Month: October 2017

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Reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off: Held by SC in Vijaya Bank

Whether it is imperative for the assessee-Bank to close the individual account of each of it’s debtors in it’s books or a mere reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off

SC in the case of Vijya Bank vs. CIT 323 ITR 168 has held that

What is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act……..because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over.

In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it’s debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor’s account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years.

There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against it’s debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed.

Further Held by Supreme Court that if amount is recovered subsequently and it is more than difference between debt and amount so allowed , the balance can be taxed u/s 41(4).

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How to Write off a debt as per provisions of Section 36(1)(vii)

Held by Supreme Court in Southern Technologies Ltd. [320 ITR 577]

If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor’s account, it would constitute a write off of an actual debt.

However, if an assessee debits `provision for doubtful debt’ to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions’ on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction

Held by Supreme Court in Vijya Bank 323 ITR 168 

upholding the order of Tribunal and reversing the decision of High Court that besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee-Bank had correspondingly/simultaneously obliterated the said provision from it’s accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision “for impugned bad debt”.

 

In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it’s Books, as indicated above

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Where assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law

Delhi High Court judgment in the case of CIT vs. Zoom Communication (P) Ltd. 191 Taxman 179 (Del.). The Delhi High Court has held as under:- “It was held that so long as assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law, provided that he either substantiate explanation offered by him or explanation, even if not substantiated, is found to be bona fide.

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Taxability of Damages for breach of contract received by the buyer of Immovable property discussed by ITAT Amritsar

The law under section 51 and 56(2)(ix) provides for the taxability of forfeiture of advance money received in the hands of seller. Till AY 2014-15, the forfeited sum was deductible from the cost and even the excess of forfeited money over cost was capital receipt not taxable by virtue of Supreme Court Judgment in Travoncore Rubbers. In the hands of buyer the forfeiture of amount by reason of failure on the part of buyer was not treated as capital loss by virtue of Bombay High Court Judgement in Sterling Investment Corporation 123 ITR 441. However wef AY 2015-16, the forfeited amount is taxable in the hands of seller as Income from other Sources and no reduction from cost of the asset has to be made.

 

However Income tax law is silent about the treatment of compensation received by the buyer of immovable property for breach of contract by the seller. ITAT Amritsar has in a recent decision in Rajesh Mayor ITA 571/ASR/2014 pronounced on 04-05-2016 has revisited the law on the subject:

Facts of the case: The assessee entered into agreement with proposed seller for the purchase of a house for 4.04crores. Biana of 50 lacs was paid by the buyer. The seller however backed out of the agreement. The buyer filed a suit in civil court. The Court ordered return of biana of 50 lacs to buyer and also ordered to pay 54 lacs as compensation to the buyer. By way of two cheques of 27 lacs each. While payment against one of cheques was honored, other cheque got bounced and the buyer could recover the amount only by filing suit u/s 138 of Negotiable Instrument Act. The AO assessed the receipt of 54 lacs as capital gains. CIT A dismissed the assessee’s appeal.

The development of the law on the subject may be discussed as under:

  1. Tata Services Limited  [1979] 1 Taxman 427 (Bom.): It was held by Bombay High Court that:

“………..Under an agreement to purchase a plot of land, assessee paid Rs. 90,000 as earnest money. Vendor failed to obtain requisite permission within stipulated time. Assessee, however, obtained permission and parties agreed to register the plot on a specified date. Parties thereafter came to an arrangement under which assessee received the earnest money of Rs. five lakhs and assigned right, title and interest under the agreement to third party. Held that assessee owned a capital asset under the agreement and Rs. five lakhs was liable for capital gains tax…..”

  1. Delhi High Court in J. Dalmia (1984)149 ITR 215 : It was held by Delhi High Court :

“9.…………………..There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be ‘property’ this could not be transferred under s. 6(e) of the Transfer of Property Act. The relevant provision may be reproduced:

“6. Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force:…..

(e) A mere right to sue cannot be transferred.”

We do not find any exception under the IT Act though the word ‘transfer’ in relation to capital asset has been defined in s. 2(47) of the Act which includes ‘sale, exchange or relinquishment of the asset or the extinguishment of any right therein’. The damages which were received by the assessee cannot be said to be on account of relinquishment of any of his assets or on account of extinguishment of his right of specific performance under the contract for sale.

  1. Under s. 5 of the Transfer of Property Act, ‘transfer of property’ means an act by which a person conveys property to another and ‘to transfer property’ is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a ‘transfer’ within the meaning of s. 45 r/w s. 2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500 received by the assessee as damages was not assessable as capital gains.”

In above case, the decision of Tata teleservices(supra) was distinguished on the facts that the right to specific performance had been specifically given up by the assessee J. Dalmia and what was left was a mere right to sue for damages. While in Tata Teleservices, the buyer had assigned his rights to purchase the property to third party.

Hon’ble Supreme Court has dismissed the SLP of the department against the Delhi High Court decision in J.Dalmia(supra) in 189 ITR 22(ST.)

  1. Vijay Flexible Containers (1990) 186 ITR 693 (Bom) & Laxmi Devi Rattani (296 ITR 363)(MP)

In this case the buyer was constrained to file suit for specific performance/ damages for breach due to seller’s failure to comply agreement. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs. 1,17,500 and interest.Dissenting J. Dalmia (supra) held by Mumbai High Court that :

“………..Having regard to the statutory provisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under an agreement to purchase immovable property is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore, property within the meaning of the IT Act and, consequently, a capital asset. When he filed the suit in this Court against the vendors he claimed specific performance of the said agreement for sale by conveyance to him of the immovable property and, only in the alternative, damages for breach of the agreement. A settlement was arrived at when the suit reached hearing, at which point of time the assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him immovable property was a relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the IT Act………….”

In Laxmi Devi Ratani, facts were found similar to Vijay Flexible Containers(supra) and hence decision was given accordingly.

  1. K.R. Sri Nath  (Madras) 268 ITR 436:

Held that

“……………10. As seen already, the assessee had a right to insist on specific performance, gave up the right readily and received a sum referred to supra. There can be no doubt that by termination of the earlier agreement and by allowing the vendor to sell the said property to any person at any price, the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6,00,000. The right, title and interest acquired under the agreement of sale clearly fall within the definition of capital asset [s. 2(14)]. Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of transfer in s. 2(47) is wide enough to include relinquishment of an asset.

  1. With regard to the contention that there was no cost of acquisition incurred by the assessee for obtaining the rights under the agreement dt. 3rd April, 1986, and consequently there could be no capital gains assessable, it is to be noted that at the time of agreement of sale the assessee paid Rs. 40,000. That payment was made pursuant to the agreement. Only by paying the said amount the assessee acquired the right to get the sale deed executed in his favour. At this juncture, we may refer to the observation in the decision of the Bombay High Court in CIT vs. Tata Services Ltd. (supra), where it is observed as under :

“The assessee had paid at the time of the execution of the agreement of sale Rs. 90,000. He had then acquired a right to obtain a sale deed. When he gave up that right or assigned it in favour of M/s Advani and Batra, he received Rs. 5,90,000 and Rs. 90,000 was treated as refund of consideration. Therefore, actual cost to the assessee of the right to obtain the sale deed on the date of the agreement of sale was Rs. 90,000.”

Even in the other case referred to in CIT vs. Vijay Flexible Containers(supra), the Bombay High Court held that the capital asset had been acquired at a cost of Rs. 17,500 paid as and by way of earnest money. In that case also the Court observed as follows :

“We may, at this stage, also deal with the further argument that there was no consideration for the acquisition of the capital asset. In our view, this Court was right in the view that it took that the payment of earnest money under the agreement for sale was the cost of acquisition of the capital asset.”

  1. Now that we have come to the conclusion that the assessee incurred Rs. 40,000 for acquiring the right to acquire the sale deed, the contention of learned counsel for the assessee that there is no cost of acquisition and so there could be no assessment of capital gain on the transfer of the capital asset falls to the ground.
  2. It has been held by Supreme Court in Saurashtra Cement Ltd 325 ITR 422 that compensation received for delay in procurement of capital asset is capital receipt not chargeable tax.
  1. Mumbai High Court in Kumarpal MohanLal Jain 41 Taxmann.com 55 held that compensation of Rs. 15000/- awarded for failure of builder to hand over possession to the buyer is tax exempt.

Two Views Theory :It has been held by Supreme Court in  :

  1. a) CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 (SC) –

Where there are two possible interpretations of a particular section which is akin to a charging section, the interpretation which is favourable to the assessee should be preferred while construing that particular provision. Reiterating the same view, in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 (SC) it has been held that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies if there be any. The Court must interpret the statute as it stands and in case of doubt, in a manner favorable to the taxpayer.

(b)        CIT v. Vegetable Products Ltd [1973] 88 ITR 192 –

It has been held that if the Court finds that the language of taxing provision is ambiguous or capable of more meaning than one, then the Court has to adopt the interpretation which favours the assessee.

ITAT Amritsar after consideration of the law on the subject

held that compensation received by the buyer of property for breach of agreement is not taxable in the hands of buyer.

 

Conclusion: The dispute on the issue in centered around the issue whether breach of contract by seller gives buyer a right to sue or something more. The issue whether giving up of right of specific performance in lieu of compensation for breach in itself constitutes transfer under section 2(47). Till the legislature comes out with some solution, following a view favorable to the assesee seems to be the only rational solution.

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Non consideration of certain arguments before SC does not make its judgement lesser binding

The binding effect of a decision of Supreme Court does not depend upon whether. a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided.

Smt. Somavanti v. State of Punjab [1963] 2 SCR 774 and T. Govindraja Mudaliar v. State of Tamil Nadu [1973] 3 SCR 222.

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Comprehansive Analysis of Income Computation and Disclosure Standads

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Time for filing E-Appeals till 15-05-2016 before CIT A extended to 15-06-2016

E-appeals which were due to be filed by 15-5-2016 can be filed up to 15-6-2016. All e-appeals filed within this extended period would be treated as appeals filed in time. Taxpayers who could not successfully e-file their appeal and had filed paper appeals are required to file an e-appeal in accordance with Rule 45 before the extended period i.e. 15-6-2016. [CIRCULAR NO.20/2016 dtd 26-05-2016]

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No frivolous cancellations of Trust registrations, says CBDT Circular dtd 27-05-2016

CBDT has clarified that the process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. CBDT has also cautioned that since cancellation of registration of trust shall invite accereted income tax as per Finance Act 2016, authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. CBDT has sternly forbidden to cancel registration merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution [Circular 21/2016, Dated: May 27, 2016]

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Analysis of TCS provisions regarding Sale of Goods and Provisions of Service effective from 01-06-2016

TCS provisions have been made applicable to all the goods and services wef 01-06-2016. While the provisions are intended to frame a system of reporting high value transactions to curb black money, the law framed by the parliament in this regard is plagued by number of doubts and issues which can clog the very implementation of provisions. The author has made a humble attempt to consolidate the issues involved in this taxation as under:

 

Relevant TCS provisions

As per Section 206C(1D) amended wef  01-06-2016,

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i)                for bullion, exceeds two hundred thousand rupees; or

(ii)             for jewellery, exceeds five hundred thousand rupees;or

(iii)           for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B

(1E)   Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed

Explanation.—For the purposes of this section-

(aa) buyer” with respect to—

(i)                 sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,—

(A)   a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or

(B)   a buyer in the retail sale of such goods purchased by him for personal consumption;

(ii)               sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;

(c )    seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D)] are sold or services referred to in sub-section (1D) are provided

Analysis

Persons who are required to collect TCS as “Seller” are:

  1. a)Central Government,
  2. b) a State Government or
  3. c) any local authority or
  4. d)corporation or authority established by or under a Central, State or Provincial Act, or
  5. e) any company or
  6. f)firm or
  7. g)co-operative society and also includes
  8. h)An individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year

Persons not covered:

  1. a)Individual carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  2. b)Individual carrying on profession whose turnover u/s 44AB(b)
  3. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  4. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  5. c)HUF carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  6. d)HUF carrying on profession whose turnover u/s 44AB(b)
  7. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  8. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  9. e)AOP, whether incorporated or not
  10. f)Body of Individuals, whether incorporated or not
  11. g)Society registered under Societies registration Act. Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the Society
  12. h)Trust,  not being section 25 company, Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the trust
  13. i)Association or Institution entitled to exemption u/s 10.
  14. j)Club

Scope of Transactions Covered

As per S.206C(ID) TCS is applicable to Seller who receives any amount in cash as consideration for :

  1. a)Sale of Goods or
  2. b)Provision of Service

Issues Involved:

  1. Whether TCS applicable to full Sale Consideration or Consideration received in cash for Sale of Goods or Provisions of Service

The Principal issue involved is whether TCS is to be collected on:

  1. a) The amount of cash received only or
  2. b)The full amount of sale consideration where any amount is received in cash as consideration for Sale

Opinion:

Finance Minister’s Budget Speech (para 149 of the Budget Speech)

  1. I alsopropose to collect tax at source at the rate of 1%on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh. For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged.

Memorandum Explaining the provisions of Finance Bill 2016

The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.

It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.

This amendment will take effect from 1st June, 2016.

Section 206C(1D)

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration

Hence

  1. a)As per Memorandum explaining provision of Finance bill 2016, TCS @1% is applicable to sale in cash of any goods exceeding two lakh rupees.
  1. b)However as per express provisions of S.206C (1D), TCS is collected @ 1% of Sale Consideration for receipt of any amount in cash as consideration for sale of goods.

So, there appears to be a contradiction with in the provisions of law and memorandum explaining provisions of finance bill. While as per Memorandum explaining finance bill and FM’s Speech, TCS is applicable only on cash sale of goods for sum exceeding Rs. 2 lacs, the express provisions provide that even if a paltry amount against sale exceeding Rs. 2 lacs is received in cash, the entire sale consideration to be brought under TCS net and not to be restrained to the amount of cash receipt.

 

  1. Whether TCS is applicable to sale or provision of services made before 01-06-2015

The point of taxation for TCS on sale of goods or provision of service is

“the time of receipt of such amount in cash” and not Sale of Goods

Hence ,If sale consideration amount is outstanding on 31-05-2016, and any amount is received there after in cash , the assessee is liable to pay tax on the amout recived after 31-05-2016 in respect of transactions executed before 31-05-2016. However, another incidental issue involved is :

  1. a)Whether only the amount received in cash after 31-05-2016 out of outstanding balance on 31-05-2016 shall be exigible to TCS or
  2. b)Whether the entire amount of consideration excluding the amount received before 01-06-2015  become exigible to TCS

Opinion

As per Section 206C(ID):

“Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax”

TCS to be collected on 1% of sale consideration and not amount in cash as consideration for sale of goods. Hence, TCS might apply on entire sum reducing the amount received before 01-06-2016.

  1. Whether TCS is applicable where both sale of goods andprovision of service is involved i.e. in the case of works contract

As per Section 206C(ID), TCS is applicable on sale of goods orprovision of service. However, where both sale of goods andprovision of service is involved, an issue arises that whether  TCS provisions u/s 206C(ID) shall become applicable.

Opinion

As per Article 366(29A), transfer of property in goods in case of works contract is deemed as sale. Further as per Section 66E(b) and 66E(h), service portion is declared service in case of works contract. Hence TCS shall become applicable to works contract also. However the matter needs clarification by legislature.

4    Whether 1% TCS to be collected on the amount of Vat and Excise Duty Charged.

Opinion

The word sale consideration is not defined under Income Tax Law but as per Section 145A,
“…….the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation

………..”

Hence TCS to be charged on full amount of sale consideration. Taxes, Duties, Cess or fee can not be segregated. The word  “Sale Consideration” can not be equated with “Gross Turnover” u/s 44AB , where in refundable taxes are required to be excluded.

  1. Whether TCS is applicable to amount of advance received in cash:

The Definition of buyer under Explanation to Section 206C, specifically  includes “right to receive” for the purposes of 206C(1), however for 206C(1D), it is missing. So, when advance is paid by the buyer towards right to receive the goods, whether TCS provisions can be applied

Opinion:

The matter requires clarification. If such a version is adopted, the assesses might resort to the policy of receiving entire sum as advance in cash. There by defeating the purpose of introducing the provisions.

  1. Whether TCS is applicable where payment is made through bearer cheque.

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through bearer cheque

  1. Whether TCS is applicable where goods are exchanged under Barter System [say Jewellery is exchanged for bullion]

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through exchange of goods.

  1. Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions.

As per Section 206C(1) for alcoholic liquor for human consumption, tendu leaves, timber, forest products, scrap, coal, lignite or iron ore,

and as per S.206C(1C), for parking lot, toll plaza and mining and quarrying,  TCS is applicable at the time of debit of amount to the account of  buyer or receipt of amount in cash or cheque or draft or any other mode, which ever is earlier.

At the same time 206C(1D) is applicable to receipt of any amount in cash as consideration for sale of goods or provision of service.

The issue that arises is that whether 206C(ID) can result in Duplication of levy in respect of goods or services covered by other provisions.

Opinion

One may follow the Latin Maxim Generalia Specialibus Non Derogant i.e. the provisions of a general statute must yield to those of a special one. But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.

  1. Whether TCS is applicable where buyer or seller or both are non residents

Opinion: Section 206C does not put any embargo upon transactions with non residents.

But in case of import of goods, where seller is non resident, the provisions of the Act can not be extended beyond India. Further, it the seller who is liable to collect tax and not the resident buyer.

In case of export of goods, where buyer is non resident, enforcing deposit of tax on behalf of buyer who has no income chargeable to tax in India can not be sustained in the Court of law, because TCS is tax collected  and paid on behalf of buyer. Further as per Section 9, where operations of non resident are confined to procurement of goods in India, no Income can be deemed to have accrued or arisen in India.

  1. Whether TCS is applicable to transactions between two residents where Sale of Goods is in Course of Import i.e. High Sea Sales.

Opinion

High Sea Sales take place before the goods cross the Custom Frontiers of India. Although the Income Tax Act does not extend beyond India and the word “India” is defined u/s 2(25A) as India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters

However Section 206C(ID) does not place any embargo upon such transactions and hence shall be covered by TCS

 

Conclusion: Section 206C(ID) as introduced by Finance Act 2016 and to be implemented from 01-06-2016 requires clarification on number of issues discussed here in above. The better sense of wisdom demands that issues which can pest the large number of tax payers be resolved before  launching the avalanche of enigma.