Weekly Round-up on Tax and Corporate Laws | 8th to 13th April 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from April 08 to 13, 2024, namely:

a) No special drive to re-open cases of mismatch in HRA claims: CBDT;

b) Elections ahead, not civil war; HC denies plea to delay CA exams due to Lok Sabha elections;

c) Maximum stamp duty on AoA alteration is a one-time measure, refund order for subsequent capital increase to be upheld: SC;

d) Special procedure and compliance for manufacturers of tobacco, pan masala etc. deferred further till 15-05-2024;

e) Madras HC set aside order imposing tax liability on assessee due to mistakenly uploading duplicate invoices in GSTR-1 and

f) Treatment of Deferred Tax under Ind AS 12 for intended sale of PPE.

1. No special drive to re-open cases of mismatch in HRA claims: CBDT

The Central Board of Direct Taxes (CBDT) has clarified that there is no special drive to re-open cases of mismatch, and media reports alleging that large-scale re-opening is being undertaken by the CBDT are completely misplaced.

Certain instances of mismatch of information as filed by the taxpayer and as available with the Income Tax Department have come to the notice of the Department as part of its routine exercise of verification of data. In such cases, the Department has alerted the taxpayers to enable them to take corrective action. However, some posts on social media and articles in the media have highlighted enquiries initiated by the CBDT in cases where employees have made incorrect claims of HRA and rent paid.

At the outset, the board stated that any apprehension about retrospective taxation on these matters and re-opening cases on issues pertaining to HRA claims were completely baseless.

Data analysis was carried out in some high-value cases of mismatch between the rent paid by the employee and receipt of rent by the recipient for the FY 2020-21.

This verification was done in a few cases without re-opening the bulk of cases, especially since the Updated Return for FY 2020-21 (AY 2021-22) could have been filed by the taxpayers concerned only till 31.03.2024. Further, it was underlined that the objective of the e-verification was to alert cases of mismatches of information for FY 2020-21 only without affecting the others.

Read the Press Release

2. Elections ahead, not civil war; HC denies plea to delay CA exams due to Lok Sabha elections

A writ petition was filed before the Delhi High Court seeking to reschedule the Chartered Accountancy (CA) Intermediate and Final Examinations, scheduled to be conducted in May & June 2024.

It was argued that conducting the exams during the election period would impact the candidates’ right to vote, guaranteed under Article 326 of the Constitution of India. The petitioner also submitted that the elections would result in chaos, commotion and violence, affecting the candidates’ ability to prepare thoroughly before the examinations.

It was also argued that the elections would result in the unavailability of hotels and lodging places for candidates who travel to the concerned centres from outside districts or states.

The Delhi High Court held that the mere fact that certain individual candidates may face hardship cannot constitute the basis for the Court to derail the entire CA Intermediate, or Final, examination, which presently is to be undertaken by as many as 4,36,246 candidates.

None of the factors cited by the petitioners can constitute the basis for the Court to direct holding of the CA Intermediate and Final Examinations on any date other than the dates presently scheduled in that regard.

The Institute of Chartered Accountants of India (ICAI) has ensured that no examination is scheduled on a day when the elections are to take place or even a day before. The petitioner was less than fair to the security administration in place in their rather bleak prediction that there is likely to be chaos, commotion and violence during elections.

General elections are regularly conducted, and based on previous experiences, the Court has no grounds to question the ability or effectiveness of the existing security apparatus to guarantee that the elections occur in a fair and unbiased environment.

Further, the plea of violation of Article 21 is based on the petitioner’s prediction that the entire nation is bound to be in a state of turmoil during elections. There is no basis for this presumption. We are headed for elections, not civil war.

Read the Ruling

3. Maximum stamp duty on AoA alteration is a one-time measure, refund order for subsequent capital increase to be upheld: SC

The Supreme Court, in the matter of State of Maharashtra v. National Organic Chemical Industries Ltd. [2024] 161 taxmann.com 324 (SC), held that the maximum stamp duty of Rs. 25 lakhs on ‘Articles of Association’ (AoA) alteration would be applicable as a one-time measure and not on each subsequent increase in the share capital of the company.

Facts

In the instant case, the appellant (i.e. the State of Maharashtra) filed an appeal challenging the order of the Division Bench of the Bombay High Court. The Bombay High Court allowed the writ petition of the respondent company and directed the appellants to refund the stamp duty of Rs. 25 lakhs along with an interest to the respondent company.

The Respondent Company was incorporated with an initial share capital of Rs. 36 crores. In 1992, the respondent company increased its share capital to Rs. 600 crores and accordingly paid the applicable stamp duty of Rs. 1.12 crores.

Thereafter, Article 10 of Schedule-I of the Bombay Stamp Act, 1958 was amended by the Maharashtra Stamp (Amendment) Act, 2015, introducing a maximum cap of Rs. 25 lakhs on the stamp duty which would be payable by a company. Subsequently, the respondent company passed a resolution to increase its share capital to Rs. 1200 crores and paid Rs. 25 lakhs as stamp duty.

However, according to the respondent company, this was done inadvertently as it was soon realized that the stamp duty was not liable to be paid by them since the maximum stamp duty, which was Rs. 25 lakhs payable on AoA as per the provisions of the Stamp Act had already been paid by them in the year 1992.

Consequently, the respondent company wrote a letter to the appellant seeking a refund of the payment of stamp duty of Rs. 25 lakhs. However, this request was turned down by the appellant on the ground that whenever the authorized share capital of a company is increased, the stamp duty is payable on each such occasion at the time of filing of Form No. 5 as per section 97 of the Companies Act, 1956 and it is not a one-time measure.

The aggrieved respondent company filed a writ petition before the Bombay High Court seeking a refund of stamp duty of Rs. 25 lakhs along with an interest.

The Bombay High Court allowed the writ petition and directed the appellants to refund the stamp duty of Rs. 25 lakhs along with an interest @6% p.a. to the respondent company. Thereafter, an appeal was made to the Supreme Court.

Supreme Court Observations

The Supreme Court observed that the maximum cap of Rs. 25 lakhs would be applicable as a one-time measure and not on each subsequent increase in the share capital of the company. This interpretation was fortified directly by the Maharashtra Stamp (Amendment) Act, 2015, which amended the charging section for Articles of Association i.e., Article 10 of the Stamp Act.

Further, the Supreme Court observed that the sending of notice in Form No. 5 as per section 97 of the Companies Act can’t be categorized as an ‘instrument’ as it is a mandatory requirement for the company to provide information to the Registrar about the increased share capital.

Supreme Court Ruling

The Supreme Court held that in case of conflict between two laws, the general law must give way to the special law. A conjoined reading of the Stamp Act and the Companies Act would show that while the Stamp Act governs the payment of stamp duty for all manner of instruments, the Companies Act deals with all aspects relating to companies and other similar associations. Thus, the Companies Act is a special law, and the Stamp Act is a general law with regard to the Articles of Association, and the special will override the general.

Further, the Supreme Court held that although the amendment does not have a retrospective effect, however, since the instrument ‘Articles of Association’ remains the same and the increase was initiated by the respondent after the cap was introduced, the duty already paid on the same instrument would have to be considered.

It was not a fresh instrument that had been brought to be stamped, but only an increase in share capital in the original document, which the legislation had specifically made chargeable.

Therefore, the order of the High Court was to be upheld. Accordingly, the appellant was directed to refund Rs. 25 lakhs paid by the respondent company along with interest @ 6% p.a. within six weeks from the date of Judgement (i.e. April 05, 2024).

Read the Ruling

4. Special procedure and compliance for manufacturers of tobacco, pan masala etc. deferred further till 15-05-2024

Based on the recommendations of the 50th GST Council Meeting, the Government had previously prescribed a special procedure for the registered persons engaged in the manufacture of specified items such as Pan Masala, tobacco, and similar items.

Accordingly, the persons engaged in the manufacture of the specified items are required to follow the following special procedure:

a. Furnishing details relating to packing machines

b. Furnishing special monthly returns

The aforesaid procedure was required to be followed with effect from 01-04-2024. However, the Government has recently issued another notification, and the implementation of the special procedure has been deferred till 15-05-2024. In this regard, Notification No. 08/2024-Central Tax dated April 10th, 2024 has been issued.

Read the Notification

5. Madras HC set aside order imposing tax liability on assessee due to mistakenly uploading duplicate invoices in GSTR-1

The High Court of Madras has recently held that tax liability can’t be imposed on assessee for mistakenly uploading duplicate invoices in GSTR-1 due to an inadvertent error, but correct details were reported in the assessee’s GSTR 3B return. This ruling is given by the Honorable Madras High Court in case of A. Ansari Abu Agencies v. Superintendent of GST and Central Excise.

Facts

The petitioner was a registered person under GST and filed a return in GSTR-1 in relation to outward supplies for the period 2017-18. It committed an error by providing details pertaining to the same invoice more than once. Upon receipt of an intimation regarding such discrepancies, the petitioner replied thereto by stating that it was an inadvertent error and that the correct details were contained in the petitioner’s GSTR-3B return.

However, the tax liability was imposed on the petitioner for an inadvertent error, although no revenue loss was suffered from such an account. It filed writ petition against the demand order.

High Court

The Honorable High Court noted that the petitioner had submitted the reply to the notice and also submitted the certificates from the purchasers concerned. In those certificates, the purchasers stated that they had availed of input tax credit (ITC) by excluding the duplicate invoices.

Therefore, the Court held that the order imposing tax liability was to be set aside, and the matter was required to be reconsidered. The Court also directed the Department to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue a fresh order within two months from receipt of a copy of this order.

Read the Ruling

6. Treatment of Deferred Tax under Ind AS 12 for intended sale of PPE

The objective of Ind AS 12, Income Taxes, is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognized in an entity’s balance sheet.

While recognizing an asset or liability, the entity expects to recover or settle the carrying amount of that asset or liability either by use or sale. If it is probable that these future transactions will change the company’s tax payments, Ind AS 12 requires the entity to record this expected tax change now either by recognizing a deferred tax liability or asset.

For instance, where management of the company holds an intention to sell a piece of land classified as “Property Plant and Equipment (PPE)” at its purchase price of Rs. 25 lakhs and an indexed cost of Rs. 28 lakhs.

Additionally, para 51 requires that while measuring deferred tax liabilities and assets, entities should consider how they expect to recover or settle their assets and liabilities by the end of the reporting period and account for the tax consequences accordingly. Since, in the extant case, the company expects to sell the land instead of using it in the business at the end of the reporting period, the company shall create deferred tax assets on deductible temporary differences arising due to this intention of the management. The carrying amount as per Ind AS 12 will be the purchase price, i.e. Rs. 25 lakhs, and the tax base of land is indexed cost, i.e. Rs. 28 lakhs. This led to a deductible temporary difference of Rs. 3 lakhs (28 lakhs – 25 lakhs) and recognition of deferred tax assets at the tax rate applicable to the entity.

Read the Story