Weekly Round-up on Tax and Corporate Laws | 20th to 25th June 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 20th to 25th June 2022, namely:

(a) CBDT notifies challan-cum-statement for payment of tax deducted on VDAs;

(b) CBDT issues guidelines for TDS under Section 194S, where VDAs are transferred through an Exchange;

(c) Advance Ruling to determine the GST rate cannot be sought after receipt of show-cause notice: HC;

(d) Madras High Court upholds SCNs issued under Customs Act by DRI officers;

(e) A non-bailable warrant against a director who didn’t cooperate with RP and failed to appear before AA is justified: NCLAT; and

(f) Excel Format of Financial Statements to be Prepared by the Non-Corporate Entities issued by ASB of ICAI.

1. CBDT notifies challan-cum-statement for payment of tax deducted on VDAs

The CBDT has notified Income-tax (19th Amendment) Rules, 2022 to incorporate the changes introduced by the Finance Act 2022 relating to TDS.

The Board has amended existing Rules 30, 31 and 31A, Annexure to Form No. 26Q, and Form Nos. 26QB, 26QC & 26QD. The Board has also inserted new Form Nos. 26QE and 16E.

The key changes introduced by the CBDT have been elaborated below:

(a) Tax deducted by a specified person to be deposited in Form 26QE

Section 194S provides that any person responsible for paying to a resident any sum by way of consideration for the transfer of a virtual digital asset (VDA) shall deduct tax at the rate of 1% of such sum.

A new sub-rule (2D) has been inserted in Rule 30 that provides for the time and mode of payment of tax deducted at source. Sub-rule (2D) provides that tax deducted under Section 194S shall be paid to credit of the Central Government within 30 days from the end of the month in which the deduction is made. Such payment shall be made by a challan-cum-statement in Form 26QE electronically.

If the tax is deducted by a non-specified person, the tax shall be deposited as per existing provisions and the statement shall be filed in Form 26Q.

(b) TDS Certificate to be issued in Form 16E

A new Sub-rule (3D) has been inserted in Rule 31 that provides for the furnishing of the TDS certificate. The Sub-Rule (3D) provides that a person responsible for deduction of tax under Section 194S shall furnish the TDS certificate in Form 16E to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form 26QE.

If the tax is deducted by a non-specified person, the TDS certificate shall be issued in Form 16A.

(c) Separate reporting of tax payments made in accordance with Provisos to Sections 194B, 194R and 194S

Proviso to section 194B provides that if winnings in Lottery or Crossword Puzzles are partly in cash and partly in kind and the cash part is not sufficient to pay the applicable taxes, the person responsible for paying such winning shall release the winning only after payment of applicable taxes to the credit of Central Government. Similar provisions are incorporated in Section 194R(1) and Section 194S(1).

The Board has amended the Annexure to Form 26Q, which seeks deductee/payee wise break up of TDS. In case the proviso to Section 194B, 194R, and 194S are applicable, the annexure seeks the following additional details from the deductor:

• • Amount of tax deposited;
  • BSR Code of bank;
  • Date of payment; and
  • Challan serial number.

Read the Notification

Checkout Taxmann's Taxation of Virtual Digital Assets which is one-of-a-kind book provides a complete analysis (from an Income-tax & GST perspective) of the new scheme of taxation of Virtual Digital Assets (VDAs), which includes cryptocurrencies and non-fungible tokens (NFTs). 

Here is a Sample Chapter for your Reference.

2. CBDT issues guidelines for TDS under Section 194S, where VDAs are transferred through an Exchange

The Finance Act 2022 inserted a new Section 194S to require deduction of tax by any person who is responsible for paying consideration to a resident person in respect of the transfer of virtual digital assets (VDAs).

It is to be noted that the liability to deduct tax under Section 194S is on a person responsible for paying the consideration for the transfer of VDA. The payer and buyer of the VDAs are generally the same. However, in the case of transactions through an Exchange, the buyers and sellers may not know each other. It will create an administrative difficulty if the buyer is required to deduct the tax. Where VDAs are transferred through an Exchange, the buyer will pay to the Exchange (either directly or through a broker). The Exchange, in turn, will make payment to the seller of VDA (either directly or through a broker). Since there can be multiple players involved in a transaction, there is a possibility of tax deduction under Section 194S at multiple stages. Accordingly, a compliance burden would be on multiple parties involved in such a transaction. Thus, the CBDT has shifted the obligation to deduct the tax from the buyer to the Exchange.

The CBDT has issued a guideline in the exercise of the power conferred by Section 194S(6), which shall be binding on the income-tax authorities and the person responsible for paying the consideration for the transfer of VDA. The guidelines have been issued to clarify who will be liable to deduct tax in the following situations:

(a) Where VDAs are transferred through an exchange without the involvement of a broker.

(b) Where VDAs are transferred through an exchange with the involvement of a broker.

(c) Where VDAs bought from the Exchange are owned by the Exchange itself.

(d) Where VDAs are bought from an Exchange through a broker.

(e) Consideration for transfer of VDA is in kind or Exchange of one VDA with another.

Read the Circular

Read the Full Article

Checkout Taxmann's Webinar on Demystifying Taxation of Virtual Digital Assets (VDAs)

📋 Coverage of the Webinar:
✔️ Background 
• Fundamental technology powering Digital Assets 
• Lifecycle of Digital Assets 
• Types of Digital Assets 
• Journey of cryptocurrency in India so far 
• Regulatory stance across the globe 
• Examples of taxation of Virtual Digital Assets around the world 
• OECD – Crypto Asset Reporting Framework ('CARF') 
• Central Bank Digital Currency (CBDC) 
✔️ Global Perspective 
✔️ Indian Taxation provisions for Virtual Digital Asset

📢 Speaker: 
• Amit Rana – Corporate Tax Partner | PwC 

Here is a Link of the Webinar

3. Advance Ruling to determine the GST rate cannot be sought after receipt of show-cause notice: HC

The Madhya Pradesh High Court has held that no Advance Ruling can be sought for determining the GST rate after receipt of show-cause notice from the department for payment of GST at a particular rate on relevant activity.

Facts

The petitioner was a works contractor engaged in executing works related to the construction of an irrigation dam. The authorities searched the petitioner’s premises, and evasion of GST was detected. A show-cause notice was issued ot the petitioner calling upon to discharge GST liability at the rate of 18% as applicable on works contract services.

After receipt of SCN, the petitioner approached Authority for Advance Ruling contending that rate of taxes applicable to the sub-contractor should be 12% in view of Notification No. 11/2017 dated 22-8-2017. The Authority denied granting the advance ruling, and the petitioner approached Appellate Authority. The Appellate Authority also dismissed the appeal, and it filed a writ petition against the same by submitting that no such proceedings were pending against the petitioner. Therefore, Authority ought to have decided on the issue raised by the petitioner regarding the applicability of the rate of tax.

High Court

The High Court observed that the petitioner approached Authority for Advance Ruling after receipt of SCN. When the issue was pending before the GST authorities, the Authorities had rightly declined to grant advance ruling as the petitioner did not approach in advance before those Authorities to obtain a Ruling. Thus, the Court dismissed the writ petition.

Read the Ruling

Checkout Taxmann's GST Issues | Decoding GST Issues & Litigation Trends which is an attempt to explore the various controversies (existing legal/future controversies) and enforcement of provisions of GST. This has been done by exploring various statutory provisions & reported judgements on GST issues. The book aims to provide information and analysis on various GST related constitutional and legal issues. 

Here is a Sample Chapter for your Reference.

4. Madras High Court upholds SCNs issued under Customs Act by DRI officers

The Madras High Court has held that the officers of the Directorate of Revenue Intelligence (DRI) have the power to issue a show-cause notice by virtue of the amendment to the Customs Act, 1962 vide amendment by the Finance Act, 2022.

Facts

The petitioner filed a writ petition challenging the show-cause notice and order passed by the officers from the Directorate of Revenue Intelligence. It submitted that Order-in-Original was without jurisdiction as it emanated from a person who was not a “proper officer” within the meaning of Section 2(34) of the Customs Act, 1962.

High Court

The High Court observed that the officers from the Directorate of Revenue Intelligence (DRI) are now explicitly recognized as “Officers of Customs” under the Customs Act, 1952 by virtue of the amendment to the Customs Act, 1962 vide amendment by the Finance Act, 2022. That apart, there is a validation of all action taken by such officers under Section 97 of the Finance Act, 2022. The defence that officers were incompetent was no longer available to the petitioner. Therefore, this writ petition was liable to be dismissed on the ground that the officers of the Directorate of Revenue Intelligence (DRI) have indeed the power to issue show-cause notice.

Read the Ruling

Checkout Taxmann's Customs Law & Foreign Trade Policy which provides a subject/topic-wise, comprehensive yet concise commentary on Customs Law & Foreign Trade Policy in India. It also includes various Case Laws and a detailed explanation of various export promotion schemes. This book is amended by the Finance Act 2022. 

Here is a Sample Chapter for your Reference.

5. Non-bailable warrant against a director who didn’t cooperate with RP and failed to appear before AA was justified: NCLAT

In the instant case, the NCLAT justified issuing a non-bailable warrant to the suspended director of the corporate debtor for failing to produce the documents required and didn’t appear before the Adjudicating Authority.

Facts

An application under Section 7 of the IBC was filed by the financial creditor against the corporate debtor. The Adjudicating Authority (NCLT) admitted the said application and appointed the Resolution Professional (RP).

Thereafter, the Resolution Professional filed an application before the Adjudicating Authority on the ground of seeking direction to the suspended Board of Directors of the corporate debtor to supply documents as specified therein.

Then, when the suspended director of the corporate debtor didn’t cooperate with the Resolution Professional, he filed an application under Section 19 of the IBC.

The Adjudicating Authority directed the suspended director to surrender before the Tribunal and issued non-bailable warrants. However, the suspended directors moved an application to cancel the non-bailable warrant. The Adjudicating Authority dismissed the said application and directed them to surrender before the registrar and hand over all the documents.

Since the suspended directors failed to surrender, the Adjudicating Authority, by the impugned order, rejected the application for exemption of appearance. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT).

Questions raised before the Appellate Tribunal

(a) Whether Section 19 of the IBC read with Rule 77 of the NCLAT Rules, 2016 and Order XVI CPC fully empowers the Adjudicating Authority to issue a non-bailable warrant to a suspended director while exercising its jurisdiction or not?

(b) Whether the Adjudicating Authority rightly rejected the application for recall of non-bailable warrants or not?

(c) Whether prosecution under Section 70 of the IBC is a separate and independent proceeding, which in no manner fetter power of the Tribunal under Code?

NCLAT Ruling

The NCLAT held that Section 19 of the IBC read with Rule 77 of the NCLAT Rules, 2016 and with Order XVI Rule 10 of the Civil Procedure Code fully empowers the Adjudicating Authority to issue a non-bailable warrant for enforcing the attendance of a person. Thus, the power exercised by the Adjudicating Authority in issuing a non-bailable warrant to the appellants was well within the jurisdiction of the Authority.

The Adjudicating Authority (NCLT) rightly rejected the application for recall of non-bailable warrants since the appellant, without lawful excuse, failed to attend or produce the relevant documents in compliance with such summons.

The prosecution under Section 70 of the IBC is a separate and independent proceeding which in no manner fetter the power of the Tribunal under the Code. The submission of the appellants was that there was no provision which requires that a person against whom enforcement is sought must be physically present.

However, in the instant case, the Tribunal, to effectively discharge function by the Resolution Professional under the Code, has to issue appropriate direction in the interest of the Insolvency Resolution Process. Thus, to ensure the personal appearance of the parties, the Tribunal was fully competent to issue a non-bailable warrant, and other modes for enforcing the order of the Tribunal were not necessary to be adopted.

Thus, there was no error in the impugned judgment of the Adjudicating Authority rejecting the application for recall or cancellation of non-bailable warrants. Accordingly, the appeal was to be dismissed.

Read the Ruling

Checkout Taxmann's Insolvency and Bankruptcy Law Manual which contains a compilation of amended, updated & annotated text of the Insolvency and Bankruptcy Code 2016 (IBC) [as amended by the Insolvency and Bankruptcy Code (Amendment) Act 2021]. What sets this book apart is the unique way of presenting the text of the IBC along with 28+ Relevant Rules/Regulations, 7+ Guidelines, Notifications, Circulars, RBI Directions, etc.

Here is a Sample Chapter for your Reference.

6. Excel template of financial statements to be prepared by the non-corporate entities issued by ASB of ICAI

Financial Statements form the backbone for financial planning, analysis, benchmarking, and decision making. They provide information about the financial position, performance, and cash flows of an enterprise which is helpful for a wide range of users in making economic decisions. Users of the financial statements, such as present and potential investors, employees, lenders, suppliers, other trade creditors, and customers, need the financial information of the reporting entities to make various economic decisions.

But, the preparation of these financial statements further depends upon the structure of the organization. As there is a varied number of entities (corporate or non-corporate), formed to carry out business, commercial or other economic and social activities. Recognizing the importance of organizations structure, the ICAI has issued the “Technical Guide on Financial Statements of Non-Corporate Entities”.

The accounting standard board (ASB) of ICAI has also issued an excel format of the illustrative financial statements of Non-Corporate Entities as an annexure to the “Technical Guide on Financial Statements of Non-Corporate Entities”.

Read the Story

Checkout Taxmann's Audit of Financial Statements comprehensively covers the entire cycle of audit of financial statements, starting from the ‘appointment of the auditor’ to the ‘issuance of the audit report’. It also provides guidance on ‘risk-based audit’ as per the Standards on Auditing issued by the ICAI. This book will be helpful for audit assistants, engagement partners, and small & medium practitioners. 

Here is a Sample Chapter for your Reference.