Weekly Round-up on Tax and Corporate Laws | 3rd to 8th October 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 03rd to 08th October, namely:

(a) Air India is not to be treated as ‘assessee-in-default’ for lesser deduction of tax if payee furnishes Form 26A: ITAT;

(b) RBI issues concept note on CBDC; will launch ‘Digital Rupee’ on a pilot basis;

(c) High Court defines “information” based on which AO can initiate action under Section 148A;

(d) Clarification issued regarding the time limit for certain compliances pursuant to issuance of Notification No. 18/2022-CT;

(e) Instructions issued previously on the applicability of Judgement of ‘Westinghouse’ on ‘auto parts’ to remain intact: CBEC; and

(f) Govt. is entitled to levy GST and excise duty on tobacco and tobacco products: HC

1. Air India is not to be treated as ‘assessee-in-default’ for lesser deduction of tax if the payee furnishes Form 26A: ITAT

In an interesting Ruling, the Mumbai Tribunal has allowed the benefit of the proviso to Section 201(1) on lower deduction of tax at source (TDS). It should be noted that said proviso provides relief only when the assessee does not deduct tax or, after deduction, fail to pay same to the credit of Govt.

Facts

The assessee (Air India Ltd.) was in the business of transportation of passengers and cargo by air, mail, parcel, etc. Its wholly-owned subsidiary company (Air India Engineering Services Ltd (AIESL)) was approved by DGCA for aircraft repairs and maintenance.

During a survey, it was found that the assessee had paid a certain sum to AIESL for repairs/maintenance on which tax was deducted at source (TDS) at the rate of 2% under Section 194C.

The Assessing Officer concluded that the said services were in the nature of “fees for technical services” liable for TDS at the rate of 10% under Section 194J. Thus, he determined the amount of shortfall of TDS along with interest under Section 201(1A).

Ruling

The Tribunal held that as per the assessee’s contention, it shall be given the benefit of proviso to Section 201(1) as AIESL had duly offered payments as its income. Proviso to Section 201(1) provides that the assessee shall not be treated as an ‘assessee-in-default’ if it complies with certain conditions, namely:

(a) Payee has furnished his return of income under Section 139;

(b) Payee has taken into account such sum for computing income;

(c) Payee has paid the tax due on the income declared by him in such return of income; and

(d) Payer furnishes a certificate to this effect from an accountant in Form 26A.

When the Tribunal pointed out that the assessee is required to furnish a certificate from an accountant to avail the benefit of the proviso, the assessee submitted that it shall submit the same before the AO.

Accordingly, it was held that in the interest of natural justice, the contention of the assessee might be accepted. However, the claim of the assessee requires verification at the end of the AO. Thus, the order passed by CIT(A) was set aside and restored the matter before AO.

Read the Ruling

Check out Taxmann's Yearly Tax Digest & Referencer | Set of 2 Volumes which is a Section-wise Case Book of Judgements of Supreme Court/High Courts/Income-tax Appellate Tribunal reported in 2021. It also includes Circulars & Notifications issued by the Dept. along with Words & Phrases taken from the reported case laws. 

Here is a Sample Read for your Reference.

2. RBI issues concept note on CBDC; will launch ‘Digital Rupee’ on a pilot basis

In the Union Budget presented in the Parliament on 01-02-2022, the Government announced the Digital Rupee (CBDC). It was stated that the introduction of CBDC would boost the digital economy. The broad objective behind introducing CBDC using blockchain and other technologies is to achieve a ‘more efficient and cheaper currency management system’.

The Government of India also notified the necessary amendments in the Reserve Bank of India Act, 1934, which enables running the pilot and subsequent issuance of CBDC. Reserve Bank defines CBDC as the legal tender issued by a central bank in a digital form. It is the same as a sovereign currency and is exchangeable one-to-one at par (1:1) with the fiat currency. A CBDC would differ from existing digital money available to the public because a CBDC would be a liability of the RBI and not of a commercial bank.

RBI has issued a concept note on Central Bank Digital Currency (CBDC). The purpose behind the issue of this concept note is to create awareness about CBDCs in general and the planned features of the digital Rupee in particular.

The concept note explains the objectives, choices, benefits and risks of issuing a CBDC in India. It will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money. The note also explains the RBI’s approach towards introducing the Digital Rupee.

The concept note bifurcated the CBDCs into the following two categories:

(a) General Purpose (Retail) (CBDC-R)

(b) Wholesale (CBDC-W)

CBDC-R is available to all private sector, non-financial consumers and businesses. In contrast, CBDC-W is designed for restricted access by financial institutions.

The concept note further discusses the key considerations such as technology and design choices, possible uses of the Digital Rupee, issuance mechanisms, etc. The RBI will soon commence pilot launches of the Digital Rupee for specific use cases.

Read the Concept Note

Check out 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.

3. High Court defines “information” based on which AO can initiate action under Section 148A

In the instant case, the assessee was an educational institution claiming exemption under Section 10(23C). The Assessing Officer issued a notice to the assessee seeking a response on cash deposits and non-furnishing of return of income. The assessee submitted that it was not required to furnish a return of income for such relevant assessment year as per the provisions of the Income-tax Act.

Upon considering the response, AO passed an order under Section 148A(d) assigning reasons that the assessee accepted the transactions made in the bank account. Accordingly, the case is considered a fit case for issuance of notice under Section 148.

The assessee filed a writ petition before the Cuttack High Court challenging the validity of the notice issued and reassessment proceedings initiated.

The High Court held that AO had the information described in the notice itself, i.e., information about the deposit of cash in the banks by the assessee. Section 148A uses the word “information” that provides power to AO to initiate action under this provision.

The connotation of “information” in the context of reopening of assessment has succinctly been laid down by the Supreme Court in the case of Larsen & Toubro Ltd. v. State of Jharkhand [2017] 79 taxmann.com 267 (SC).

The Apex Court had held that information includes instruction or knowledge derived from external sources concerning facts, parties, or law relating to the assessment. Also, it includes the discovery of new facts or information available in the records not previously noticed.

The word “information” used in Section 148A is of the widest amplitude and should not be construed narrowly.

Suppose a mistake in the original assessment order is not discovered by AO. However, on further scrutiny, if it came to the notice of another AO or even by a subordinate or a superior officer, it would be considered as information disclosed to the incumbent officer.

In the instant case, the notice issued under Section 148A(b) demonstrated that the AO had in possession of “information” about the deposit of cash in the banks by the assessee. Accordingly, reassessment was justified.

Read the Ruling

Check out Taxmann's Law Relating to Reassessment which is a treatise on 'Reassessment under Income tax Act' containing each aspect of the law. The newly substituted provisions as per Finance Act 2022 have been incorporated appropriately. This book is not only characterised by its lucid explanations but also includes 2,500+ case laws and 170+ FAQs for the removal of doubts and to explain the issues further. 

Here is a Sample Read for your Reference.

4. Clarification issued regarding the time limit for certain compliances pursuant to issuance of Notification No. 18/2022-CT

The Central Government has appointed 01-10-2022 as the date on which the provisions of Sections 100 to 114, except clause (c) of Section 110 and Section 111 of the Finance Act, 2022 shall come into force.

Now, the time limit for several compliances such as claiming ITC, the rectification of GST returns, adjustment of credit notes, etc., has been extended and fixed as 30th November of the next financial year, or furnishing of annual return, whichever is earlier.

It is clarified that the extended timelines for compliances are applicable for FY 2021-22 onwards. It is further clarified that the said compliances in respect of a financial year can be carried out in the relevant return or the statement filed/ furnished up to 30th November of the next financial year or the date of furnishing the annual return for the said financial year, whichever is earlier.

Read the Press Release

Check out Taxmann's GST Practice Manual which is a comprehensive guide for day-to-day compliance with GST, helping you understand topics related to GST such as background, concepts, execution, challenges, and solution(s). It also explains the provisions of the GST law lucidly. This book is amended by the Finance Act 2022. 

Here is a Sample Chapter for your Reference.

5. Instructions issued previously on the applicability of Judgement of ‘Westinghouse’ on ‘auto parts’ to remain intact: CBEC

In the landmark judgement of Westinghouse Saxby, the Apex Court classified ‘Relays’ under Tariff heading 8608. The Court relied on the ‘Use Test’ of the product and held that Note 2(f) of Section XVII of the Customs Tariff Act, 1975 would not be applicable. The judgement created chaos in the Auto OEM industry for the classification of the parts. In view of this, the CBIC has earlier issued the instruction to its field officers.

Now, it is clarified that instructions will still remain valid as the review petition has been dismissed by the Apex Court.

Read the Instruction

Check out R.K. Jain’s Customs Tariff of India | Set of 2 Volumes which provides the complete text of the rate of duties as applicable on import and export of goods with amended tariff schedules w.r.t. to changes coming to effect from 1-5-2022 as per the Finance Act 2022. The book's coverage includes Customs Duty Rates & Exemptions, IGST, Export Tariff, Cesses, Anti-dumping, Safeguard, Additional Duties & Commodity Index.

 Here is a Sample Chapter for your Reference.

6. Govt. is entitled to levy GST as well as excise duty on tobacco and tobacco products: HC

The Karnataka High Court has held that the Government is entitled to levy CGST and excise duty on tobacco and tobacco products as CGST Act, 2017 itself contemplates the levy of excise duty upon tobacco and tobacco products.

Facts

The petitioner was involved in the manufacture and business of tobacco. It contended that by virtue of Notification No. 11/2017-Central Excise dated 30-6-2017, excise duty was not levied on tobacco and tobacco products from 01-07-2017, but after that, Notification No. 03/2019 dated 30-6-2019 was passed to levy excise duty. It filed a writ petition against the levy of excise duty.

High Court

The High Court observed that the CGST Act, 2017 contemplates the levy of Excise Duty in respect of goods included in Entry 84 of the Union list of the Seventh Schedule of the Constitution of India. The levy of excise duty on tobacco and tobacco products is a matter of public policy, and instant Court in the exercise of writ jurisdiction would not interfere with same. The CGST Act itself contemplates the levy of excise duty upon tobacco and tobacco products apart from taxing them under provisions of CGST. Thus, the Government would be entitled to levy CGST and excise duty on tobacco and tobacco products.

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.