Weekly Round-up on Tax and Corporate Laws | 23rd to 28th September 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from September 23rd to 28th, 2024, namely:

1. SEBI mandates UPI for public issue applications of debt securities for an amount up to Rs 5 lakh;
2. Notification No. 56/2023-CT issued without any recommendation of GST Council is ultra vires to CGST Act: HC;
3. Release of rights in co-owned property to be considered as transfer on date of release deed: ITAT;
4. CBIC notified effective date of applicability of GST provisions of Finance (No. 2) Act, 2024;
5. GSTN issued advisory on issuance of Notices/Orders without digital signatures of the issuing authorities;
6. SEBI shortens listing timeline for public issue of debt securities & NCRPS to T+3 working days from T+6; and
7. Tax Audit Checklist on clauses 33 and 34 of Form 3CD under the Income Tax Act, 1961.

1. SEBI mandates UPI for public issue applications of debt securities for an amount up to Rs 5 lakh

The Securities and Exchange Board of India (SEBI) vide. Circular dated September 24, 2024, has now mandated the use of UPI (Unified Payments Interface) by individual investors for making applications in the public issue of debt securities via intermediaries. Accordingly, all investors applying for public issues of securities through intermediaries (viz. syndicate members, registered stock brokers, registrar to an issue and transfer agent and depository participants) must use only UPI for the purpose of blocking funds, where the application amount is up to Rs 5 lakh.

These provisions shall apply to public issues of debt securities, non-convertible redeemable preference shares, municipal debt securities and securitized debt instruments opening on or after November 1, 2024.

1.1 Individual Investors to provide their bank account-linked UPI ID in bid-cum application form

Individual investors must provide their bank account-linked UPI ID in the bid-cum application form submitted to intermediaries. However, individual investors must continue to have the choice of availing other modes (viz. through Self-Certified Syndicate Banks and Stock Exchange Platforms) for making an application in the public issue.

1.2 SEBI’s UPI Mandate enhances convenience, speeds up processing and provides secure payments

This move is intended to streamline and align the process of applying for the public issue of debt securities, non-convertible redeemable preference shares, municipal debt securities, and securitised debt instruments with that of the public issue of equity shares and convertibles.

By mandating UPI for public issue applications, SEBI aims to improve investor convenience, ensure faster processing and provide a more secure and seamless payment process. The use of UPI is expected to reduce the reliance on traditional banking channels, expedite the allotment process and minimise delays caused by payment clearance. Further, this integration with UPI will likely lead to greater transparency and real-time tracking of funds, thereby strengthening investor confidence.

This change is set to positively impact both issuers and investors by simplifying the public issue application process, encouraging greater participation and improving the overall efficiency of the capital market.

Read the Circular

2. Notification No. 56/2023-CT issued without any recommendation of GST Council is ultra vires to CGST Act: HC

The Honorable Gauhati High Court has recently held that Notification No. 56/2023-CT, dated 28-12-2023, which extended the period for passing of order under section 73(10) of the Central Act, has been issued without any recommendation of GST Council, is ultra vires Central Act and the same is not legally sustainable in law. This ruling is given in the case of Barkataki Print and Media Services v. Union of India [2024] 166 taxmann.com 586 (Gauhati).

Facts

In the present case, the petitioner challenged the imposition of penalty on ground that the extension of period for passing of order under Section 73(10) of CGST Act, 2017 was ultra vires the Act as was issued without recommendation of GST Council and there was no force majeure. The petitioner contended that the Notification No.56/2023-CT were issued without any recommendation of GST Council.

High Court

The Honorable High Court noted that the Notification No. 56/2023-CT, dated 28.12.2023, extended the period for passing of order under Section 73(10) of CGST Act, 2017. However, this Notification was issued without recommendation of GST Council and the Court had no occasion to consider existence of force majeure. Since, the power to extend the time limit under Section 168A is a delegated power to issue a Notification, which can be termed as delegated or secondary legislation. The primary legislation is the CGST/SGST Act.

The use of the phrase “on the recommendation of the Council” in Section 168A suggests that the power to be exercised under Section 168A by the Government is when a recommendation is made by the GST Council. Therefore, the Court held that the Notification No.56/2023-CT issued without any recommendation of GST Council is ultra vires and same is not legally sustainable in law.

Read the Ruling

3. Release of rights in co-owned property to be considered as transfer on date of release deed: ITAT

The assessee, along with four other co-owners, purchased land in 2010. Subsequently, the assessee, vide release deed in 2013, released 25% of the right in the property in favour of the remaining co-owners and handed over possession of the property.

However, by way of another document titled Deed of Declaration in 2014, they made certain declarations in respect of the title of the property and consideration paid to the assessee. While furnishing the return of income, the assessee computed long-term capital gain from the transfer of property by considering the date of transfer of property as 2014 with reference to the Deed of Declaration executed by three persons. Accordingly, gain derived from the transfer of said land was declared under the head Long Term Capital Gain.

The Assessing Officer (AO) assessed gain by considering the date of transfer as per the Release Deed in 2013, as the assessee had released rights in the property. Since the period of holding of the asset by the assessee from 2010 to 2013 was less than 36 months, the AO assessed the profit as Short Term Capital Gain. Accordingly, the deduction claimed under section 54/54F was also rejected.

On appeal, the CIT(A) sustained the additions made by the AO. Aggrieved by the order, an appeal was filed to the Chennai Tribunal.

The Tribunal held that there was no dispute regarding the facts of the case. The assessee released its right to the property in favour of the remaining co-owners through a Release Deed in 2013. As per the recitals of such a Release Deed, there was no dispute regarding the fact that the assessee had received consideration and also handed over possession of the property to the releasees on the very same day.

Thus, it was undoubtedly clear that the transfer, as defined under section 2(47) of the Income-tax Act read with section 53A of the Transfer of Property Act, 1882, was satisfied on the execution date of such release deed. If one considers the date of purchase of the property and such Release Deed, then the period of holding of an asset by the assessee is less than 36 months.

It was held that the Deed of Declaration was a unilateral document, wherein a declaration was made by the releasees of which the assessee was not a party. Further, as claimed in the Deed of Declaration, what was the problem in handing over the possession of the property was not proved. In any way, transfer as per section 2(47) occurs when conditions are satisfied as per section 53A of the Transfer of Property Act, 1882.

Therefore, the property transfer occurred on the date the assessee released his right to the property through a Release Deed in 2013. The gains derived from property transfer were categorised as Short Term Capital Gains. Accordingly, it was held that the deduction claimed under section 54/54F was rightly rejected.

Read the Ruling

4. CBIC notified effective date of applicability of GST provisions of Finance (No. 2) Act, 2024

The CBIC has issued notification to provide that the provisions of sections 118, 142, 148 and 150 of the Finance (No. 2) Act, 2024 shall come into force from 27th September, 2024. However, the provisions of sections 114 to 117, 119 to 141, 143 to 147, 149 and 151 to 157 of the said Act shall come into force from 1st November, 2024. In this regard, Notification No. 17/2024-Central Tax dated September 27th, 2024 has been issued.

Read the Notification

5. GSTN issued advisory on issuance of Notices/Orders without digital signatures of the issuing authorities

The GSTN has issued an advisory regarding the validity of documents issued by the tax officers on the common portal viz. SCN/Orders without the Digital signatures on the pdf document downloaded from the common portal. In this context, it is to be mentioned that such documents are generated on the common portal from the login of the officer, who logs in through Digital Signatures.

The validity of the document in question vis-à-vis who and for what purpose these documents have been issued can also be verified by the taxpayer pre-login as well as after login from the GST common portal by navigating to the following path: https://www.gst.gov.in–>Dashboard–>Services–>User Services–>Verify RFN. In this regard, GSTN Update dated 26th September, 2024 has been issued.

Read the GSTN Update

6. SEBI shortens listing timeline for public issue of debt securities & NCRPS to T+3 working days from T+6

The Securities and Exchange Board of India (SEBI), vide. Circular dated September 26, 2024, has decided to reduce the listing timeline for public issues of debt securities and Non-Convertible Redeemable Preference Shares (NCRPS) from the current T+6 working days to T+3 working days. Further, for ease of compliance, issuers can voluntarily adopt the T+3 timeline up to 1 year, after which it will become mandatory.

6.1 Existing Norms for listing of debt securities and Non-Convertible Redeemable Preference Shares

Para 12 of Chapter I of the Master Circular dated May 22, 2024, issued by the SEBI, specifies that the listing of debt securities and Non-Convertible Redeemable Preference Shares (NCRPS) issued through public issue process must be completed within T+6 working days from the date of closure of the issue.

In addition to this, Regulation 37(2) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, applicable to public issues of debt securities and NCRPS, requires issuers to refund the application money in the event of failure to list such securities within specified timelines.

6.2 SEBI has reduced the listing timeline for public issue of debt securities and NCRPS to T+3 working days

SEBI has reduced the listing timeline for public debt securities and NCRPS to T+3 working days from the existing T+6 working days. This move aims to facilitate faster access to funds for issuers, enabling investors to receive early credit and liquidity for their investments. It also seeks to align the listing timeline of the public issue of debt securities and NCRPS with that of non-convertible securities issued on a private placement basis and specified securities.

Further, to ensure ease of compliance for issuers, the listing timeline of T+3 working days is introduced as an option to issuers for a period of one year, after which it will become mandatory, with all listings occurring on a T+3 basis permanently.

Accordingly, during the period of voluntary applicability of the listing timeline of T+3 working days, the provisions of Regulation 37(2) of NCS Regulations must become applicable only after T+6 working days, even in cases where the issuer has chosen T+3 as the listing timeline but fails to meet the same. The T+3 timeline for listing must be appropriately disclosed in the offer documents of the public issues.

6.3 Applicability of new timeline

The provisions of this circular shall apply as follows –

• Voluntary Basis – For public issues of debt securities and NCRPS opening on or after November 1, 2024
• Mandatory Basis – For public issues of debt securities and NCRPS opening on or after November 1, 2025.

6.4 Reduction in listing timeline aims to boost liquidity and streamline fundraising for Issuers

Reducing the listing timeline for the public issue of debt securities and NCRPS from T+6 working days to T+3 working days is expected to enhance liquidity for investors by allowing quicker access to their funds. This change will streamline the fundraising process for issuers, thereby attracting more investment by offering faster credit.

Additionally, aligning listing timelines with non-convertible securities issued via private placements may promote uniformity in market practices, thereby promoting a more efficient capital market environment. These measures aim to enhance investor confidence and encourage greater market participation.

Read the Circular

7. Tax Audit Checklist on clauses 33 and 34 of Form 3CD under the Income Tax Act, 1961

Clause 33 of Form 3CD requires tax auditors to report and verify deductions under Chapter VIA and exemptions for new undertakings in Free Trade Zones and SEZs, ensuring compliance with judicial rulings. Whereas, clause 34 outlines TDS and TCS reporting, including verifying deductions, timely filing of statements, and reporting interest liability for defaults in tax deduction or collection.

Checklists are crucial in ensuring compliance and accuracy when reporting in Form 3CD. Below are the key tax audit checklist pointers for Clauses 33 and 34 of Form 3CD:

7.1 Clause 33 of Form No.3CD

• Verify deductions claimed under Chapter VIA (Sections 80G, 80JJAA, 80P) and exemptions under Sections 10A/10AA for undertakings in Free Trade Zones and SEZs.
• Confirm that all conditions for claiming deductions are met, and amounts are cross-checked with the books of accounts.
• Ensure that valid evidence like receipts and certificates supports all deductions.
• If other auditors are also involved, follow SA-600, Using the work of another auditor.
• Verify if the assessee has opted for taxation under sections 115BA, 115BAA, etc., which may restrict certain deductions.
• Ensure consistency between reported deductions and other auditors’ certificates if applicable.

7.2 Clause 34 of Form 3CD

• Determine whether the assessee is required to deduct/collect tax under Chapter XVII-B (TDS) or XVII-BB (TCS).
• Consider judicial rulings related to TDS/TCS provisions for accurate reporting.
• Cross-check deductions from books of accounts, income tax returns, and related documents.
• Reconcile TDS/TCS amounts with books and ensure compliance with reporting requirements.
• Report the Tax Deduction and Collection Account Number (TAN), and provide details about transactions subject to TDS/TCS.
• Verify interest liability under Sections 201(1A) and 206C(7) for defaults in deduction or collection of tax.
• Document any disputes regarding interest calculation and include recalculated interest amounts in the audit report.

Read the Story