NEWS LETTER. Indore Branch of Central India Regional Council of The Institute of Chartered Accountants of India. August Vol.-22 No.

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1 Indore Branch of Central India Regional Council of The Institute of Chartered Accountants of India NEWS LETTER August-2018 Vol.-22 No. 08 CA. Abhay Sharma Chairman, Dear Professional Colleagues, This year, India is celebrating its 72ndIndependence Day to pay tribute and rememberall the freedom fighters who led to theindependence of India. They had sacrificed theirlives in attaining the freedom for their futuregenerations without worrying about theircomfort and rest. But along with freedom comesresponsibility. We professionals should strive to empower peoplearound us and become more responsible in our duties. Let us resolve tofulfil our role of Partners in Nation Building, thus uplifting our societyand country through our actions & deeds. As an annual observance, th we are celebrating the Independence Day on 15 August 2018 at 9a.m. at our Branch premises and CA ManojFadnis, the Past President of ICAIhas been invited to hoist our flag. I invite all Members of the Branch tokindly participate and rejoice the spirit of freedom. On the occasion of the 158 Income Tax Day Celebrations, Indore Branch of ICAI, as a representative of ICAI, was invited byshri A.K. Chauhan, IRS, the Chief Commissioner of Income tax, Indore, on 24 July 2018 at Income tax officer to appreciate the services of ICAI rendered towardstaxpayer education and enabling compliance. I congratulate andthank all the members of Indore Branch for delivering their best ofservices in the interests of the nation. This appreciation by thedepartment belongs to each and everyone of you! The month that was July On 1 July 2018 ICAI stepped into 70 year of ICAI CA Day when ManojFadnis, the Past President of ICAI, gave his informative addressfilled with rich experience which was an inspiration and motivation toall of us. The programme was followed by Blood Donation Camp,Swachh Bharat Abhiyan, Plantation of Saplings, Honouring SeniorMembers of the profession and Cultural Programmes. I thank all themembers and students who participated in this event. I wish you all a very successful audit season. Penning down with thequote of Winston Churchill To improve is to change; to be perfect isto change often Member : CA. Anand Jain, CA. Garjana Rathore CA. Vipul Padliya Ex. Officio Member : CA. Kemisha Soni, CA. Churchil Jain, CA. Nilesh Gupta

2 FAMILY SETTLEMENT AND IMPLICATIONS UNDER TAX AND OTHER LAWS A Family Agreement or Settlement is a agreement amongst the members of a family wherein their bona fide dispute as to their rights in property or obligation arising between them are settled for the sake of peace and security in the family, avoidance of further litigation, preservation of the honour and dignity of the family or the preservation of the family property for the benefit of the family. The word family has been given extensive meaning. Any member of the family may be a party to the family arrangement and thus arrangement between parent and children-both illegitimate and legitimate, uncles and nephews have all been supported as family arrangements. The Supreme Court in the case of Krishna Beharilal v. Gulab Chand (A.I.R S.C at p. 1045) has observed that, to consider a settlement as a family arrangement; it is not necessary that the parties to the compromise should all belong to one family. A settlement is implemented through distribution, transfer, exchange of immovable properties, shares, etc. amongst the family members. Some questions become relevant like whether any transfer pursuant to such settlement would be taxable as capital gains, any transfer of money may be treated as gift u/s 56(2)(vii) and would get subject to tax, etc. Any Gift above Rs.50,000 is taxable in Income tax(section 56(2)(vii)). However with regard to a gift or payment without consideration pursuant to Settlement would not be taxable since would be between family members if they fall under definition of 'relative' in the Income tax Act. In cases where relationship does not qualify as relative, the case is still arguable since Section 56(2)(vii) is applicable to cases where transfer is 'without consideration', whereas a family settlement is a settlement recognizing pre-existing rights, therefore a transfer under a Family Arrangement is for good and lawful consideration. Family Settlement is only in the nature of allocation, distribution, re-distribution or recognition of pre-existing rights. Now, as far as Capital Gain tax is concerned, existence of a 'transfer' is a prerequisite. In case of bonafide family arrangement, any transaction which would otherwise be considered as transfer would not amount to transfer of a property as it amounts to mutual adjustment of rights among the members of the family. This is like re-alignment of rights. This principle is upheld by various courts (See: CIT vs. AL. Ramanathan (245 ITR 494), P. Sheela Vs. ITO (308 ITR 350)). It is important to note here that a company is a legal entity and therefore, it cannot be a party to the family arrangement and hence the property of the company cannot be distributed pursuant to the family arrangement. Under the valid family arrangement there is no transfer as everyone receives the property pursuant to antecedent title in the properties considered in the family arrangement and therefore, the clubbing provisions under Income tax are not applicable. Since aforesaid transactions are effectuated under umbrella of a Family settlement, it should be properly documented in form of a Deed or an Agreement. However, since family settlement deed does not create or extinguish any rights in immovable properties, therefore, does not fall within the ambit of Registration Act, From the above, it can be seen that a family arrangement is a best way to protect the family from long-drawn litigation or perpetual strifes but should not be entered with an object of escaping tax. Moreover it must be noted that the principles on the issue are arrived on the basis of pronouncements laid down by various High Courts and the Supreme Court and any action should be taken after due professional advice.

3 Availability of Input Tax Credit on Factory Building Querry : A Company is setting up its Plant in Pithampur. The Construction of factory building is going on. The Input Tax Credit of Input & Input Services used in the construction of building is not available in view of the provisions of the block credit as provided in the Sec 17(5) of CGST Act. But whether the credit of input & input services used for the construction of structure or foundation for erection /installation plant & machinery will be available?whether the same can be treated as part of plant & machinery? Response : Building and Plant & Machinery are capital goods. As per the provisions of GST, entire Input Tax Credit of GST paid on capital goods will be available in first year itself, as these are 'goods', except Input Tax Credit of Input & Input Services used in the construction of building. Thus the ITC of Palnt & Machinery is available but not of building. But what will happen to the input tax credit in respect of input & input services used for the construction of structure or foundation for erection /installation of plant & machinery which are integral part of plant & machinery.can ITC of the same be availed treating them as part of plant & machinery? The provisions related to the same are discussed in the below paras : ITC is available on Capital Goods. 'Capital Goods' is defined in section 2(19) of CGST Act. As per section 2(19) of CGST Act "Capital goods" means goods, the value of which is capitalised in the books of account of the person claiming the credit and which are used or intended to be used in the course or furtherance of business - Meaning of 'capital goods' for the purpose of ITC has been further clarified. Accordingly, capital goods" shall include "plant and machinery" as defined in the Explanation to section 17 of CGST Act - Explanation below Rule 45 of CGST and SGST Rules, For the purpose of Chapter V of CGST Act (Input Tax Credit) and Chapter VI of CGST Act (Registration), expression 'plant and machinery' is defined as follows [Explanation to section 17 of CGST Act]. "Plant and machinery" means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes - (i) land, building or any other civil structures (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. Thus for the purpose of claiming Input Tax Credit, foundation and structural support are included in the definition of Plant & Machinery and therefore the ITC can be very well claimed for the same. Following cautions to be taken : Input tax credit of tax is not allowed if depreciation is claimed on tax component. Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income- Tax Act, 1961, the input tax credit on the said tax component shall not be allowed - section 16(3) of CGST Act. Credit of input tax in respect of pipelines laid outside the factory and telecommunication towers fixed to earth by foundation or structural support including foundation and structural support are not eligible for input tax credit - Explanation to section 17 of CGST Act. Suggestions : Civil work of entire factory building is normally awarded to a single contractor. The contractor raises running bills on different stages of construction. For claiming ITC a tax invoice is required. Hence it is advisable to take a separate tax invoice for foundation and structural support. The vendors of plant and Machinery may be asked to provide the dimensions & details in relation to the civil work to be done in respect of foundation & structural support. This will help in justifying the claim of treating such civil work as part of plant & machinery. Project architect's certificate can be taken certifying the portion of civil work as foundation and structural support of plant & machinery.

4 MONTH OF AUGUST 2018 ACTIVITIES Sr. No. Date Programme Topic Faculty Guest Venue CPE Fees 1 Saturday Seminar Learn the art of making a winning CA Abhishek Murali ICAI Bhawan impression before CIT(A) / ITAT and from Chennai +GST tips on drafting of appeals & Session Chairman: representation Shri S.S. Mantri 2 Saturday Seminar Bridging the innovation and Mr. Siddharth Rajhans ICAI Bhawan accountancy gap for Chartered +GST Accountants - riding the next wave of disruption in entrepreneurship 3 Wednesday Independence Day Dr. Nishant Khare ICAI Bhawan Celebration Col. Narendra Thakur 4 Saturday Seminar Provision Company Act & Audit CA. Aseem Trivedi ICAI Bhawan GST 5 Friday Seminar Seminar on tax Audit CA. Sanjay Agrawal ICAI Bhawan CCM, New Delhi +GST CA. Hitesh Mehta CA. Anil Garg CA. Vimal Kabra CA. Ashok khasgiwala 6 Thursday Full Day Training Auditors engagement in CA. Navin N. D. Gupta, ICAI Bhawan Programme on Procurement post review President, ICAICA +GST Organized by : World Bank Funded Project Kemisha Soni, CCM Committee for Capacity CA. Nilesh Gupta, RCM Building of Members in Practice (CCBMP)" CA. Churchull Jain, RCM Ms. Priti Jain, Senior Procurement Specialist Mr. Shivendra Kumar, World Bank Consultant Mr. Vedamurthy, World Bank Consultant

5 Indore Branch of CIRC of ICAI Plot No.19-B, SchemeNo.78,Part-II, INDORE (M.P.)Tel.: , Registered with the Registrar of Newspaper for India under No. MPBIL 01231/12/1/2008-TC Printed & Published by CA. Abhay Sharma Chairman on behalf of the Indore Branch of Central India Regional Council of The Institute of Chartered Accountants of India, Plot No.19-B, SchemeNo.78,Part-II, INDORE (M.P.)