals under Section 43(5) of the Real Estate (Regulation and Development) Act, 2016 is neither discriminative nor violative of Articles 14 or 19(1)(g) of the Constitution of India.

Facts

Respondents (allottees/home buyers) made the substantial investment under the belief that the promotor/real estate developer would hand over possession of the unit as per the home buyer’s agreement. Their bonafide belief stood shaken when the promotors failed to hand over possession of a unit. Complaints were filed by the home buyers for the refund of the investment made along with interest under Section 31 of the Act.

The single member of the RERA on the complaint instituted by the home buyers/allottees directed the promoter/real estate developer to refund the principal amount along with interest. The Developer approached the High Court by filing a writ petition challenging the jurisdiction of the Tribunal. In appeal, one of the major questions before the Court was whether the condition of pre-deposit under proviso to Section 43(5) of the Act for entertaining right of appeal is sustainable in law?

Supreme Court’s Ruling

The Apex Court observed that the obligation upon the promoter of pre-deposit under Section 43(5) of the Act is a class in itself. The Court held that the intention of the legislature is to ensure that the rights of the decree­holder are to be protected, and only genuine bona fide appeals are to be entertained. Therefore, Section 43(5) of the RERA that evisages a condition of pre-deposit on promoters for filing appeals is neither discriminative nor violative of Articles 14 or 19(1)(g) of the Constitution of India.

“The promoters who are in receipt of money claimed by the home buyers/allottees for refund and determined in the first place by the competent authority, if the legislature in its wisdom intended to ensure that money once determined by the authority be saved if the appeal is to be preferred at the instance of the promoter after due compliance of pre-deposit as envisaged under Section 43(5) of the Act, in no circumstance can be said to be onerous as prayed for or in violation of Articles 14 or 19(1)(g) of the Constitution of India.”

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4. Insolvency Professional handling voluntary liquidation is not required to seek NOC from IT department, clarifies IBBI

The IBBI has clarified that Insolvency Professional handling voluntary liquidation process is not required to seek any ‘No Objection Certificate’ (NOC) or ‘No Dues Certificate’ (NDC) from the Income-tax Department as part of compliance in the liquidation process.

IBBI’s view

IBBI noticed that even after providing an opportunity to file claims, the liquidators sought NOC/NDC from the Income-tax Department even though the Code or the Regulations do not envisage seeking such NOC/NDC.

The IBBI said that the process of applying and obtaining NOC/NDC from the Income-tax Department was a cumbersome task. It consumed substantial time and, therefore, militated against the express provisions of the Code and defeated the objective of time-bound completion of the process under the Code.

Statutory provisions

As per Regulation 14 of the IBBI (Voluntary Liquidation Process) Regulations, 2017 (the Regulations) liquidator shall make a public announcement within 5 days of his appointment, calling for submission of claims by stakeholders within 30 days from the liquidation commencement date.

The Regulations also obligate all the financial creditors, operational creditors including government, and other stakeholders, to submit their claims within the specified period. If the claims are not submitted in time, the corporate person may get dissolved without dealing with such claims, and such claims may consequently get extinguished.

Section 178 of the Income-tax Act, 1961, inter alia, obligates the liquidator to fulfill certain income tax-related requirements. It explicitly states that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Code.

IBBI’s clarification

IBBI clarified that as per the Regulations read with Section 178 of the Income-tax Act, 1961, an Insolvency Professional handling voluntary liquidation process is not required to seek any NOC/NDC from the Income-tax Department as part of compliance in the process.

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5. No provisional attachment order is allowed once the final order in Form GST DRC-07 is passed: HC

The High Court of Gujarat has recently held that the provisional attachment of property under Section 83 of CGST Act, 2017 can’t be ordered after passing the order in Form GST DRC-07. Honorable Gujarat High Court gives this ruling in the case of Mahavir Enterprise v. State of Gujarat.

Facts

The Competent Authority passed an order in Form GST DRC-07 on the assessee and fixed its tax liability to the tune of Rs. 3.56 crores. After that, the authority passed an order under Section 83 on the assessee and provisionally attached its property. It challenged the provisional attachment and filed a writ petition against the same.

High Court

The Honorable High Court observed that the only point of consideration, in this case, was whether the authority could have passed an order of provisional attachment of property under section 83 after passing an order in form GST DRC-07. As per Section 79(3), if any amount of tax, interest, or penalty is payable by a person to the Government under any provision of this Act or the Rule, then such amount can be recovered by a proper officer of State Tax or the Union Territory, as the case may be, as if it were an arrear of State Tax or the Union Territory Tax. It is like recovery under the Bombay Land Revenue Code. This is possible or rather permissible only after proper attachment of any property of the assessee. It has nothing to do with the provisional attachment under section 83 of the Act. Therefore, it was held that the order of provisional attachment, in this case, was without jurisdiction.

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6. Treatment of Aviation turbine fuel maintained in the storage tank which is not held for sale

Example

A Ltd. provides the storage tank facility to store aviation turbine fuel. For the same, the company must maintain a minimum level of aviation turbine fuel (ATF) in the storage tanks to operate plant and machinery for its intended use. This ATF is not held for sale, and its quantity will never undergo any changes and shall remain intact till the life of the facility. The company accounted for this ATF held in storage tanks under the head ‘Property, Plant & Equipment’ at actual cost. Also, made a disclosure that ATF is not subject to depreciation.

Whether accounting for dead stock of ATF should be done under the head ‘Property, Plant and Equipment’ is correct? If yes, whether is depreciation to be claimed on deadstock valuation? If yes, whether prospectively or retrospectively, and methodology of depreciation.

Answer

The Expert Advisory Committee (EAC) of ICAI has held that the accounting practice followed by the entity is partially correct.

As per Ind AS 16, an asset shall be classified as property, plant, and equipment if held for use and not for sale in its ordinary course of business, or for providing goods or services, or for rental or administrative purposes. Moreover, when any asset qualifies for recognition as property, plant, and equipment, it is initially measured on a cost basis, and after that, the company may follow the Cost model or Revaluation model as per the policy followed for the entire class of ‘Property, Plant and Equipment’. Since ATF is not held for sale in the ordinary course of business and is required to be maintained in storage tanks to make them operative, its quantity will never change. Therefore, it is a part of the cost of storage tanks and should be recognized in the books as property, plant, and equipment.

Further, the useful life of the significant part shall be needed to depreciate separately and disclosure for the same is made in the case where the cost of part of the asset is significant to its total cost and/or its useful life is different from the useful life of the remaining asset. However, if the cost of part of the asset is not significant and/or its useful life is not different from the useful life of the remaining asset, there is no need to determine its depreciation separately.

Hence, in the extant case, the company should first assess whether the cost of ATF dead stock is significant to the total cost of the storage tanks and whether the useful life of that part is different from the useful life of the remaining asset, and depreciation should be provided accordingly.

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