Weekly Round-up on Tax and Corporate Laws | 31st October to 5th November 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 31st October to 05th November 2022, namely:

(a) ITAT to apply the decision of a larger bench if there are conflicting decisions of non-jurisdictional High Courts: ITAT;

(b) Supreme Court clarifies the applicability of its ruling on charitable trust; matters decided against Revenue are final;

(c) Bombay High Court has territorial jurisdiction to entertain a Writ plea if Insolvency Professional has an assignment in Maharashtra;

(d) Appeal against cancellation of registration to be considered excluding bar of limitation: HC;

(e) Amount of bank guarantee to de-freeze the bank account should not include interest and penalty payable: HC; and

(f) How to present the movement in financial assets in the Cash Flow Statement?

1. ITAT to apply the decision of a larger bench if there are conflicting decisions of non-jurisdictional High Courts: ITAT

The issue before the Mumbai Tribunal was in what manner and to what extent the decisions of Hon’ble non-jurisdictional High Courts bind the lower judicial forums outside their jurisdiction.

The Mumbai Tribunal held that when there are conflicting decisions of non-jurisdictional High Courts and no decision of a jurisdictional High Court on an issue, the ITAT should not follow the rule to apply the favourable view to the assessee. It’s a conscious call that must be taken for the question of whether the non-jurisdictional High Court is required to be followed on the facts of a particular situation.

For Tribunal, it is a compulsion by law to follow a jurisdictional High Court decision. However, following a non-jurisdictional High Court is a call for judicial propriety. The decisions of the non-jurisdictional High Court are followed in letter and spirit if there is no contrary decision by the jurisdictional High Court.

Difficulties arise when there are conflicting views of the non-jurisdictional High Courts. Tribunal can’t choose the views of one of the High Courts based on its perceptions.

In the given case, there was one decision of the division bench consisting of two Hon’ble judges and another decision of a single judge bench consisting of only one Hon’ble judge.

The Tribunal has much simpler and more objective criteria readily available, which is the strength of the bench of the Hon’ble non-jurisdictional High Court which has rendered the judgment.

The plurality in the decision-making process makes the decisions of benches with a larger number of Hon’ble judges being placed on a higher pedestal than the decisions of the benches with fewer Hon’ble judges.

Between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court, a simple objective criterion of choice is the division bench decision to be preferred over the single judge bench decision.

Read the Ruling

2. Supreme Court clarifies the applicability of its ruling on charitable trust; matters decided against Revenue are final

The Supreme Court has clarified the applicability of its ruling delivered in the case of Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC) on past and future assessments.

The court, in said case, had considered and pronounced judgment upon the interpretation of Section 2(15) of the Income-tax Act concerning charitable trusts which engage in activities for the advancement of the object of general public utility.

Concerning the application of the law declared in Ahmedabad Urban Development Authority (Supra), the Apex Court held that if the appeals were decided against the Revenue, they would be treated as final.

However, in relation to the reference to the future application, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year.

Read the Ruling

Check out Taxmann's Trusts & NGOs Ready Reckoner which explains the tax implications during the life cycle of a charitable trust. It also features extensive discussions of the provisions of the Income-tax Act and provides tutorials and guides on the filing for various Forms under the Act. This book is amended by the Finance Act 2022. 

Here is a Sample Chapter for your Reference.

3. Bombay High Court has territorial jurisdiction to entertain a Writ plea if Insolvency Professional has an assignment in Maharashtra

In the matter of Partha Sarathy Sarkar v. IBBI [2022] 144 taxmann.com 51 (Bombay), the question was raised before the Bombay High Court as to whether the court had territorial jurisdiction to entertain Writ Plea when an Insolvency Professional was already having an assignment in Maharashtra?

Facts

In the instant case, the petitioner was an Insolvency Professional (IP). He was a professional member of the ICSI Institute of Insolvency Professionals (ICSI and IIP) and an Insolvency Professional (IP) registered with the IBBI.

A show cause notice was issued to the petitioner, and his registration as an IP was suspended for three years under the impugned order in respect of the proceedings against a company based in Delhi.

The petitioner assailed the order of registration suspension before the Bombay High Court. The Respondents raised a preliminary objection of the territorial jurisdiction to entertain the Writ Petition of this court as the order of suspension was passed by the authority at Delhi.

The Respondent contended that the petitioner had already filed an application before the Adjudicating Authority (NCLT), Delhi seeking a direction to hold a show cause notice issued by the Respondent to be an attempt to interfere in the course of proceedings qua the said application and issue appropriate directions. The said application was pending adjudication before the NCLT, Delhi, and this fact had been materially suppressed.

The Respondent also submitted that the entire cause of action had arisen at Delhi, and no part of the cause of action had arisen within the jurisdiction of the Bombay High Court. As such, the Bombay High Court may not entertain the Writ Petition.

High Court’s Ruling

The High Court held that the petitioner already had assignments in the State of Maharashtra as a Resolution Professional. Pursuant to the order of suspension, the petitioner would not be in a position to work as a Resolution Professional with assignments on hand in the State of Maharashtra.

The High Court further held that the petitioner would feel the effect of the impugned order in the State of Maharashtra and it could safely be concluded that part of the cause of action had arisen with the territorial jurisdiction of the Bombay High Court.

Read the Ruling

Check out Taxmann's Law & Practice of Insolvency & Bankruptcy (Set of 2 Vols.) which is Taxmann's flagship section-wise Commentary on Insolvency and Bankruptcy Code, 2016 (IBC) is the most updated & amended. It is presented in a section-wise, integrated/interconnected & comprehensive format. 

Here is a Sample Chapter for your Reference.

4. Appeal against cancellation of registration to be considered excluding bar of limitation: HC

The Rajasthan High Court has held that appeals against cancellation of registration to be considered, excluding the bar of limitation as such cancellation would not only restrict the assessee from carrying out business but would also violate their right to life and liberty.

Facts

The registration of the petitioner was cancelled on the ground that the appeal was not filed against the cancellation order. The petitioner filed a Writ petition and raised the grievance of not being able to file an appeal because of unavoidable reasons. It was also contended that it had been left remediless for hyper-technical reasons of the appeal against the cancellation of GST registration not being filed in time.

High Court

The High Court noted that the petitioner would not be able to continue with its business in the absence of GST registration. Thus, it would be deprived of livelihood, which would violate the right to life and liberty as enshrined in Article 21 of the Constitution of India. Therefore, it was held that the impugned order cancelling registration was to be set aside. The petitioner was also directed to file an appeal against the cancellation of registration within 10 days before the competent officer, and upon such appeal being filed, the same shall be considered and decided on all aspects in accordance with the law, excluding the bar of limitation.

Read the Ruling

Check out 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.

5. Amount of bank guarantee to de-freeze the bank account should not include interest and penalty payable: HC

The Gujarat High Court has held that the bank guarantee required to be furnished to de-freeze the provisionally attached bank account can’t include interest and penalty payable, but it would be restricted to tax amount payable.

Facts

The assessee has been engaged in the trading of ferrous and non-ferrous metals for the last two years. It was alleged to have availed ineligible input tax credit based on fake invoices issued by the supplier whose registration was cancelled. The current account of the assessee was attached to recover the demanded amount. The assessee agreed to give a bank guarantee to the extent ITC was wrongly availed. However, the Department urged that a bank guarantee be furnished in respect of the total amount, including interest and penalty.

High Court

In the instant case, the issue before the High Court was whether the bank guarantee required to be furnished would include interest and penalty along with tax amount. The assessee argued that it had made full payment of GST for the purchase transactions. If it had been aware that the registration of business of the seller had been cancelled, it would not have entered into any transaction with the seller.

The High Court noted that the bank guarantee amount should not include interest and penalty when the adjudication process is yet to be completed. Therefore, the assessee was required to submit a bank guarantee only to the extent of the payable tax amount, and the court directed Department to de-freeze the current account pursuant to the submission of the bank guarantee.

Read the Ruling

Check out Taxmann's Practical Guide to GST Compliances which is a perfect blend of question-answers, commentary, and tabular & diagrammatic presentations to deal with critical issues in GST compliances. It suggests a preventive, corrective, and defensive approach to tackle the problems in GST compliances. 

Here is a Sample Chapter for your Reference.

6. How to present the movement in financial assets in the Cash Flow Statement?

Ind AS-115 (Revenue from Contracts with Customers) states that the consideration received or receivable by the company is a right to a financial asset. Ind AS-7 (Statement of Cash Flows) defines ‘Operating Activities’ as the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. ‘Investing Activities’ are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

For the presentation of varied business activities in the cash flow statement, it is necessary to determine the nature of such activities in accordance with Ind AS-7 and, once it is determined that the particular activity being rendered by the company is an operating activity and the consideration receivable for the same is a financial asset, then the same shall be recognised as a financial asset in the books of accounts. But, the question arises of recognising a change in non-current financial assets.

In this regard, the Expert Advisory Committee of ICAI also provided that if the consideration is in lieu of rendering any activity that is in the nature of the operating activity of the company, then the consideration receivable in this context shall be recognised in the form of a financial asset, viz., a contractual right to receive cash.

Consequently, changes in such financial assets should be adjusted as ‘changes in operating receivables’ to determine the cash flow from operating activities under the indirect method.

Further, if a portion of the financial asset also contains any interest element, then it is considered a financing component in the transaction. Such financing component, which represents payment due to the time value of money, should be separated from the financial asset as per the relevant applicable Standard and should be considered and classified as cash flows from investing activities considering the requirements of paragraphs 31 and 33 of Ind AS 7.

Read the Story

Check out 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.