Belgaum Branch of ICAI E-News Letter

Transcription

1 The Institute of Chartered Accountants of India (Set up by an Act of Parliament) Belgaum Branch of ICAI E-News Letter Issue 10 November 2018 Pages 09 NOVEMBER Our Profession... Our Pride Respected Professional Colleagues, This is the month of Deepavali. It is probably the biggest and brightest festival and celebrated joyfully by each and every one. It is the festival of lights, which also marks the beginning of the New Year. On this auspicious and sparkling festival of lights, may the glow of lamp illuminate your life and brings you joy, Prosperity and happiness. It is the time to celebration and let us keep aside for the time being all our works and worries, professional or otherwise, and get engaged in celebration of the festival and relish and enjoy every minute of it. I have nothing more to pen. Let me end by saying that Jyot se Jyot lagate chalo, prem ki ganga bahate chalo. Yours in Service Shivakumar Khadabadi Chairman OFFICE BEARERS CA. Shivakumar D. Khadabadi CA. Satish M. Mehta CA. Jaykumar N. Patil Chairman Vice Chairman Secretary CA. Rahul V. Adake CA. Chetan V. Chougule CA. Praveen P. Ghali SICASA Chairman Treasurer ITT Co-ordinator

2 Tax on reimbursement of Road Tax and Insurance I am dealer of motorbikes. Along with the price of bike I am also collecting RT and insurance. Whether GST would be applied on such collection?. If no, whether I have to issue a separate invoice for such actual expenses or whether I can include the same in the Tax Invoice? Collection of RT and Insurance amount is reimbursement/recovery as a pure agent and, therefore, would not be included in the value of supply as per Rule 33 of the CGST Rules, Further, as these recoveries are not included in the value of supply, such amount would also not be included in the tax invoice raised for sale of bike. As regards issuance of separate invoice in this respect, GST Law does not require such issuance. However, you can issue a normal commercial invoice/debit note for the same for the purpose of accounting of same. Tax on Forfeited Deposit A tenant has made a refundable deposit of Rs.1 lakh with us for taking on rent our office premises but later on he could not occupy our premises and, consequently, the said deposit was forfeited by us. Whether GST would apply on such forfeited deposit? As per para 5(c) of Schedule II to the CGST Act, 2017 agreeing to an obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is treated as supply of services. In the instant case you have tolerated the act of the tenant of not occupying the premises and as a consequence you have forfeited deposit which is consideration of supply in the instant case. Accordingly, GST would be levied on such deposit of Rs.1 lakh forfeited. In such cases the GST may be worked out on reverse calculation basis considering the deposit forfeited as inclusive of GST. Tax on providing premises without rent to its partnership firm A partner is providing premises free of cost owned by him to his firm for use. No rent is charged for the said free supply of renting service. Whether GST would apply on said transaction? As per Para 2 of Schedule I of the CGST Act, 2017 supply of goods or services or between related persons, when made in the course or furtherance of business would be regarded as supply even if made without consideration. As per Explanation to Section 15 of the CGST Act, 2017 partners in business are related persons and, therefore the providing premises, free of cost would be regarded as supply by the partner to its firm as per above mandatory Schedule I of CGST Act. In such cases the valuation would be made as per CGST Rules, 2017 and the firm can avail the input tax credit in respect of tax paid by it.

3 Taxability of amount collected by non- doctors for lab tests I am owning a shop which is being used as pathology lab. I am also owning the pathology equipment and have hired the services of a Doctor for managing the lab for which I am paying a prescribed amount to him. Whether GST would be applicable on receipts from patients as I am not Doctor? Further, whether payment to Doctor by my self would be subject to GST? Health care services provided by a clinical establishment, an authorised medical practitioner or Para-medics are exempt from payment of GST vide Sl. No. 74 of notification No. 12/2017CT (Rate), dated (as amended). As per para 2(zg) of the above said Notification, health care services' include the diagnosis services. Further, any establishment to carry out diagnostic or investigative services of diseases is covered within the definition of 'clinical establishment' as provided in para 2 (s) of above said notification. Accordingly, the above exemption would be applicable on you and no GST would be applicable on the amount collected by you from patients for pathology tests. Input Tax Credit on constructed building I am engaged in letting out of commercial property which I have constructed. Whether I am eligible to avail of input tax credit in respect of building construction expenses against my outward tax liability on renting of commercial property? As per Section 17 (5) (d) of the CGST Act, 2017, input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. It is further important to note that Section 17(5) overrides Section 16(1) as well as Section 18(1) of the CGST Act. In view of above legal position you cannot avail of input tax credit in respect of tax paid on building construction expenses. As regards payment to Doctor by you is concerned the same will also not be exigible to tax, as the payment is being made towards health care services. This view is corroborated from Circular No. 32/06/2018- GST, dated , wherein it was inter alia clarified that services provided by senior doctors/consultants/technicians hired by the hospitals, whether employees or not, are healthcare services which are exempt. Issue 10

4 Sale of two vacant sites and investment in one residential house I sold a vacant site in June, 2017 for Rs.70 lakhs. The site was acquired in April, 2004 out of my own earnings. The capital gain liable to tax was Rs.27 lakhs. I entered into an agreement with a builder for construction of residential house and deployed the entire sale consideration in the construction before Again in August, 2018 I sold yet another vacant site for Rs.35 lakhs on which the chargeable long-term capital gain works out to Rs.22 lakhs. Due to cost overrun of the construction of residential house, I intend utilize the entire sale consideration of Rs.35 lakhs for completion of the construction. Can I claim exemption for the second site sold in August, 2018? Sale of vacant site being a long-term capital asset (held for more than 24 months) when sold in June, 2017 is eligible for exemption provided you don't own more than one residential house on the date of sale of vacant land. Since you have applied the entire sale proceeds in the construction, you don't have to deposit any amount in capital gain account to avail of the exemption. As regards the sale of vacant land in August, 2018 and deploying that amount in the construction of the residential building already in progress, there is no legal bar in allowance of tax exemption. The sale proceeds have to be used for one residential house and to be specific not in more than one residential house for the purpose of exemption and the vice versa i.e. sale of more than one long- term capital asset and investment in one residential house is allowed in law. Though no legal decision is required for interpreting the legal provision as the plain reading of the provision is adequate to understand the same, yet you can refer to Dy. CIT v. Ranjit Vithaldas [2012] 150 TTJ (Mum.) 581 for having a decision in your favour. Assessment based on Annual Information Report My client engaged in construction business had aggregate receipt exceeding Rs.2 crores for the financial year The books of account were audited under section 44AB of the Act. At the time of filing the return it was found that the credit for TDS under section 194C relating to some unconnected payer got reflected in Form No. 26AS. The return was filed on the assumption that the deductor (payer) might have fed a wrong PAN (i.e., PAN of my client) and would do necessary rectification for enabling due credit to the correct payee at a later date. Now in the assessment, the amount is reflected and the Assessing Officer wants to make addition solely based on Form 26AS. Is the addition proposed by the Assessing Officer sustainable in law? From the facts given by you it seems that your Form No. 26AS contains credit attributable to payer with whom you have no transaction. Probably, the PAN was typed wrongly and the consequential impact is the mismatch between your claim and the credit in Form No. 26AS.

5 For the purpose of tax assessment, it is mandatory that the Assessing Officer is diligent enough to verify your claim. The responsibility of the Assessing Officer to tax the correct income in the correct hands is the basic premise. The Assessing Officer cannot shirk from his responsibility by not cross checking the information. The Assessing Officer can very well check with the payer information as reflected in Form No. 26AS and complete the assessment. You may take note of the decision in the case of ANS Law Associates v Asstt.CIT (ITA No.5181/2012) decided by the Mumbai Tribunal on where it was held that merely based on AIR, an assessment cannot be made. Similarly, without verifying the facts the Assessing Officer cannot make addition based on Form No. 26AS. Payment of self assessment tax before due date' but filing of return beyond 'due date' Our firm got the books of account audited under section 44AB and paid self assessment tax much before the due date' for filing the return specified in section 139(1). However, subsequently because of some untoward incident in one of the partner's family, the return of income was not filed. It took about 2 months for us to realize that the income-tax return has not been filed, though the tax due was paid much earlier. Recently, we got intimation under section 143(1) in which interest under section 234A was levied when factually the entire tax due was paid much before the 'due date' prescribed in section 139(1). Has the levy of interest the sanction of law? Section 234A seeks payment of interest for default in furnishing return of income It is applicable only when the return is furnished beyond the 'due date specified in section 139(1) In your case the entire tax liability has been discharged much before the due date for filing the return. Only the filing of the return was delayed and not the payment of tax. Therefore, the amount paid much before the 'due date' will protect you from interest levy under section 234A. The CBDT in Circular No. 2/2015 dated has reviewed the present practice of charging interest under section 234A of the Act on self-assessment tax paid before the 'due date' of filing the return of income. The CBDT has decided that no interest under section 234A of the Act is chargeable on the amount of self-assessment tax paid by the assessee before the 'due date of filing the return of income. Since you have paid the entire tax liability before the 'due date' for filing the return, the levy of interest under section 234A is not justified.

6 Dichotomy in method of accounting between payer and payee vis-a-vis denial of TDS credit I am self-employed professional and have maintained books of account on cash basis. I deferred claim of TDS credit of some incomes and claimed the same in the subsequent year when the income was actually received. The CPC, Bengaluru regularly denied credit for the TDS when claimed of the earlier years. Also, it did not allow TDS credit on suo motu basis based on TDS credit found in respective years in Form No. 26AS. Thus, tax demand is generated every year. Is there any remedy for such unresolved issue? Section 199 of the Act says that the amount of tax deducted at source shall be treated as payment of tax on behalf of the person from whose income the deduction was made. Prior to assessment year this section provided for credit of TDS in the year in which the income was assessable. Now you find such words in rule 37BA. Section 198 says that all sums deducted in accordance with the provisions of Chapter XVII-B shall, for the purpose of computing the income, be deemed to be the income received Rule 37BA(3) provides credit for tax deducted at source for the assessment year in which such income is assessable to tax. Where the tax has been deducted and paid in a year and income is assessable over the years, a credit for tax deducted at source is allowable across those years in the same proportion in which the income is assessable to tax. In your case, because of the difference in method of accounting of yourself and payers of income, there is a mismatch. In Chander Shekhar Aggarwal v. Asst. CIT [2016] 157 ITD 626 (Delhi) (Trib.) it was held that clause (ii) of rule 37BA(3) will not apply where the payee follows cash system of accounting. The rationale of the tribunal's decision cited above could be used and by applying section 198 you can offer the amount as deemed income and claim credit for the TDS without postponing the claim to subsequent year. I agree that this has become a perennial problem for the taxpayers, being payees who follow cash system of accounting when the payers follow mercantile system of accounting. Is charge paid for pre-closure of housing loan deductible as "interest"? I am engaged in trading business. I availed housing loan from an NBFC in the year 2010 and have been paying promptly the EMIs. Now I desire to pre-close the housing loan so that my monthly commitment would reduce. The lending institution would put some charges for the pre-closure. I would like to know whether the pre-closure charges would be treated as interest and would be deductible under section 24(b)? Interest on moneys borrowed for acquisition, construction, repair or renewal or reconstruction is deductible under section 24. However, the amount of interest deduction in the case of self-occupied residential property cannot exceed R 2 lakhs. In the case of let out property (whether commercial or residential) there is no cap on deduction in respect of interest on moneys borrowed for the acquisition, etc, of the property.

7 Section 71(3A) inserted by the Finance Act, 2017 w.e.f says that the loss under the head 'income from house property' when it exceeds? Rs 2 lakhs, the set off against other heads of income would be limited to Rs 2 lakhs. The excess of loss under the head house property' is not eligible for set off but could be carried forward as per section 71B. This information has been given to you to analyze whether you wish to pre-close the loan in the light of the limitations inserted in the statute book in the recent times. As regards pre-closure charges you may note that the term "interest" defined in section 2(28A) includes service fee or other charge in respect of the moneys borrowed. Hence, the pre-closure charges would be eligible for deduction as interest under section 24 (b). You may draw support from the decision Windermere Properties (P) Ltd. v. Dy. CIT [2013] 88 DTR 150 (Mum.) (Trib.)

8

9