THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (Set up by an Act of Parliament)

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1 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (Set up by an Act of Parliament) BELGAUM BRANCH OF ICAI 2018 PAGES 07 E-NEWS LETTER Our Profession... Our Pride OFFICE BEARERS CA. Shivakumar D. Khadabadi Chairman CA. Satish M. Mehta Vice Chairman R e s p e c t e d Colleagues, P r o f e s s i o n a l At the outset I wish you all happy Dasara. With the extension of deadline for tax audit, I am sure you all will be in a position to complete the audits with bit ease. As e x p e c t e d, C B D T h a s re sponde d positively to memorandum for extension of the date for filing TAR. Now that we all have some time, we have organized an Investor awareness program jointly with Belgaum Chamber of Commerce and JITO on 23 rd October, Renowned expe rts from C he nnai and Bengaluru are enlightening on t h e v a r i o u s a s p e c t s o f I n vestme n ts. I t s a p u b lic program. You please join us with your friends and clients. We have already crossed as far as this y e a r s t e r m o f m a n a g i n g committee is concerned, and with t h e s u p p o r t o f a l l t h e committee members and you the members, the period so far has been quite satisfactory. We have planned many more programs for the benefit of members. We will however, de finite ly not distu rb you d u r i n g D e e p a v a l i. P o s t Deepavali, many programs are lined up. Yours in Service Shivakumar Khadabadi Chairman CA. Jaykumar N. Patil Secretary CA. Rahul V. Adake SICASA Chairman CA. Rahul V. Adake SICASA Chairman CA. Praveen P. Ghali ITT Co-ordinator

2 GST: Input Tax Credit on expenses on Motor Car. We are engaged in supply of consultancy services. Can we avail of input tax credit on insurance, service, repairs and maintenance on motor cars used for business purposes? This has been a grey area since implementation of GST regime. As per Section 17(5)(a) of the CGST Act, 2017 input tax credit is not admissible in respect of motor vehicles, except in certain situations where they are directly used for providing output services. You, being engaged in supply of consultancy services, are not covered in the exceptions and, therefore, the clause (a) of Section 17(5) needs to be interpreted. As the said clause uses the words 'in respect of motor vehicles' one interpretation is that all incidental expense s relating to motor vehicle, viz, insurance, service and repairs and maintenance would also not be eligible to input tax credit. Another view could be that input tax credit only on purchase of motor vehicle has been barred and credit can be availed for incidental expenses on such vehicles. Thus, the taxpayers are under dilemma in regard to availing of input tax credit of such expenses. In order to remove the above dilemma the Central Government has moved CGST (Amendment) Bill, 2018 based upon decision of the GST Council, wherein a new clause (aa) is being inserted in Section 17 (5) which provides that credit is not admissible on services of general insurance, servicing, repair and maintenance, in so far as they relate to motor vehicles for which credit is not available in accordance with clause (a). Vide above stated Bill the clause (a) is also being amended whereby motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), vessels and aircraft would only be hit by the barring of input tax credit. Issue of consolidated debit and credit notes. Can we issue consolidated debit or credit notes in respect of multiple invoices issued in a financial year or whether we reed to issue debit or credit note for each invoice separately? At present as per Section 34 of the CGST Act, 2017, a credit note or debit note can be issued only against its underlying invoice, which is quite cumbersome to correlate. Further, in such cases large number of credit notes may be required to be issued in case post-supply discount is given in respect of voluminous number of invoices. Thus, it was recommended in the 28th GST Council meeting held on 21st July, 2018 that parties can issue consolidated credit or debit notes in respect of multiple invoices issued in a financial year to reduce the compliance burden for tax-payers. In accordance with the said recommendation of the GST Council, necessary amendment has been proposed to Section 34 of the CGST Act, 2017 through the CGST (Amendment) Bill, 2018 which has been passed in the Lok Sabha on Once said Bill is approved by both houses and the presidential assent is received, the amended section 34 would come into play and consolidated debit or credit notes can be issued in respect of multiple invoices issued in a financial year.

3 Filing of returns after filing of application for cancellation of registration. I have applied for cancellation of registration. Do I need to file GST Returns and do compliance with GST Law, during the intermittent period from date of application to the date the cancellation once is approved by the proper officer? Yes, you need to file GST Returns and comply with other requirements of GST law till the cancellation of registration is approved by the proper officer. However, in order to provide relief in this regard, Section 29 of the CGST Act, 2017 is proposed to be amended by the CGST (Amendment) Bill, 2018 which has been passed in the Lok Sabha on , so as to insert a provision for temporary suspension of registration while cancellation of registration is under process. As per the proposed provision in such cases the registration may be suspended for such period and in such manner as may be prescribed. Once the above amendment is approved the procedural aspects in this regard would be laid down in the CGST Rules, 2017.Once the registration is suspended as above the filing of returns and other GST compliances would not be required. Tax Rate on Hotel Accommodation. The Declared Tariff of Room Rs.7,000, however, the actual amount charged is Rs.6500 plus Rs.1,500 for extra bed, i.e., total Rs.8,000. What would be the rate of tax applicable and GST payable? Applicability of GST on accommodation in Hotels is unique in nature in view of fact that that, though the GST is payable on the value of taxable supply, i.e., actual room rent charged but the exemption and rate of tax applicable on such supply are governed by the declared or published tariff of the room. As per Sr. No. 7 (vi) of Notification No 11/2017-CT (Rate) dated , in cases where the declared tariff is Rs. 2,500 and above but less than Rs.7,500 the rate of tax applicable would be 18 %, thus, in said case the rate of tax applicable would be 18 % on Rs.8,000 and total GST payable on said transaction would be Rs.1,440. However, the above position would hold good till as GST Council in its 28th Meeting held on has approved that the rate of tax on accommodation services shall be based on transaction value instead of declared tariff. In order to give effect to the decision of the GST Council Notification No. 13/2018-Central (Rate) dated and Notification No. 14/2018- Central (Rate) dated have been issued. Similar Notifications have also been issued under other GST Acts which are applicable from As in instant case the transaction value exceeds RS.7500, rate of tax applicable would be 28 % in light of Sr. No. 7(viii) of Notification No. 11/2017-CT(Rate) dated (as amended by Notification No. 13/2018-CT (Rate) dated ). Thus, tax payable in this case would be 28 % on Rs.8,000 i.e., RS.2,240 in case the time of supply of such accommodation service arises on or after

4 INCOME TAX: Validity of levy of penalty under section 271D initiated on legal representative after the demise of the assessee. My client-an individual died in December, Scrutiny assessment under section 143(3) was completed in August, 2015 for the assessment year In September, 2015 proceedings were initiated for levy of penalty under section 271D for contravention of section 269SS. Now the matter is pending in appeal before the tribunal after it was negatived by CIT (Appeals). Is the initiation of penalty under section 271D after the demise of the assessee on legal representative, tenable in law? Section 159(1) says that when the assessee dies, his legal representative shall be liable to pay "any sum" which the deceased person would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased person. Section 159(2) (a) says that any proceeding taken against the deceased person before his death shall be deemed to have been taken against the legal representative and may be continued against him from the stage at which it stood on the date of the death of the assessee. As per section 159(2)(b) any proceedings which could have been taken against the deceased person, if he survived may be taken against the legal representative. There are some rulings which hold that the expression "any sum" appearing in section 159(1) refers to tax only and does not include penalty. Refer to Srikishan Agarwal v Dy. CIT [2016] 48 ITR (Trib,) 548 (Jaipur). In your case, it is not a pending proceeding. Section 159(2)(b) is to be taken note of. This is inspite of the legal decision cited above which is in your favour. You may also note that in the case of CWT v. V. Varadharajan [1980] 122 ITR 1014 (Mad.) the court made a comparative study of the liability of legal representative under the Wealth Tax Act, 1957 and section 159(2)(b) and observed as under: "A penalty proceeding would be a proceeding which could have been taken against the deceased person on the facts here, because he invited levy of penalty by not submitting the return with-in the time allowed under the law. Such a proceeding can be taken against the legal representative, if as contemplated by section 159(2)(b), if the proceedings were under the Income-tax Act, The Parliament must have deliberately intended to levy penalty in the hands of the legal representative also in a case where the default has been committed by a deceased person and with this end in view brought about the changes in income-tax law. In the absence of such a change in the W.T. Act, it is not possible to attribute to the Legislature the intention to penalize the legal representative for the default, if any, committed by the deceased person". Hence, section 159(2)(b) empowers the Assessing Officer to initiate proceedings against the legal representative also. Validity of launching prosecution proceedings after payment of tax, interest besides fee under section 234E. I am Managing Director of a company. We originally omitted to deduct tax at source from the contract payments but deducted the same later on and remitted the amounts with fee under section 2341E for the delayed filing of TDS returns. Now, we have received a show cause notice for launching prosecution proceedings under section 276B. When we have remitted the tax amount and interest besides fee under section 234E, is the launch of prosecution proceedings valid in law?

5 A Section 276B is applicable if a person fails to pay the tax deducted at source to the credit of the Central Government, by him as required by or under the provisions of Chapter XVII-B. A prima facie reading of the legal provision would show that if there is breach of compliance of the provisions of Chapter XVII-B, proceedings could be launched for levy of penalty/prosecution. It has been reiterated by the courts that mens rea is not a prerequisite for levy of penalty/prosecution. Levy of interest under section 201(1A) and proceedings under section 221 do not block or e-stop the launch of penalty/prosecution proceedings. However, the CBDT Instruction dated provides some relief to the taxpayers for reasons such as the amount involved or the period of default being not substantial. In the backdrop of the introduction of section 234E besides interest under section 201 (1A) whether launching of prosecution proceedings would be justifiable, remains to be seen and only court decisions could throw light on these aspects. When you have remitted the amount deducted at source and compensated for the delay with interest under section 201 (1A) and also paid fee under section 234E, we are of the opinion that the courts will take overall view of the issue and might provide relief to you from the prosecution proceedings. You can opt for compounding of offences as a last resort to overcome the legal hurdles. Rent paid to non-resident landlord having income below taxable limit. Our firm moved to new a rental premises for which we pay annual of Rs.2,40,000. The owner of the building is a super senior citizen who left India 3 years ago and presently resides in the USA. We have been asked by him to deposit the money in to his bank account in India. He claims that he has no other income in India except the rental income. P l e a s e g u i d e u s r e g a r d i n g t a x deduction provision for the rent paid to non- resident landlord. The rental income received by non-resident accrues in India and, therefore, it is chargeable to tax in India. In the case of non-resident, section 195 will come into play and it has no threshold limit for deduction/ non-deduction of tax at source. However, from the facts given by you, we understand that the landlord is a super senior citizen but being a non-resident he cannot avail of the benefit of enhanced tax exemption limit of 5 lakhs. This enhanced limit is applicable only to super senior citizens who are residents of India. Section 195(2) casts responsibility on you to make an application to the Assessing Officer for lower deduction or non-deduction of tax at source on the payments made to the non-resident. Alternatively, section 195(3) puts responsibility on the payee (your landlord) to make an application to the Assessing Officer for granting a certificate for non-deduction of tax at source. However, conditions of rule 29B have to be satisfied for making such application. Therefore, you are advised to approach your jurisdictional Assessing Officer for issue of certificate for nondeduction or lower deduction of tax at source. In case both of you omit to approach and obtain lower deduction certificate, tax is deductible at 30 % of the rent paid.

6 Interest on moneys borrowed for vacant site and impact on cost of acquisition. I am running a medical store as a proprietor I acquired a vacant site in January 2014 for Rs.6 lakhs. For the purpose of acquisition, I borrowed Rs.4 lakhs from two of my friends and paid interest at 12 % per annum. In December, 2017 I sold the vacant land for RS.25 lakhs and settled the loans. For the purpose of computing capital gains, I want to know whether the interest paid for 4 years amounting to Rs.1,92,000 is deductible from sale consideration or it is eligible for indexation benefit with reference to the date of payment of those interest amounts. My tax counsel says that the interest amount is not deductible while computing capital gains. From the query I understand that you borrowed money for the purpose of acquisition of land and there is a clear nexus between the borrowal and investment. The interest paid, I presume, was not claimed as an expenditure whatsoever in the aforesaid period. The amount of interest paid by you can be capitalized with the cost of land and the capital gain could be computed accordingly. You can make reference to decisions such CIT v. Maithreyi Pai [1984] 18 Taxman (Kar.) and CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi). However, the computation of the indexation benefit might pose some challenge to you. If the asset is a business asset then capitalization of such interest will stop from the date of use of such asset. In your case, as the asset is not business asset but a capital asset, you can avail of the benefit.

7 "Recent Changes in Form 3 CD and Reporting Responsibilities" Upcoming Event: Investor Awareness Program