Weekly Round-up on Tax and Corporate Laws | 26th September to 1st October 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 26^th September to 1^st October, namely:

(a) CBDT notifies Form 69 for making an application for recomputation of income due to disallowance of surcharge/cess;

(b) Premature closure clause will not be triggered on the death of the holder of ‘Senior Citizens Savings Scheme’;

(c) Appeal for restoration of Co.’s name can’t be maintained by a person whose status as its director is disputed: Supreme Court;

(d) Bank can file a writ petition under Article 32 against RBI directions which are based on a Supreme Court’s judgement: SC;

(e) RBI hikes the repo rate by half a per cent to 5.90% to control inflation;

(f) Foreign Trade Policy 2015-2020 extended till 31st March 2023;

(g) CBIC notifies amendments of Finance Act, 2022 w.e.f 1st October 2022;

(h) Pre-deposit of 10% of disputed tax can be paid from the credit available in Electronic Credit Ledger: Bombay HC; and

(i) Criteria for allocation of Administration-Related manpower cost incurred during the project implementation phase.

1. CBDT notifies Form 69 for making an application for recomputation of income due to disallowance of surcharge/cess

The Finance Act, 2022 inserted Explanation 3 with retrospective effect from the Assessment Year 2005-06, providing that for disallowance under Section 40(a)(ii), the term ‘tax’ shall include and be deemed to have always included ‘surcharge’ or ‘cess’. Accordingly, the deduction for ‘cess’ or ‘surcharge’ shall not be available even for the past period.

Section 155 contains provisions for the amendments in the assessment order. The provision provides that the assessment of a person shall be modified if, due to change in certain circumstances, his income is required to be re-computed.

Consequent to the amendment made in Section 40(a)(ii), the Finance Act 2022 also inserted a new sub-section (18) to Section 155 empowering the Assessing Officer to re-compute the total income for such previous year in which the assessee claimed deduction of surcharge or cess.

The income so computed shall be treated as under-reported income, and the assessee shall be liable to pay tax on it along with a penalty of 50% of the amount of tax payable on under-reported income.

However, if the assessee makes an application to AO for the recomputation of total income without allowing the deduction of surcharge or cess and pays the tax, such a claim shall not be deemed to be under-reported income.

To implement this, the CBDT has inserted a new Rule 132 to the Income-tax Rules, 1962, prescribing the manner for making applications before AO. Said rule provides as follows:

(a) The assessee shall make an application, in Form No. 69, requesting AO for recomputation of total income of the previous year without allowing the claim for deduction of surcharge or cess;

(b) The application shall be furnished electronically on or before 31-03-2023 to PDGIT (Systems) or other prescribed tax authorities;

(c) PDGIT (Systems) or the DGIT (Systems) shall lay down the procedures and standards for furnishing and verification of Form No. 69 and forward the application to AO;

(d) On receipt of the application, the AO shall re-compute the total income by amending the relevant order. He shall issue a notice under Section 156 specifying the time within which amount of tax payable (if any) is to be paid:

• • • For AY in which assessee had claimed the deduction; and
    • For the subsequent AYs, if the order results in variation in the carry forward of loss or allowance for unabsorbed depreciation or credit for tax under Sections 115JAA or 115JD.

(e) The assessee shall furnish the details of payment of tax in Form No. 70 to AO within 30 days from the date of making the payment.

Read the Notification

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2. Premature closure clause will not be triggered on the death of the holder of ‘Senior Citizens Savings Scheme’

The Senior Citizen Saving Scheme (SCSS) is a Central Government sponsored program for senior citizens and retired persons. The amount deposited under the scheme is considered for tax deduction under Section 80C. The deposit under this scheme earns interest at the rate of 7.4% (7.6% with effect from 01-10-2022).

The deposit under this scheme shall be made for a period of 5 years. However, the account holder may extend the account for a further period of 3 years by making an application.

Account holders also have the option to close the account prematurely at any time by making an application in Form-2. If the account is closed within one year, interest paid on the deposit is recovered from the sum payable to the account holder. However, if it is closed after 1 year, a recovery of 1% to 1.5% of the deposit shall be made from the account holder.

The Ministry of Finance (FinMin) has noticed that in the case of the account holder’s death, the operating agencies close the SCSS account by treating it as premature closure.

Thus, FinMin has clarified that the premature closure clause of the Senior Citizens Savings Scheme will not be triggered on the demise of its account holder. The premature closure of the account is applicable only when the SCSS account holder requests for closure of his account before the maturity period.

Further, in case of the death of the account holder and the account is being closed on request of the nominee/legal heir, the rate of interest as applicable on the SCSS scheme shall be paid till the date of demise of the account holder. Thereafter, the interest rate applicable on Post Office Savings Account shall be paid from the date of demise of the account holder till the date of final closure of the account.

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3. Appeal for restoration of Co.’s name can’t be maintained by a person whose status as its director is disputed: Supreme Court

In the instant case, the question raised before the Court was whether an appeal for restoration of the name could be filed by the director whose status is in dispute.

Facts

In the instant case, an appeal was filed against the order passed by the High Court of Calcutta, setting aside the order of the Registrar of Companies (RoC) striking off the name of the company under Section 560(5) of the Companies Act, 1956.

The RoC alleged that the company was not functioning properly and not carrying out any business, and the last annual return was filed for the year 2002-2003.

Aggrieved by order of ROC, a complaint was filed by the appellant, who was one of the company’s directors, in the year 2010 before the High Court. The High Court allowed the application on the ground that the procedure as prescribed under Section 560 was not followed before striking off the name of the company and passed an order to restore the name of the company.

Thereafter, an appeal was made to the Supreme Court against the order passed by the High Court.

Supreme Court’s ruling

The Supreme Court held that an appeal for restoration of the name of the company struck off by RoC as defunct cannot be maintained by a person whose status as director of the defunct company was disputed and not evident from documents filed with RoC when the company’s name was taken out of the records of RoC.

The Supreme Court further held that the filings of the individual as a director after the company’s name is struck off cannot give the individual the right to file/maintain an appeal for restoration of the name of the company until the dispute as to his status was decided in his favour by the civil Court. Accordingly, the appeal was to be dismissed.

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4. Bank can file a writ petition under Article 32 against RBI directions which are based on a Supreme Court’s judgement: SC

In the instant case, a question was raised before the Court whether a writ under Article 32 could be filed against the RBI’s directions based on the Supreme Court’s judgement.

Facts of the case

The HDFC Bank (petitioner) challenged the RBI’s directions to the petitioner to disclose certain information. The petitioner argued that such direction is contrary to the RTI Act, the RBI Act and the Banking Regulation Act, 1949, and it also adversely affects the right to privacy of such Banks and their consumers.

The council objected that no petition could be filed in this case as the RBI has issued such directions in view of the decision of the Supreme Court in the case of Jayantilal N. Mistry and Girish Mittal.

Supreme Court’s ruling

The Court found that the judgement of the Supreme Court in the case of Jayantilal N. Mistry did not take into consideration the aspect of balancing the right to information and the right to privacy.

The Court further held that this Court being the Apex Court, no litigant has any opportunity of approaching any higher forum to question its decision. The only remedy available to the petitioners would be to approach this Court by way of a writ petition under Article 32 of the Constitution of India for the protection of the fundamental rights of their customers, who are citizens of India. As such, the petitioners would have no other remedy than to approach this Court. Therefore, the preliminary objection raised by the petitioner was rejected.

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5. RBI hikes the repo rate by half a per cent to 5.90 % to control inflation

The Monetary Policy Committee (MPC) of the RBI has announced an increase in the policy repo rate under the liquidity adjustment facility (LAF) by 50 bps to 5.90 per cent with an immediate effect. Earlier, the prescribed repo rate was 5.40 per cent. Accordingly, the standing deposit facility (SDF) rate stands adjusted to 5.65 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.15 per cent.

This is the fourth repo rate hike in 5 months. Till the last Monetary Policy meeting on 5^th August 2022, the RBI had already raised the repo rate by 140 bps from 4% to 5.4% within a short period of 93 days. After the recent hike, the repo rate has increased by a total of 1.9% (50 bps plus 140 bps) since May this year.

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6. Foreign Trade Policy 2015-2020 extended till 31st March 2023

The validity of the existing Foreign Trade Policy 2015-2020, which was earlier valid up to 30^th September 2022 has been extended till 31^st March 2023. The validity of the Handbook of Procedures 2015-20 has also been extended till 31^st March 2023.

Further, the time limit of furnishing the annual report by the authorisation holder to the concerned RA on fulfilment of the export obligation under Para 5.15 of Handbook of Procedures (HBP) 2015-2020 has been extended till 31^st December 2022.

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7. CBIC notifies amendments of Finance Act, 2022 w.e.f 1^stOctober 2022

The CBIC has made the provisions of the Finance Act, 2022, relating to GST, effective from 1^st October 2022. The key changes applicable from 1^st October 2022 include:

(a) A registered person can avail ITC in respect of invoices or debit notes up to the earlier of the following dates:

• • • 30th November following the end of the financial year to which such invoice/debit note pertains, or
    • Furnishing of the relevant Annual Return

This time period is also provided to rectify errors or omissions in Form GSTR 1 or GSTR 3B.

(b) ITC can be availed when the ITC, in respect of the supply, has not been restricted in the details communicated to the taxpayer in Form GSTR-2B under newly substituted Section 38. The taxpayers would not be entitled to claim the ITC restricted in auto-generated statements owing to scenarios mentioned in Section 38.

(c) The time limit for refund claims on inward supply by UIN holders has been increased from 6 months to 2 years from the last day of the quarter in which such supply was received.

(d) The due date of filing the monthly returns (Form GSTR-5) by Non-Resident Taxable Person (‘NRTP’) changed from the 20th to 13^th of the subsequent month.

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8. Pre-deposit of 10% of disputed tax can be paid from the credit available in Electronic Credit Ledger: Bombay HC

The Bombay High Court has held that the assessee can pay 10% of the disputed tax from the credit available in the Electronic Credit Ledger for filing an appeal before the Appellate Authority under Section 107.

Facts

Section 107 of the CGST Act, 2017 requires a mandatory pre-deposit before the filing of an appeal. According to Revenue, the appellant can utilise the credit available only in the Electronic Cash Ledger. The question before the High Court was whether a taxpayer could pay the amount of pre-deposit of 10% of the disputed tax amount by utilising the credit available in the Electronic Credit Ledger.

High Court

The High Court noted that as per CBIC Circular F. No. CBIC-20001/2/2022-GST, dated 06-07-2022, any payment towards output tax, whether self-assessed or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilisation of the amount available in the electronic credit ledger of a registered person.

Since the CBIC has already clarified that the credit ledger can be used for payment of output tax payable under any proceedings, it was held that the pre-deposit of 10% of disputed tax could be paid from the credit available in Electronic Credit Ledger.

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9. Criteria for allocation of Administration-Related manpower cost incurred during project implementation phase

Ind AS 16 (Property, Plant and Equipment) states that costs of an item of property, plant, and equipment (PPE) include any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It further states that the cost of employee benefits arising directly from the construction or acquisition of the item PPE forms part of the directly attributable costs.

Accordingly, the manpower costs that are directly attributable to bringing the PPE to the location and condition necessary for it to be capable of operating in the manner intended by the management should be capitalised with the item of PPE.

But, the manpower costs that are in the nature of administration and general overheads, such as costs related to Accounts Officer, CFO etc., cannot be considered to be a directly attributable cost for the Project/PPE and should, ordinarily, not be capitalised with the item of PPE.

However, in certain exceptional cases, if it is demonstrated that these are directly attributable costs for bringing the Project/PPE to the location and condition necessary for it to be capable of operating in the manner intended by management, these costs can be capitalised. But, the ratio/proportion in which such expenses may be capitalised needs to be determined by the entity, considering the nature and extent of these expenses/activities being directly attributable as per the requirements of Ind AS 16 in its specific facts and circumstances and using proper rationale.

Hence, the extent to which these costs are directly attributable to PPE/Project is a matter of judgement in the specific facts and circumstances, which should be exercised and demonstrated by the management of the entity.

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