Weekly Round-up on Tax and Corporate Laws | 7th to 12th August 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from August 07th to 12th, 2023, namely:

(a) Pioneering Digital Privacy: Unveiling the Digital Personal Data Protection Act, 2023;

(b) Cost of acquisition of shares converted from FCCBs to be computed as per FCCB Scheme 1993 and not as per section 49(2A): SC;

(c) Limitation period to file an appeal under Section 107 will start from the date of service of manual order: Gujarat HC;

(d) Voluntary deposit made under protest during adjudication to be treated as part of pre-deposit for filing appeal: HC; and

(e) Accounting treatment of the transactions related to billing, collection, and disbursement in the capacity of CTU

1. Pioneering Digital Privacy: Unveiling the Digital Personal Data Protection Act, 2023

In an era where digital footprints trace our every move, and personal data flows across borders seamlessly, safeguarding individual information has become paramount. Addressing this concern, India has taken a significant stride by passing the Digital Personal Data Protection Act 2023 (DPDP Law). The Act received a seal of approval on August 11, 2023, as the President granted assent to the Digital Personal Data Protection Bill, officially enshrining it as an Act of Parliament.

This significant move underscores India’s dedication to bolstering privacy safeguards and upholding the principle of sharing personal data only with explicit consent. The key takeaways from the Digital Personal Data Protection Act 2023 are as follows:

a) Applicability of DPDP Law

The scope of the DPDP Law encompasses the handling of digital personal data within India, where such data is collected online or offline and then digitized. It will also apply to data processing outside India if it is for offering goods or services in India.

b) What is a personal data breach?

“Personal data breach” means any unauthorized processing of personal data or accidental disclosure, acquisition, sharing, use, alteration, destruction or loss of access to personal data that compromise confidentiality, integrity or availability.

c) Grounds for possessing personal data

Personal data can be possessed if it serves a legitimate purpose and the person whose data is being held, has provided explicit consent. However, consent may not be required for specified, legitimate uses such as the voluntary sharing of data by the individual or processing by the State for permits, licenses, benefits, and services.

d) Essential Elements of Voluntary and Informed Consent

The Data Principal’s consent (i.e. to whom personal data relates) must be voluntary, specific, well-informed, absolute, and clearly affirmative. It should indicate an acceptance of personal data processing for the stated purpose and should only cover the necessary data for that purpose.

e) Protecting children’s personal data and well-being: DPDP Law’s Safeguards

The DPDP Law establishes the principles governing handling children’s personal data. According to this law, a “Data Fiduciary” is required to obtain consent from a parent in order to gather and utilize a child’s personal data. For someone with a disability, they need permission from their legal guardian. This permission needs to be confirmed and proven.

f) Cross-border personal data transfer

The DPDP law allows data fiduciaries to transfer personal data outside India, except to countries or territories restricted by the Central Government, through an official notification. This provision has a significant impact on cross-border data flows and data protection.

g) Striking Penalties for Data Protection Offences

The DPDP law provides for penalty provisions. The Schedule to the Act specifies penalties for various offences, such as up to Rs 200 crores for non-fulfilment of obligations in relation to children, up to Rs 250 crores for failure to take security measures to prevent data breaches, etc.

h) Data Protection Board of India

The law requires the central government to establish the Data Protection Board of India. The Key functions of the Board include:

(i) monitoring compliance and imposing penalties,

(ii) directing data fiduciaries to take necessary measures in the event of a data breach, and

(iii) hearing grievances made by affected persons.

i) Appeal

If any person is aggrieved by an order or instruction given by the Board under this Act, he can file an appeal with the Appellate Tribunal within sixty days from the date of receipt of the order or direction.

Get the Digital Personal Data Protection Act, 2023

2. Cost of acquisition of shares converted from FCCBs to be computed as per FCCB Scheme 1993 and not as per section 49(2A): SC

The Supreme Court of India has ruled that the cost of acquisition of equity shares upon conversion of Foreign Currency Convertible Bonds (FCCBs) was not governed by provisions of section 49(2A); instead, it was always to be determined in accordance with special provisions of clause 7(4) read with clause 8(3) of the FCCB Scheme.

Facts

Assessee, a Cayman Island entity, purchased Foreign Currency Convertible Bonds (FCCBs) from a non-resident as per the scheme notified by the Central Government in 1993. During the year under consideration, assessee converted such bonds into equity shares and sold a part of such shares on stock exchange. To compute the quantum of capital gains, the assessee relied on clause 7(4) of the FCCB scheme and adopted the closing price of equity shares on the date of conversion of FCCBs into shares as its cost of acquisition. Accordingly, the computed gains were offered to tax as short-term capital gains.

In the assessment proceedings, the Assessing Officer (AO) held that the cost of acquisition must be computed in accordance with section 49(2A). Assessee filed write before the Bombay High Court.

The High Court held that Clause 7 of the scheme specified the cost of acquisition for conversion of FCCBs would be conversion price determined based on the price of the shares at the Bombay Stock Exchange or the National Stock Exchange on the date of the conversion of FCCBs into shares.

Supreme Court Ruling

The Supreme Court held that AO’s contention was with respect to the interpretation of Section 47 (xa), which was introduced through an amendment from the Finance Act, 2008, with effect from 01.10.2008. It was urged that a combined reading of that provision with Section 115AC ought to have led to a correct conclusion that the date of acquisition of the bonds by the assessee was the determinative time for its valuation.

The Apex Court upheld the findings of the High Court wherein it was held that the assessee was right in his contention that the AO fell in clear error in taking assistance from the amendments made by the Finance Act, 2008. The authority was not right in holding that the cost of acquisition of the shares as per clause 7(4) of the FCCB Scheme is not tenable.

AO attempted to read the provisions of the Income-tax Act introduced with effect from 1-4-2008 in relation to Foreign Currency Exchangeable Bond Scheme, 2008 and apply it to the FCCB Scheme of 1993. This is not correct.

It was evident that any scheme prior thereto and particularly the FCCB Scheme notified by the Central Government in 1993 and applicable with effect from April 01 1992 and enabling the computation of cost of acquisition, in terms thereof, was held to be unaffected.

The bonds issued in the instant case did not answer the description of the Foreign Currency Exchangeable Bond Scheme, 2008. They conformed with the earlier scheme relating to the Foreign Exchange Convertible Bonds Scheme 1993. The distinction between the two schemes is that one relates to the issuance of Exchange Convertible Bonds, whereas the other relates to Foreign Currency Exchangeable Bonds.

Thus, there was no infirmity with the Bombay High Court’s reasoning; accordingly, the revenue’s appeal was dismissed.

Read the Ruling

3. Limitation period to file an appeal under Section 107 will start from the date of service of manual order: Gujarat HC

The Honorable Gujarat High Court has recently held that the limitation period to file an appeal under Section 107 of the CGST Act, 2017 will start from the date of service of the manual order, even if the order was not uploaded online.

Facts

In the present case, the petitioner’s application for refund of accumulated ITC was rejected, and the order-in-original was served manually. The petitioner filed a fresh application for a refund which was rejected because an appeal was not filed against the earlier order and, therefore, attained finality.

The petitioner filed a writ petition against the rejection of the application and submitted that it could not file an appeal electronically, which is the only mode of filing an appeal against order due to the non-receipt of an electronic copy of the order.

The question placed before the High Court was to decide whether the petitioner’s contention that it was handicapped in filing the appeal, which can only be filed through electronic mode without uploading the order-in-original, was an acceptable stand or not.

High Court

The Honorable High Court noted that as per Section 169 of the CGST Act, any decision or order should be served by giving or tendering it directly or by a messenger, including a courier, to the addressee of the taxable person. In the present case, the petitioner admitted that the order was served manually, and Rule 108 prescribes that appeal has to be filed electronically. Still, it is nowhere prescribed that the same will be filed only after the impugned order is uploaded on GSTN Portal.

Further, the Court noted that merely because orders were subsequently uploaded would not render or save their appeals from same having been time-barred. Therefore, it was held that the limitation period to file an appeal under Section 107 would start from the date of service of the manual order, even if the order was not uploaded online. The petitioner’s contention that it was handicapped in filing the appeal in the absence of uploading such order on the portal was unacceptable. The Court also held that the petition was liable to be dismissed with no order as to costs.

Read the Ruling

4. Voluntary deposit made under protest during adjudication to be treated as part of pre-deposit for filing appeal: HC

The Honorable Bombay High Court has recently held that the amount deposited under protest during adjudication can’t be excluded from consideration for compliance of making a pre-deposit before the filing of appeal as mandated by sub-section (6) of Section 107 of CGST Act.

Facts

In the present case, the petitioner approached High Court alleging that GSTN Portal prevented it from lodging/filing a statutory appeal under Section 107 of the CGST Act without fulfilment of pre-deposit at the time of appeal. The petitioner contended that for the pre-deposit, the amount voluntarily deposited under protest should be accepted towards the fulfilment of such pre-deposit. However, the department contended that such deposit was not available for compliance of sub-section (6) of Section 107 of the CGST Act.

High Court

The Honorable High Court noted that an amount deposited under sub-section (5) section 73 of CGST Act is not an amount deposited in pursuance of any demand or assessment order. It would be a voluntary deposit, and such deposit would be accounted for in case of any liability of the assessee to pay tax, and would be integral to assessment. Therefore, the Court held that such deposit could not be excluded from consideration for compliance with pre-deposit as mandated by sub-section (6) of Section 107.

Read the Ruling

5. Accounting treatment of the transactions related to billing, collection, and disbursement in the capacity of CTU

A company invoices the customers on behalf of a state-licensed company. The main activity involves collecting customer charges and disbursing the amount to the licensed Company. Amounts collected are disbursed to the Licensed Company without any markup. The Company, for the purpose of accounting, disclosed such collected amount under “Revenue from Operations” in the Profit and Loss Statement and offset as payable in the Licensee’s bills without affecting the profit/loss of the Company.

But, as the Company is only acting as an agent here and not as a principal, the question arises whether the present accounting treatment being followed by the Company is in line with the respective accounting principle.

The Expert Advisory Committee (EAC) has provided its opinion on a similar issue that since the Company doesn’t exercise control over goods or services prior to customer transfer, thus, it is only acting as an agent and not as a principal in respect of billing, collection and disbursement services. Therefore, such an amount should not be presented as revenue in the profit and loss statement. Similarly, the disbursement to the licensed Company should not be displayed as purchases/cost of goods sold in the profit and loss statement.

Further, the Company should also not recognize the related asset and liability, viz., recoverable from customers and payable to the licensed Company in the books of accounts. Rather the Company should give appropriate disclosures of the judgment made by the management with regard to its billing, collection, and disbursement services.

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