Clause 15 of Form No. 3CD requires reporting specific details regarding the conversion of a capital asset into stock-in-trade. This includes describing the description of the capital asset, date of acquisition, cost of acquisition, and amount at which the asset is converted into stock-in-trade.

These particulars must be provided for the previous year in which the asset was converted into stock-in-trade. It’s important to note that Clause 15 focuses solely on these details related to the conversion process and does not mandate the inclusion of information concerning the tax implications, such as capital gains or business income arising from the conversion.

In this story, we have discussed the checklist applicable to clause 15 that will assist the tax auditor in the tax audit of clause 15.

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Editorial Team – [2024] 163 taxmann.com 763 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Canada implements Digital Service Tax & Global Minimum Tax

On June 20, 2024, Canada’s Department of Finance announced that the Fall Economic Statement Implementation Act, 2023 (Bill C-59) and the Budget Implementation Act, 2024, No. 1 (Bill C-69) received royal assent.

The 2023 Fall Economic Statement emphasises measures to enhance affordability, expand housing availability, and ensure equitable economic growth nationwide.

Bill C-69 reflects the federal government’s commitment to building a Canada that benefits all generations.

Bill C-69 includes the Global Minimum Tax Act, which enacted a 15% global minimum tax under Pillar Two for qualifying multinational enterprise groups (MNEs) starting from December 31, 2023.

Key provisions of the Fall Economic Statement Implementation Act 2023 include:

• Introduction of a 3% digital services tax (DST) under the Digital Services Tax Act, pending implementation date to be determined by the Governor in Council, not before January 1, 2024.
• Implementing earnings-stripping rules following BEPS Action 4 guidelines, limiting the deduction of net interest expenses to a fixed ratio of tax EBITDA. Initially set at 40% for fiscal years beginning October 1, 2023, and then reduced to 30% for fiscal years starting January 1, 2024.
• Enforcement of hybrid mismatch rules under BEPS Action Two guidelines to address discrepancies in deduction and non-inclusion.
• Denying the dividend received deduction for dividends received by Canadian financial institutions on certain shares held as mark-to-market property.
• Implementing a number of amendments to the general anti-avoidance rule (GAAR) as well as introducing a new penalty applicable to transactions subject to the GAAR and extending the normal reassessment period for the GAAR by three years in certain circumstances.

Source:

• Fall Economic Statement Implementation Act, 2023 (Bill C-59)
• The Budget Implementation Act, 2024, No. 1 (Bill C-69)

2. Minimum effective taxation standard for ultra-high-net-worth individuals; Report by Brazilian G20 presidency

In February 2024, the Brazilian G20 Presidency invited Professor Gabriel Zucman to speak to assembled G20 Finance Ministers in Sao Paulo. His objective was to advocate for a reform to ensure global tax progressivity. During his address, Zucman proposed implementing a coordinated minimum taxation standard for billionaires, building upon previous international cooperation efforts to address the wealthiest individuals’ low effective taxation rates. Subsequently, the Brazilian G20 Presidency commissioned a report to assess the practicality of this proposal.

On June 25, 2024, Gabriel Zucman published a report on a coordinated minimum effective taxation standard for ultra-high-net-worth individuals.

This report presents a proposal for an internationally coordinated standard ensuring the effective taxation of ultra-high-net-worth individuals. In the baseline proposal, individuals with more than $1 billion in wealth would be required to pay a minimum tax annually equal to 2% of their wealth.

This standard could be flexibly implemented by participating countries through various domestic instruments, including a presumptive income tax, an income tax on a broad notion of income, or a wealth tax.

The reports draw the following main conclusion:

• Leveraging recent advancements in international tax cooperation, such a unified standard has now become technically viable.
• It could be effectively enforced, even without universal adoption, through strengthened exit taxes and the implementation of “tax collector of last resort” mechanisms, akin to the coordinated minimum tax applied to multinational corporations.
• Introducing a 2% minimum tax on billionaires’ wealth would generate approximately $200-$250 billion annually globally from around 3,000 taxpayers. Extending this tax to cent millionaires would add an additional $100-$140 billion.
• This global standard would effectively mitigate the regressive elements found in current tax systems among the wealthiest individuals.
• Rather than replacing them, it would complement domestic progressive tax policies by enhancing transparency regarding high-end wealth, reducing incentives for tax avoidance, and preventing a competitive downward spiral in tax rates.
• Its economic implications should be evaluated in light of the observed average annual pre-tax return on wealth for ultra-high-net-worth individuals, which has been 7.5% over the past four decades (adjusted for inflation), and the current effective tax rate on billionaires, amounting to 0.3% of their wealth.

Source: A Blueprint Ultra-High-Net-Worth For A Coordinated Taxation Standard For Individuals

Click Here To Read The Full Article

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Case Details: Ashish Gupta vs. Income-tax Officer - [2024] 163 taxmann.com 739 (Delhi-Trib.)

Judiciary and Counsel Details

• Shamim Yahya, Accountant Member & Ms Madhumita Roy, Judicial Member
• Subodh Gupta & Mukesh Agarwal, CAs for the Appellant.
• Kanv Bali, Sr. DR for the Respondent.

Facts of the Case

The assessee, an individual, sold land that he treated as agricultural land and did not disclose the capital gains in his return of income. The Assessing Officer (AO) noted that the said land was situated within 5 km of the municipal limits of Ghaziabad and asked the assessee to furnish a computation of capital gain on the transfer of this property.

The assessee responded that the said land is agricultural and does not fall within the meaning of capital assets as per provisions of section 2(14). AO rejected the assessee’s contention and held that the said land is about 5 km from the municipal limits of Ghaziabad. The asset transferred by the assessee during the year is held to be a capital asset within the meaning of Section 2(14), which was chargeable to capital gain tax.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) upheld the AO’s order, and the matter then reached the Delhi Tribunal.

ITAT Held

The Tribunal held that the assessee’s argument that the distance of about 5 km from Dasna Flyover, Govindpuram, as confirmed by the Income Tax Inspectors and Tehsildars, was in February/March 2016. The assessee argued that the distance of the land in question should be reckoned as existing on Notification No. 9447 dated 06.01.1994, when the municipal limits were up to Hapur Chungi (near the Income Tax Office), from where the distance was 8.7 km approx. as per the IT Inspector’s report.

The assessee also referred to the response from Ghaziabad Nagar Nigam, which enclosed a Notification dated 31.08.1994 stating that municipal limits were extended to Govindpuram and Dasna Drain on 31.08.1994 after its upgrading from Municipal Council (Nagar Palika) to Municipal Corporation (Nagar Nigam) on the same date.

The Tribunal ruled that an exemption under section 2(14)(iii)(b) requires a mandatory notification by the Central Government. Since no notification was issued after January 6, 1994, the expansion of municipal limits from Hapur Chungi to Dasna Flyover on August 31, 1994, is irrelevant and should be disregarded.

Therefore, the land in question was undoubtedly beyond 8 km from the Municipal corporation’s limits. Accordingly, the assessee’s appeal was allowed.

List of Cases Reviewed

• Smt. (Dr.) Subha Tripathi v. Deputy Commissioner of Income Tax, Circle-6, Jaipur [2013] 34 taxmann.com 286 (Jaipur – Trib.)
• CIT v. Madhukumar-N.HUF, Karnataka High Court, ITA 396 of 2009 dated 29.03.2012
• ITO v. Akash Deep Farms Pvt Ltd, ITAT Ahmedabad, ITA 561/Ahd/2017 dated 10.12.2018 (para 8) – followed.

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MCA update dated 28.06.2024

The MCA is launching the third set of Company Forms covering MSME, BEN-2, MGT-6, IEPF-1, IEPF-1A, IEPF-2, IEPF-4, IEPF-5, and the IEPF-5 e-verification report on 15.07.2024 at 12:00 AM. To facilitate the implementation of these forms on the V3 portal, MCA has decided to disable the V3 portal from 13.07.2024 at 12:00 AM to 14.07.2024 at 11:59 pm. Further, MCA advised stakeholders to ensure that there are no pending SRNs in payment/pending for investor details upload/Resubmission status.

Click Here To Read The Full Update

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Circular No. SEBI/HO/AFD/AFD-POD-2/P/CIR/2024/89, Dated: 27.06.2024

Earlier, SEBI (FPI) Regulations, 2019 were amended to provide flexibility of having up to 100 % aggregate contribution by NRIs, OCIs & RI individuals in corpus of FPIs based in IFSCs. Now, SEBI has prescribed conditions for NRI, OCIs & RI individual participation in FPIs based in IFSCs. It states that at the time of registration, the applicant must submit a declaration stating its intent to have aggregate contribution of NRIs, OCIs & RI individuals of 50 % or more in its corpus to DDPs.

Click Here To Read The Full Circular

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On June 27, 2024, the Securities and Exchange Board of India, the capital market regulator, introduced significant regulatory changes encompassing voluntary delisting regulations, and tailored rules for investment and holding companies. These decisions represent a substantial shift towards improving transparency and governance in India’s financial markets. The key highlights of the Press Release are as follows:

(a) SEBI prohibits unauthorized associations for ‘securities advice and claims’

The Board approved measures aimed at regulating associations between regulated entities and individuals/entities offering securities advice or making claims. Now, SEBI-regulated entities and agents are prohibited from associating directly or indirectly with individuals or entities providing securities advice, recommendations, or claims on returns or performance unless permitted by SEBI.

(b) SEBI grants disclosure exemptions to simplify operations for ‘Category I FPIs’

The Board has approved a proposal for exempting University Funds and University-related Endowments, registered or eligible as Category I FPI, from additional disclosure requirements as prescribed under SEBI’s August 24, 2023 circular, subject to certain specified conditions.

(c) Streamlining public issue process for debt securities and Non-Convertible Redeemable Preference Shares

The Board has approved a proposal to streamline the public issue process for debt securities and Non-Convertible Redeemable Preference Shares (NCRPS). The key changes include reducing the timelines for public comments on draft offer documents to one day for listed issuers and five days for others, and shortening the minimum subscription period to 2 working days.

Additionally, SEBI has mandated the use of UPI for individual investors for investments up to Rs 5 lakhs, aligning the procedure with that of specified securities.

(d) Enhanced operational flexibility and tenure restrictions for AIFs

The Board has approved measures to enhance operational flexibility for Alternative Investment Funds (AIFs). Category I and II AIFs can now borrow for up to 30 days to cover temporary shortfalls in investor drawdowns, with costs borne by the affected investors. Additionally, Large Value Funds for Accredited Investors (LVFs) are now restricted to a maximum tenure of five years, with any extensions requiring approval from two-thirds of unit holders.

(e) SEBI introduces performance evaluation framework for stock exchanges and related entities

The Board has approved minimum criteria for evaluating the performance of stock exchanges, clearing corporations, and depositories. External evaluators will assess these entities every three years, starting within 12 months of implementing this mechanism. The aim is to ensure compliance and enhance performance transparency in the financial markets.

(f) SEBI proposes to remove financial disincentives for MDs and Chief Technology Officers of MIIs

SEBI proposes to eliminate automatic financial disincentives imposed on Managing Directors (MD) and Chief Technology Officers (CTO) of Market Infrastructure Institutions (MIIs) following technical disasters. Advisory committees recommended this change, noting that these disincentives hinder recruiting and retaining qualified talent within MIIs.

(g) Revised eligibility criteria for entry/exit of stocks in derivatives segment

The Board has approved a revision in eligibility criteria for the entry and exit of stocks in the derivatives segment of exchanges, aiming to ensure investor protection. These criteria, updated for the first time since 2018, reflect changes in market dynamics. Stocks must complete at least six months in the derivatives segment before exit criteria apply.

Click Here To Read The Full Update

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Sachin Mishra & Mahi Agrawal – [2024] 163 taxmann.com 736 (Article)

Interest payments made by borrowers to lenders for the time value of money lent are generally exempt from Goods and Services Tax (GST) in India. However, the treatment of penal interest or charges levied for breaching contract terms, delayed payments, or prepayments has been a subject of debate.

Clarifications issued by the GST Council and the Ministry of Finance have provided guidance on these matters. Penal interest on loan transactions is generally exempt, aligning with the exemption for loan interest itself. Conversely, penal charges on delayed payments for goods or services supplied are included in the taxable value and liable for GST.

However, a unique scenario arises when a financier makes an advance payment on behalf of a buyer to a seller, and the buyer subsequently repays the financier after a period, potentially with penal interest for any delays. Illustration-I: A warehouse operator (the financier) advances payment on behalf of a retailer (the buyer) to a supplier (the seller) for a bulk order of goods. The supplier delivers the goods to the warehouse, where they are stored temporarily. The retailer later repays the warehouse operator for the advance, and if there are any delays, a penal interest is charged.

This situation differs from a traditional loan, as the financier is not providing a loan but facilitating an advance payment. The tax treatment of penal interest in such tripartite transactions has been addressed here. This article delves into the nuances of this specific scenario, examining the rationale behind the tax treatment and its implications for businesses involved in such transactions.

Under the GST regime, services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, are exempt from GST under Sr. No. 27 of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 (hereinafter referred to as ‘the Notification’). Further, definition clause 2 (zk) of the Notification states “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.

Making payments on behalf of someone else can be considered as a loans/advances under certain circumstances. Indian courts have recognized that such payments can amount to a loan, provided there is clear evidence of an agreement or understanding that these payments are to be repaid. This can include documentary evidence, oral agreements, or other forms of proof that establish the intent of the parties involved.

Click Here To Read The Full Article

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Case Details: Lohum Cleantech (P.) Ltd. v. Assistant Commissioner of Revenue - [2024] 163 taxmann.com 164 (Calcutta)

Judiciary and Counsel Details

• Raja Basu Chowdhury, J.
• Ankit Kanodia, Ms Megha Agarwal & Jitesh Sah for the Petitioner.
• Anirban Ray, Ld. GP, T. M. Siddiqui, Tanoy Chakraborty & Saptak Sanyal for the Respondent.

Facts of the Case

The registration of assessee was cancelled on ground that it did not conduct any business from declared place of business. It filed appeal before the Appellate Authority but couldn’t succeed. Thereafter, the assessee filed writ petition since Appellate Tribunal was not constituted and submitted that a joint inspection was held at its place of business and report prepared by State Tax Officer indicated that entity was very much existent and carrying out business from said place of business.

High Court Held

The Honorable High Court noted that as per show cause notice, one of the primary grounds based on which the cancellation was proposed was that the assessee did not conduct any business from the declared place of business. A joint inspection was carried out at the place of business of assessee and report clearly indicated that the entity was very much existent and carrying out business from the said place of business. Therefore, it was held that the order cancelling registration was to be set aside and registration of assessee was to be restored.

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Circular No.211/5/2024-GST dated June 26th, 2024

The CBIC has clarified that in case of supplies received from unregistered suppliers where tax has to be paid by the recipient under reverse charge mechanism (RCM), the relevant financial year for calculation of time limit for availment of ITC under section 16(4) of CGST Act will be the financial year in which the invoice has been issued by the recipient.

Click Here To Read The Full Circular

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Case Details: GE Power Conversation India (P.) Ltd. vs. NFAC - [2024] 163 taxmann.com 718 (Madras)

Judiciary and Counsel Details

• C. Saravanan, J.
• S. Sivaraman for the Petitioner.
• Prabhu Mukunth Arunkumar, Jr. Standing Counsel & B. Ramana Kumar, Sr. Standing Counsel for the Respondent.

Facts of the Case

The petitioner was issued an order under section 143(3) read with 144C(1) proposing to make the transfer pricing adjustment to the total income. The petitioner challenged the Impugned Order before the Madras High Court, contending that although the order stated that such an order was a Draft Assessment, the order was indeed an Assessment Order as it was passed under Section 143(3) read with Section 144B of the Act.

High Court Held

The High Court held that the order under section 92CA(3) and the Assessing Officer (AO) should have ordinarily passed a draft assessment order in terms of Section 144B(1). Instead, in the present case, the order was formatted as an order under Section 143 r.w.s 144B.

The order also stated that it was a draft assessment order. The National Faceless Assessment Centre (NFAC), New Delhi, forwarded the order to the petitioner. A mistake crept in, as the order was formatted electronically by the National Faceless Assessment Centre under the mechanism evolved in Section 144B.

The mistake in formatting the preamble to the order based on a template meant for passing orders under Section 143(3) and Section 144B was not fatal. It will not render the order an assessment order.

The attempt by the Parliament to make an assessment faceless under the Income Tax Act, 1961, up to the appellate stage before the Appellate Commissioner, cannot be scuttled merely because the order formatting was improper. Mistakes that are not fundamental are not fatal to the assessment proceedings initiated. Assessment proceedings cannot be allowed to abate on account of technical glitches in the system-generated orders.

The impugned order was only a “Draft Assessment Order”, as was evident from a reading of the impugned order. It should have been correctly formatted as an Assessment Order in the system. Since the formatting and dissemination of all notices and orders are system-driven, the Assessment cannot be abated.

List of Cases Referred to

• • Vijay Television (P.) Ltd. v. Dispute Resolution Panel, Chennai [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Madras) (para 12)
  • Asstt. CIT v. Vijay Television (P.) Ltd. [2018] 95 taxmann.com 101/407 ITR 642 (Madras) (para 13)
  • SHL (India) (P.) Ltd. v. Dy. CIT [2021] 128 taxmann.com 426/282 Taxman 334/438 ITR 317 (Bombay) (para 18)
  • Bekaert Mukand Wire Industries Pvt.Ltd., v. Additional (para 18).

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