1. Appeal – Non-payment of pre-deposit

The issue before the Gujarat HC was that appellate authority dismissed the appeal due to non-payment of pre-deposit. Against the appeal filed, Tribunal decided the appeal on merits. Being aggrieved revenue filed appeal before the HC. The HC held that in appeal against the said order of the appellate authority, the Tribunal could consider only the question whether the First Appellate Authority was justified in rejecting the appeal on the ground of non-payment of pre-deposit, and the Tribunal was not justified to decide the said appeal on merits. Therefore, following its earlier judgment and order delivered by the Division Bench of the Court in the case of State of Gujarat v. Tudor India Ltd. (2014) 2 VST 288 (Guj.) in Tax Appeal No. 711 / 2013, without further entering into merits of the case, the order of the Tribunal was quashed and the matter was remitted to the Tribunal to consider the legality and validity of the First Appellate Authority on pre-deposit and / or dismissing the appeal on the ground of non-deposit of pre-deposit only.

State of Gujarat v. Dolphin Metals (I) Ltd. (2015) 27 STJ 287 (Guj.)

2. Attempt to evade tax u/s. 51(7)(c) of the pvat Act, 2005

In this case, the appellant presented ingenuine documents before the Checkpost Officer which were 1 year old indicative of attempt to evade tax and clear cut case of mens rea and attempt to evade tax. In the facts and circumstances of the case, the penalty so levied was confirmed and appeal dismissed.

Godrej Agrovet Ltd., Focal Point, Khanna v. State of Punjab (2015) 51 PHT 456 (PVT)

3. ‘C’ forms under the cst Act

In this case, revision was filed by the State for the A.Y. 2007-08 (Central) against the Order of the Tribunal dt. 8-3-2013 in which following question of law was referred to the HC.

“Whether on the facts and in the circumstances of the case, the Commercial Tax Tribunal was legally justified in providing an opportunity to the dealer to collect and submit Form ‘C’ instead of directing to levy tax in accordance with law ?”

Earlier, the Tribunal by the impugned Order has allowed the assessee to file Form ‘C’ in respect of inter-State sales. The legal issue involved in this case has been already answered by the Apex Court in the case of Sahney Steel and Press Works Ltd. and Anr. v. CTO And Ors. (1986) UPTC 105 wherein the Apex Court in an identical case has allowed the assessee to collect the Form ‘C’ and furnish them to the Assessing Authority before making an assessment. The Paragraph No. 12 of afore cited judgment is not repeated here, but following the same Allahabad HC has held that there is no merit in the Revision filed by the Dept.

Commissioner, Commercial Tax U.P. Lucknow v. Lighton Contractor (India) Pvt. Ltd. 2015 NTN (Vol. 58) 427 (All)

4. Delayed grant of Registration Certificate

In this case, Registration Certificate was granted within 90 days instead of within 30 days. The question was whether this action of the officer was justified? The petitioner furnished information and particulars as sought on 12-2-2013. The certificate was issued with its validity from 10-5-2013 instead of 14-3-2013. The Tribunal held the action of the officer was not justified and gave direction that the certificate of registration is to be given within 15 days of the Order.

Rasha Ind. Pvt. Ltd. v. JCCT (2015) 66 S.T.A. 98 (WBTT)

5. Enhancement of Gross Turnover

The facts of the case were that estimate of gross turnover on the ground of allowance of discount by the sellers of the petitioner and lower sale prices than the corresponding purchases and valuation of closing stock made in a haphazard manner. The question was whether enhancement of gross turnover was justified? The Tribunal held that yes, but it was a bit on the higher side which should have been reduced from ` 14 crore to ` 13.85 crore. Accordingly, the case was remitted for proper assessment.

Harlalka Tyre Agencies Pvt. Ltd. v. J.C.C.C.T. And Ors. (2015) 66 S.T.A. 94 (WBTT)

6. High Sea Sales – Section 5(2)(3) of the Cst Act

In the absence of bill of lading / bill of entry and agreement between the parties and without communication of the said sale to the Customs Authorities in India, the alleged transfer of cement which was landed in Punjab from Pakistan could not be treated as High Sea Sale and was liable to be taxed. In this case, the Punjab Tribunal has held that the onus is on the appellant to establish that the sale of such goods had taken place as per Customs Act and Section 3 and 5 of the CST Act. High Sea Sale was considered as a sale carried out outside the territorial jurisdiction of India and no sales tax was leviable in respect of High Sea Sale. The customs document i.e. bill of entry was either filed in the name of High Sea Buyer or such bill of entry should have an endorsement indicating High Sea Buyer’s name. The title of goods gets transferred to High Sea Buyer
prior to entry of goods in territorial jurisdiction of India. Hence, the appeal was rejected.

Keshav Impex, Jagraon, Dist. Ludhiana v. State of Punjab (2015) 51 PHT 462 (PVT)

7. Reference – Conflicting views

In this case, under the U.P. Trade Tax Act, 1948 u/ss. 29(1) and 29(2) two decisions, each of a Division Bench of the Allahabad High Court were rendered. Noticing this as a conflict of views, a reference was made to the full Bench in the case terms: “In case, where the case is remanded back by the Appellate Authority to the Assessing Officer either u/s. 9 or 10 of the Act after setting aside the Assessment Order without any specific direction to refund the amount, whether it is obligatory on the part of the Assessing Officer to refund the amount and pay the interest in case, if the amount is not refunded within the specific period.” High Court held in the negative, in terms of the decisions of the Apex Court in CST, U.P. v. Hind Lamps Ltd. (2008) 37 NTN DX-262 and the decision rendered in the case of assessee itself on
4-3-2014 in Commissioner of Trade Tax, U.P. Anr. v. Lucent Technologies Pvt. Ltd. The judgment in Hind Lamps Ltd. was approved by a Division Bench Ellora Mechanical Products which was settled by the decision by the Supreme Court in Hind Lamps Ltd. (supra). Hence, reference is answered accordingly the revisions be placed before the appropriate Bench for disposal. The SC vide its Order dt. 4-3-2014 by following Hind Lamps Ltd. (2008) 37 NTN DX (262); (2008) 17 SCC 222 held – “refund found to be refundable and the judgments of the High Courts given earlier in tax revisions were set-aside”

Lucent Technologies Pvt. Ltd. v. Commissioner Trade Tax U.P. (2015) NTN Vol. 58 410 and also 2015 NTN 58 409 (SC)

8. Sale price u/s 2(m) of the Delhi vat Act, 2004

The issue involved in this case was what is deductible from the sale price for levy of sales tax. Appellant-company was a Registered dealer under the DST Act and was engaged in the business of manufacture and sale of tyres and tubes and marketed its products through various dealers. For the purpose of business promotion, it allowed discount under head “Turnover discount” which was equal to 1% of the product value stated in the invoice. Sale invoices issued clearly indicated an endorsement “entitled for 1% discount”. Such discount, however, was given to the dealers, once in a quarter, through “credit notes”. The company’s claim for deduction of “turnover discount” from the sale price was rejected by the authorities below. Assessee appealed to the High Court. In the facts and circumstances of the case, the HC held that the assessee correctly computed the sale price on which tax was payable and therefore the assessing authorities had unjustly denied the benefit of deduction on such account. Accordingly, the appeal was decided in favour the appellant.

MRF Ltd. v. Commissioner of Trade & Taxes (2015) 51 PHT 490 (Del.)

9. Schedule Entry: Churan and Churan Powder and Jal Zeera

Before the Allahabad HC the question of law which was formulated in a memo of revision was as under:

“Whether under the facts and circumstances of the case, the Trade Tax Tribunal and First Appellate Authority were legally justified in accepting the claim of the dealer that Churan and Churan Powder and Jal Zeera manufactured and sale by the dealer was Ayurvedic medicine and not classified

The Tribunal by the impugned order held questioned goods to as Ayurvedic medicinal items used for helping digestion disorder. In revision filed by the revenue, nothing has been placed before the Court to show that findings recorded by the Tribunal were perverse or contrary to record or otherwise not in accordance with law. In view of this position, revision was dismissed.

Commissioner, Commercial Tax U.P. v. Bal Sanjiwan Karyalaya 2015 NTN (Vol. 58) 424 (All)

10. Service of Notice to ‘Kitchen Boy’, a daily wager employee

In this interesting case, the assessee was a dealer registered under the Act and it claimed exemption from tax declared under the notification issued by the Government which came to be disallowed by the Assessing Authority and an Order levying tax came to be passed after a period of 8 months. The impugned Order was served to a ‘Kitchen Boy’ who was not a regular employee of the assessee but was employed on daily wages. The assessee came to know about the assessment order only when the recovery proceedings were started against the assessee.

The assessee filed an appeal before the Tribunal against the assessment order. The tribunal took the view that the order was properly served to the assessee and, therefore, the appeal being time-barred could not be entertained. The assessee challenged the order of the Tribunal before the High Court of Uttarakhand, but the HC upheld the Order of the Tribunal. The HC also held that they had no powers to condone the delay occurred in filing of an appeal. Being aggrieved, the assessee filed civil appeal before the SC.

The assessee, through its counsel, submitted before the Apex Court that the Notice served to the ‘kitchen boy’ was not proper service as provided u/r 37 of the Rules. It was contended that as provided, the Notice was required to be served either to a dealer by Registered Post or to authorize agent of the dealer. In the present case, since the notice was served to a ‘kitchen boy’ who was not authorized to receive any communication. Thus, it was contended that the Tribunal and the High Court failed to appreciate this legal aspect and the appeals were dismissed treating them as time-barred.

The Hon’ble SC held that it is an anathema in law to decide a matter without give notice to the concerned party. Every effort must be taken to a meaningfully and realistically serve the affected party so as not merely to ensure that he had knowledge thereof but also to enable him to initiate any permissible action. The assessee therefore justifiably submitted that it was statutorily impermissible for the assessing authority to serve the order on a ‘kitchen boy’, who is not even a middle level officer and certainly not an authorized agent of the assessee. Accordingly, the appeal filed before the Commissioner (Appeals) was entertained and he was directed to hear the appellant on a particular date and decide the appeal on merit.

Saral Wirecraft Pvt. Ltd. v. Commissioner, Customs, Central Excise & Service Tax And Ors. (Civil Appeal No. 5631-32 of 2015)(SC) STJ Vol. 54 Part-V P-652 (Guj)

11. Time barred assessment

U/s 29(4) of the PVT Act, 2005 provisions relating to time barred assessment were amended retrospectively from 3 years to 6 years. Assessee filed returns for A.Y. 2008-09 on 20-11-2009. Assessment framed on 27-2-2013 was held within the amended limitation period. Hence, appellant was directed to fulfil the conditions of pre deposit u/s. 62(5) within one month’s
time so as to be eligible to be heard on merits.

Larsen & Toubro Ltd., Mohali v. State of Punjab (2015) 51 PHT 459 (PVT)

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Q.1 A bakery has opted for payment of lump sum tax under Section 14 of the Gujarat Value Added Tax Act, 2003. “Bread in any form” falls under Entry 9(1) of Schedule I to the GVat Act, 2003. Whether the bakery is required to pay lump sum tax on the sales of bread?

Answer: Hon. Gujarat Value Added Tax Tribunal has held in the case of Star Bakery v. State of Gujarat 2014 GSTB 210 that a bakery which has opted for composition is liable to pay tax even on sale of bread since the rate prescribed for lump sum tax in the relevant notification is 2% of ‘turnover of sales’ which includes taxable as well as tax-free turnover. However I am in respectful disagreement with the view taken by Hon. Tribunal. Hon. Tribunal has failed to take into consideration Section 5(1) of the VAT Act read with the definition of ‘tax’ as given in Section 2(27) of the VAT Act. Section 5(1) of the Vat Act states that the sales and purchases of the goods specified in Schedule I shall be exempt from ‘tax’. The term ‘tax’ has been defined under Section 2(27) of the VAT Act to specifically include lump sum tax under Section 14 of the VAT Act. Thus even if lump sum tax is leviable under Section 14 of the VAT Act on tax free goods, such lump sum tax is exempt under Section 5(1) of the VAT Act. This is more so because if it is held that Section 5(1) of the VAT Act does not exempt lump sum tax then it will be rendered redundant. For a dealer who has not opted for composition he is otherwise not liable to pay tax on goods specified in Schedule I since the levy of tax under Section 7 of the VAT Act is only on goods specified in Schedule II and III of the VAT Act. Thus the only function of Section 5(1) of the VAT Act can be to exempt lump sum tax leviable on tax free goods. Tax appeal has been filed before Hon. Gujarat High Court challenging the judgment of Hon. Tribunal in the case of Star Bakery (supra) and the same is pending for final hearing.

Q.2 A leading burger chain enters into a franchise agreement with Mr. X. Under the franchise agreement, Mr. X is given the right to use the brand name of the burger chain while selling burgers at the shop. Mr. X is required to pay royalty every month to the burger chain. Whether the franchise owner i.e. the burger chain is liable to pay tax under the GVAT Act, 2003 on the royalty amount received from Mr. X?

Answer: This is a grey area for which there are conflicting judgments of different Hon. High Courts. Hon. Madras High Court took a view in the case of S.P.S Jayam & Co. v. Tamil Nadu Taxation Special Tribunal 137 STC 117 (Mad.) that franchise agreement does involve transfer of right to use trademark and therefore sales tax/VAT liability arises on royalty received towards the franchise agreement. Hon. Kerala High Court took a different view in the case of Malabar Gold Pvt. Ltd. 63 VST 497 (Ker.) on the ground that exclusive right to use trademark was not transferred and thus there was no transfer of right to use goods. Hon. Madras High Court has subsequently distinguished the judgment of Hon. Kerala High Court in the case of Vitan Departmental Stores & Industries 68 VST 70 (Mad.) on the ground that at least for the particular outlet the right to use trademark is transferred to the franchisee to the exclusion of others and thus there is transfer of right to use goods. Recently Hon. Bombay High Court has also taken a view in the case of Tata Sons Ltd. v/s State of Maharashtra 80 VST 173 (Bom.) that transfer of right to the exclusion of others is not a pre-requisite for treating a transaction as transfer of right to use goods. According to me, in light of the judgments taking divergent views, if a dealer wishes to avoid litigation and disputes then he should pay tax under the VAT Act on royalty received towards franchisee agreement for transfer of right to use brand name or trademark.

Q.3 Mr. A owns a mobile handset outlet store. As per the agreement of Mr. A with the handset companies, Mr. A is entitled to get discount on purchase price based on the quantum of purchases of handsets made by Mr. A. Such discount is given by way of issuance of credit notes. Based on past experience Mr. A is of the view that while the initial purchase price of the handset is Rs. 100, he is likely to get a discount of Rs. 20 from the handset companies and hence his effective cost would be Rs. 80. On the basis of such presumption Mr. A sells the mobile handset for Rs. 90 to his customer. The handset company charged tax at the rate of 15% on the original sale price of Rs. 100. Mr. A claimed input tax credit of Rs. 15 so charged. Mr. A charged tax of Rs. 13.50 under the GVat Act on Rs. 90 when the handset was further sold to the customer. The handset company did not show tax separately in the credit note of Rs. 20 given to Mr. A and therefore Mr. A did not reverse proportionate input tax credit. Thus as against output tax liability of Rs. 13.50 Mr. A had input tax credit of Rs. 15 and therefore Mr. A claimed refund of Rs. 1.50. The Assessing Officer is taking a stand that Mr. A is additionally liable to pay tax on Rs. 20 on the ground that credit given by the company is a payment on behalf of the customers and also that Mr. A ought to have proportionately reduced credit of Rs. 3 on receipt of credit note. Whether the Assessing Officer is justified in such stand?

Answer: The discount of Rs. 20 is the reduction in sale price of the transaction between the handset company and Mr. A. It is well-settled that discount given subsequently by way of credit notes is an admissible deduction from sale price. This has been recently reaffirmed by Hon. Gujarat High Court in the case of ONGC Ltd. v. State of Gujarat Tax Appeal 50 of 2014 decided on 18-12-2014. Thus correspondingly the purchase price of Mr. A is reduced by Rs. 20. Hence the stand of the Assessing Officer that Mr. A needs to pay tax on Rs. 20 on the ground that it is payment on behalf of customers is completely illegal. Apart from the ground that Rs. 20 is reduction from purchase price and not addition to sale price it can also be alternatively contended that consideration received from third parties is not taxable. Reliance may be placed in this regard to a judgment of Hon. Supreme Court in the case of Nevyveli Lignite Corporation Ltd. v. Commercial Tax Officer 124 STC 586 (SC). In that case the seller was selling goods at subsidised rate and receiving subsidy from Government. Hon. Supreme Court held that the subsidy which was received from a third party could not be treated as part of sale price for the purpose of levy of sales tax.

In so far as reversal of input tax credit is concerned, since the handset company does not show tax separately in the credit note, Mr. A is not liable to reverse input tax credit under Section 11(10) of the VAT Act.

Q.4 Q Ltd. is a unit located in a Special Economic Zone. Mr. P entered into a works contract with Q Ltd. for construction of factory shed. The contract provided for payment of consideration in installments based on percentage of completion of work. Mr. P purchased material from Mr. S and got it transported into the SEZ area. The transporter carried with him the bills raised by Mr. S on Mr. P which contained the details of the goods entering into the SEZ area. The customs authorities present at the entry point of the SEZ area affixed their endorsement on the purchase invoice of Mr. P. Since Mr. P raised invoices on Q Ltd. at a subsequent date on percentage of completion method there was no endorsement of customs authorities on such invoices. The Assessing Officer is denying exemption under Section 5A of the GVat Act, 2003 to Mr. P on the ground that the sale invoice of Mr. P is not endorsed by the customs authorities. Whether the Assessing Officer is justified? Whether Mr. S can claim exemption on sale of material to Mr. P which is going to be used by
Mr. P in the SEZ area?

Answer: Section 5A of the VAT Act makes a sale of goods to an SEZ unit a zero rated sale. Rule 42(2A) of the VAT Rules provides that a dealer claiming a transaction to be a zero rated sale under Section 5A of the Vat Act needs to prepare tax invoice in triplicate. The duplicate copy of the tax invoice needs to be endorsed by the customs authorities deployed in the SEZ area. In the present case Mr. P has got the purchase invoice endorsed by the customs authorities instead of sale invoice since sale was yet to be completed. Thus Rule 42(2A) of the VAT Rules has not been complied with. However according to me Mr. P can still claim exemption under Section 5A of the VAT Act in light of the judgment of Hon. Tribunal in the case of Shandong Tiejun Electric Power Engineering Co. Ltd. v. State of Gujarat S.A. No. 358 of 2014 decided on 19-2-2015 wherein it has been held that Rule 42(2A) of the VAT Rules is directory in nature and therefore if it is otherwise proved that sale was to an SEZ unit then exemption is available. Alternatively Hon. Tribunal has held that sale of goods taking place in SEZ is exempt because of Section 21(1) of the Gujarat Special Economic Zone Act, 2004 which is an overriding provision as held by Hon. Gujarat High Court in the case of Torrent Energy Ltd. v. State of Gujarat 71 VST 582 (Guj.)

Exemption under Section 5A is admissible on sale of goods to SEZ developer/co-developer or SEZ unit. Mr. P is only a contractor and therefore Mr. S cannot claim exemption on sale of goods to Mr. P.

Q.5 Whether a hospital is liable to pay tax under the GVAT Act, 2003 on the use of medicines, implants, consumables, etc used in the course of treatment of patients admitted in hospital?

Answer: According to me a hospital is not liable to pay tax under the Vat Act on the use of medicines, implants, consumables, etc. used in the course of treatment of patients admitted in hospital since there is no agreement to sell-purchase goods in such transactions. Patient enters into an agreement with the hospital for getting cured of his ailment and not for purchase of medicines, implants, consumables, etc. Thus there is no sale as per the Sale of Goods Act, 1930 and neither is such transaction deemed sale under Article 366(29A) of the Constitution of India. Therefore the transaction is not taxable. The observations of Hon. Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India 145 STC 91 (SC) squarely support such contention. Different Hon. High Courts have also taken such view in the following cases:

  1. International Hospital Pvt. Ltd. v. State of Uttar Pradesh 71 VST 139 (All.)\
  2. Tata Main Hospital v. State of Jharkhand W. P. No. 2422 of 2006 dated 7-9-2007.
  3. Fortis Health Care Ltd. v. State of Punjab Civil WP. No. of 1922 to 1924 of 2012 decided on 23-1-2015.

In Gujarat, the Vat department is taking a stand that tax is payable under the Vat Act on such transactions. Reliance is being placed on Section 2(23)(g) of the Vat Act by which supply of goods by way of or as part of service is included in the definition of ‘sale’. Constitutional validity of Section 2(23)(g) of the Vat Act has been challenged by the hospitals before Hon. Gujarat High Court on the ground that the State does not have competence to levy tax on such transactions. The writ petitions have been admitted and they are pending for final hearing.

Q.6 B Ltd. is engaged in the business of civil construction and manufacturing of tiles. The management decides to demerge the tile manufacturing company into a separate company. A scheme of demerger is proposed and approved by Hon. High Court. What would be the tax implications under the GVat Act?

Answer: The queries that could arise regarding implication under the Vat Act of demerger of a company and my views regarding the same are as under:

(a) What would be the status of the inter-unit transactions that took place between the effective date of the scheme of demerger and date of order of Hon. High Court?

Answer: In so far as amalgamation is concerned, there is a specific provision by way of Section 52 of the Vat Act that introduces a deeming fiction for transactions between the amalgamating companies between the effective date of the scheme and date of order of Hon. High Court. Thus while ordinarily such transactions would be branch transfers, by virtue of Section 52 of the Vat Act such transactions would be sale transactions.

Per contra there is no provision under the Vat Act for demerger. Therefore according to me once the scheme of demerger is approved by Hon. High Court, the two companies would be separate entities for all purposes right from the effective date of the demerger and therefore any inter-unit transactions that took place between the effective date and the date of order would become sale transactions.

(b) Whether consideration received by the company from the resultant company for the demerger is taxable under the Vat Act.

Answer: According to me demerger of an entire unit is a transfer of business and thus the company is not required to pay tax under the Vat Act on consideration received towards such transfer on the ground that it is not a dealer qua such transfer of business. Following judgments of different Hon. High Courts support such view:

  1. State of Gujarat v. Sayaji Mills 11 VST 650 (Guj.)
  2. Coromandal Fertilizers Ltd. v. State of Andhra Pradesh 112 STC 1 (AP)
  3. Kwality Biscuits Pvt. Ltd. v. State of Karnataka 53 VST 66 (Karn.)
  4. What would be the implication of demerger on the input tax credit balance attributable to the demerged unit?

Answer: Rule 17(11) of the Vat Rules specifically provides for transfer of input tax credit balance to the transferee unit in case of transfer of business. Demerger also involves transfer of business and thus the input tax credit balance attributable to the demerged unit will get transferred to the books and returns of the demerged unit from the effective date of the demerger.

Q.7 Vat authorities conduct search proceedings at the premises of C Ltd. According to the authorities C Ltd. has an outstanding liability of Rs. 3 crores under the GVat Act, 2003. Notice for provisional assessment is given to C Ltd. C Ltd. offers its factory premises which is worth Rs. 4 crores as security. The factory premises is free from encumberances. Even then the Vat authorities provisionally attach the bank accounts of C Ltd. and force the manager of C Ltd. to give post dated cheques towards the proposed liability. Are the Vat authorities justified in their action?

Answer: Section 45 of the Vat Act allows provisional attachment of property during the pendency of assessment proceedings if the Commissioner is of the opinion that it is necessary to do so for the purpose of protecting the interest of the Government revenue. Hon. Gujarat High Court has recently held in the case of Vishwanath Realtor v. State of Gujarat Special Civil Application No. 7210 of 2015 decided on 29-4-2015 that for the purpose of invoking power under Section 45 of the Vat Act it is necessary for the Commissioner to form an opinion on the basis of tangible material on objective facts, on the basis of past conduct of the dealers and on reliable information that the dealer is likely to sell of his properties. Thus in the given case if the possible demand is Rs. 3 crores and the factory premises of Rs. 4 crores which is free from encumbrances has already been given as security then the action of the officer to provisionally attach the bank accounts of C Ltd. is illegal.

The action of collecting post dated cheques in spite of the fact that no orders have been passed against C Ltd. under the Vat Act is also illegal as has been held by Hon. Gujarat High Court in the following judgments:

  1. Atul Motors Pvt. Ltd. v. State of Gujarat 69 VST 289 (Guj.)
  2. Bhavesh Trading Co. v. State of Gujarat 73 VST 166 (Guj.)

Kumar Motors v. State of Gujarat SCA No. 12444 of 2014 decided on 10-10-2014.

[Source : Queries replied at Brains’ Trust Session at National Tax Conference held on 12-7-2015 at Ahmedabad]

Lease Sale vis-à-vis Intangible Property

Q.1 There are conflicting judgments about nature of lease transactions vis-à-vis intangible goods. Please explain the recent position with relation to latest judgments?

Ans. The nature of lease transaction has always remained a debatable issue. In other words, every transaction is emerging as a new transaction and it is difficult to determine the nature in light of earlier judgments.

Amongst others, the intangible goods has further separate status qua lease transactions. In other words, it is difficult to say that the law laid down in relation to tangible goods will remain applicable to intangible goods.

The short background about taxability as lease transaction of intangible goods can be discussed as below.

By deeming clause in Article 366 (29-A) of the Constitution, the transaction of “Transfer of Right to Use Goods” (lease transaction) are made taxable under Sales Tax Laws. The nature of lease transactions is not defined in the Constitution or in any Act. The interpretation is done in light of various judicial pronouncements.

Bharat Sanchar Nigam Ltd. (145 STC 91)(SC)

The issue in this case was about levy of lease tax on services provided by Telephone Companies. Supreme Court held that no sales tax is applicable as the transaction pertains to service. While so holding, one of the learned judges on the Bench, observed as under in para 98, about taxable lease transactions.

“98. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:

  1. There must be goods available for delivery
  2. There must be a consensus ad idem as to the identity of the goods;
  3. The transferee should have a legal right to use the goods – consequently all legal consequences of such use including any permissions or licences required therefore should be available to the transferee;
  4. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute – viz., a “transfer of the right to use” and not merely a licence to use the goods;
  5. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.”

Based on above parameters there are further judgments at various forums where the nature of lease transaction is decided. Reference can be made to following judgments. The common feature is that if use is allowed on non-exclusive basis it is not considered as lease.

Smokin Joe’s Pizza Pvt. Ltd. (A 25 of 2004 dated 25-11-2008) (MSTT)

The facts in this case were that the dealer was holding registered Trade mark “Smokin Joe’s” and allowed its use to its franchisees. The franchise agreement provided for non-exclusive right to use the registered trademark. The agreement also provided for providing various services to Franchisee. Lower authorities held the transaction as taxable lease transaction. Tribunal held that it is not a lease transaction as it is not exclusive. This judgment is before Hon. Bombay High Court by way of Reference.

Malabar Gold Pvt. Ltd. v. Commercial Tax Officer, Kozhikode (63-VST 497)(Ker.)

This is the judgment of Kerala High Court. In this case also the transaction was about granting of franchise right on non-exclusive basis. Hon. High Court has held that when the grant of franchise is non-exclusive it is not lease transaction and not liable to VAT.

On other hand there are also contrary judgments like as under:

Nutrine Confectionery Co. Pvt. Ltd. v. State of Andhra Pradesh (40 VST 327)(A.P.)

In this case also the transaction was for allowing use of trade mark. The said use was also on non- exclusive basis. Still Hon. High Court has held that the transaction is lease transaction. Hon. High Court felt that the judgment of BSNL about exclusive use cannot apply in relation to intangible goods like trade mark.

AGS Entertainment Private Limited v. Union of India and Others (65 VST 88)(Mad).

In this case, it is held that unless all the rights of the films are transferred, there cannot be lease transaction. On the same service tax is applicable. Thus, the law laid is that if in a intangible goods like copyright only singular rights are transferred and all rights are not transferred then there is not lease transaction and service tax can remain applicable.

Thus, regarding intangible goods, there are different judgments. However, it appears that the courts are treating intangible goods separately as compared to tangible goods. When “goods” include intangible goods also, the interpretation as applicable to tangible goods should equally apply to intangible goods also. However, there is distinction made by the Courts which are required to be reconsidered by the Courts.

Latest Judgment of Hon. Bombay High Court

Now we have one more judgment from Hon. Bombay High Court. The judgment is in case of Tata Sons Ltd. v. State of Maharashtra (W.P. No. 2818 of 2012 with Notice of Motion (L) No.214 of 2013 dt. 20-1-2015).

In this case the use of brand name was allowed on non-exclusive basis. Before Hon. Tribunal judgments including in case of Smokin Jeo’s was relied upon for non-liability. However, Tribunal has confirmed the liability. Therefore, this matter before Hon. Bombay High Court, on behalf of assessee. After referring the facts and judgments including in case of BSNL, Hon. High Court has held that even if use of right is given on non-exclusive basis, still it will be lease transaction. The observations of Hon. Bombay High Court are as under:

“50. Para 98 is relied upon by Mr. Chinoy. However, that cannot be read in isolation and out of context. It must be read in the backdrop of the underlying controversy, namely, relationship between a telephone connection service provider and its customer. Such a transaction is essentially of service.

51. It is in relation to such a controversy that the observations, findings and conclusions must be confined. We do not see as to how they can be extended and in the facts and circumstances of the present case to the enactment that we are dealing with. Going by the plain and unambiguous language of the Act of 1985 we cannot read into it the element of exclusivity and a transfer contemplated therein to be unconditional. Therefore the tests in para (d) and (e) cannot be read in the Act of 1985.

58. We are of the opinion that the Tribunal did not act perversely or committed an error apparent on the face of record in rejecting the petitioner’s appeals. May be the Tribunal could have rendered a detailed finding and conclusion. However, upon perusal of the order passed by the Tribunal we find that it referred to the facts. It has also adverted to the contentions of the parties. It also referred to its own conclusions rendered in the case of M/s. Smokin Joe etc. However, it concludes that the facts and circumstances in the present case are not identical to the cases dealt with by it and of the above franchisees. We do not express any opinion as to whether the Tribunal’s conclusions in the case of M/s. Smokin Joe (supra) and M/s. Diageo India (supra) are accurate or correct. We are informed that separate proceedings in that regard are pending in this Court. However, the Tribunal did not err in holding that the cases which have been dealt with by it including the Supreme Court judgment in the case of BSNL (supra) are on distinct facts.”

Not only Hon. High Court distinguished judgment of Hon. Supreme Court in case of BSNL, but also relied upon earlier judgment in case of Dukes and Sons and followed the same. The relevant observations are as under:

“52. We are in agreement with Mr. Kumbhakoni that the judgment of this Court in the case of Commissioner of Sales Tax v. Dukes and Sons Pvt. Ltd., reported in 1999 (1) Mh.L.J. 26 cannot said to be no longer good law in the light of the judgment of the Hon’ble Supreme Court in BSNL’s case. That was the argument canvased by Mr. Chinoy and his further submission is that relying upon BSNL (supra), the Tribunal rendered its decisions in favour of the franchisees, namely, M/s. Smokin’ Joe (supra) and M/s. Diageo India (supra). In M/s. Duke & Sons Pvt. Ltd., similiar controversy fell for consideration and determination of this Court. There, M/s. Dukes was holder of a registered trade mark, namely, Duke’s, Mangola, Pineola, Tango. It manufactured concentrates for manufacturing aerated waters, beverages etc. There were written agreements between the assessee M/s. Dukes and purchasers of the concentrates. The assessee sold the concentrates to the customers for use in manufacturing aerated waters, beverages etc. at their bottling plants. Pertinently such purchasers of the concentrates were permitted to market their beverage by using the trademark of the assessee. The assessee charged royalty for use of the trade mark by the customers. They were styled as Franchise Agreements. One such Franchise Agreement wherein the assessee permitted the customer M/s. Salstar Foods and Beverages Ltd. to use the trade mark of the assessee on the bottles of the beverage manufactured by them in Maharashtra and to market the same under the trade mark of the assessee was subjected to the tax under the Act of 1985. There was some doubt and, therefore, an application under Section 52 of the Bombay Sales Act, 1959 was made by the assessee to the Additional Commissioner of Sales Tax. This was for determination of the question, where it was liable to pay tax on the amount of royalty received by it for transfer of trade mark under the Act of 1985. The Additional Commissioner of Sales Tax (Enforcement Branch) by his order dated 3-3-1989 held that by the agreements in question there was a transfer of right to use the trade mark of the assessee to its customers and amounted to sale under Section 2(10) of the Act of 1985. The assessee was thus held to be liable to pay tax. That order was appealed to the Tribunal. The Tribunal set aside the order of the Additional Commissioner and held that the transaction did not amount to transfer of right to use the trade mark by the assessee to its customers and no tax could be levied on the royalty received on said transfer. The Revenue applied for reference of the ground of law arising from this order of the Tribunal. That is how the question of law framed by this Court at para1 came up for consideration.“

After this Hon. High Court reproduced portion from judgment of Dukes and Sons and observed as under:

“57. Thus, far from the judgment of the Division Bench of this Court in M/s. Dukes and Sons (supra) being no longer a good law, that judgment and the ratio therein has been consistently referred and quoted with approval by the Kerala High Court and Andhra Pradesh High Court. This was subsequent to the judgment of the Hon’ble Supreme Court in BSNL (supra). With respect, we concur with all the aforesaid decisions and rulings.”

Thus, amongst others, Hon. High Court has considered case of intangible goods as separate category. Further important aspect in this judgment is that no reference is made to the judgment of Kerala High Court in case of Malabar Gold Pvt. Ltd.

Thus, the overall issues still remains debatable and any judgment from Hon. Supreme Court will only resolve the issue. In Maharashtra, the learned Commissioner of Sales Tax has issued Circular bearing No.11T of 2015 dt. 13-7-2015, informing that the judgment of Tata Sons Ltd., will govern the cases of intangible goods. Thus in Maharashtra the position will be interpreted in light of above judgment of Tata Sons Ltd.

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Query No. 1 (Contractor – U/s. 194C)

Mr.X pays freight charges of ` 3,00,000 in a year to ABC Pvt. Ltd, whose business is only to arrange truck owned by different persons. The said companies does not own any truck but acts only as a commission agent. The buyer of goods pays freight charges to the said company and obtain its PAN.

Now, whether payer is liable to deduct tax u/s. 194C of the Act while making payment to the said company, not knowing who is the owner of the truck and whether such person owns more than 10 trucks? If not whether any declaration from the Transport Agent needs to be obtained in terms of amended Sec. 194C w.e.f. June 1, 2015.


From the query, it is clear that a payer, is seeking help from the company, for arrangement of trucks from others. The company does not own any truck therefore it is only entitled for commission. Hence, the payer is paying to the company not for carrying out any work.

Explanation to section 194C(iv) clarifies that “work” would include

“(c ) carriage of goods or passengers by any mode of transport other than railways”

Thus, from the query, it is manifest that the company does not carry any goods or passengers, it only arranges trucks for carriage of goods. So, no tax is required to be deducted by the payer.

A similar question arose in the case of payee before the Delhi High Court in CIT v. Hardarshan Singh [350 ITR 427]. In that case, the facts were, the assessee had lorry booking business. In that business there was no privity of contract for carriage of goods. On these facts, the Court held that the assessee had collected the freight charges from the clients who intended to transport their goods through separate transporters The entire amount collected from the clients was paid to transporters after deducting commission from the amount. Thus the Tribunal was justified in holding that the contract was between the assessee’s clients and the transporters and that the assessee had mainly acted as a facilitator as an intermediary. Therefore, no tax is required to be deducted while making payments to the assessee, on the basis of CIT v. Cargo Linkers [179 Taxman 151 (Del)].

Similarly, in the present query, Mr. X is not liable to deduct the tax while making payments to ABC Pvt. Ltd.. Accordingly, it is not necessary that facilitator should obtain any declaration from transporter.

Similarly, Mr. X is not liable to deduct the tax while making payments to ABC Pvt. Ltd.

Query No. 2: (TDS u/s. 194A – Payment by Co-op. Bank to other Co-op. Society)

The Finance Act, 2015 has amended clause (v) of sub- section (3) of Sec. 194A w.e.f. June 1, 2015. Accordingly TDS is now required to be deduction by a Co-op. Bank from interest payment to its members subject to other provisions.

Now, can payment be made by other Co-operative Bank to other Co-operative Society without TDS ?


Section 194A(1) of the Income-tax Act, 1961 provides

“Any person, not being an Individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities shall at any time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate in force —————-“

Sub-section 3 of section 194A states that “the provisions of sub-section (1) shall not apply –

(v) To such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society———————“

(viia) To such income credited or paid in respect of –

  1. Deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank
  2. Deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-section (a), engaged in carrying on the business of banking:

Thus, sub-section (3) of section 194A is an exception to sub-section (1) of the section. But it does not override sub-section (1). No TDS is required to be deducted in clauses mentioned under sub-section (3), subject to sub-section (1).

So, when interest is paid by a co-operative bank to other co-operative society it would fall under sub- section (1) of section 194A of the Act and therefore when a co-operative bank makes a payment to another co-operative society it would fall under sub- section (1) and hence TDS is required to be made. Further, this also gets support from by sub-clause (b) of clause (viia) of sub-section (3) of section 194A of the Act. Which provides that any deposit with co-operative bank by a co-operative society (other than engaged in carrying on banking business) is liable to TDS. Therefore, the Co-op. Bank should make TDS, while paying to other co-operative society.

Query No. 3 (Merilyn Shipping is still valid law)

Does the judicial precedent in case of Special Bench Merilyn Shipping & Transport [136 ITD 23 (JB)] still hold good on the issue of paid or payable?


Yes, recently the Mumbai Tribunal in Jitendra Mansukhlal Shah v. DCIT [ITA Nos. 2293 & 2294/Mum/2013 dated March 4, 2015] has held that, the assessee having made the payment, section 40a(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. The ITAT Chennai Benches have taken into consideration the decision of the ITAT Special Bench in Merilyn Shipping & Transport (supra), the order of which was suspended by the High Court but at the same time there was a subsequent judgment of the Hon’ble Allahabad High Court in the case of M/s. Vector Shipping Services (P) Ltd., wherein it was held that section 40(a)(ia) applies only to those amount which remains payable by the end of previous year. In other words, in respect of payments already made section 40(a)(ia) is not attracted (i) ACIT v. Eskay Designs (ITA No. 1951(Mad) 2012 dated 9-12-2013) (ii) ITO v. Theekathir Press (ITA No. 2076/Mad/2012 & Co. No. 155/Mad/2013 dated 18-9-2013). Though there are contrary decisions of the other Hon’ble High Courts i.e. Hon’ble Calcutta High Court and Hon’ble Gujarat High Court. In the light of the decision of the Hon’ble Allahabad High Court it can be said that there can be two views possible in this matter in which event the one which is in favour of the assessee has to be followed in the light of the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. [88 ITR 192]. Hon’ble Allahabad High Court in the case of CIT v. Vector Shipping Services (P) Ltd. (supra) has held that for disallowing expenses from business and profession on the ground that TDS has not been deducted, amount should be payable and not which has been paid by the end of the year. The said decision of Allahabad High Court was made subject to special leave petition filed before the Supreme Court and their Lordships vide their order dated 2-7-2014 in CC No. 8068/2014 have dismissed the SLP. In view of the above discussion the decision relied upon by the Learned D.R. would have no application and we have accepted the claim of the assessee to the extent of labour payments are made during the year under consideration and to that extent no disallowance should be made.

Query No. 4 (Charitable Purpose)

The Finance Act, 2015 has inserted one proviso to section 2(15) of the Act, instead of the provisos, what was need to change the provisos?


Section 2(15) of the Act, defines a “charitable purpose”. The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from the property held under trust should be applied for charitable purpose in India. Section 2(15) inter alia provides that advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. However, at present, this restriction shall not apply if the aggregate value of the receipts from the activities referred to above is twenty five lakh rupees or less in the previous year.

The institutions which as part of genuine charitable activities, undertake incidental activities like publishing books or other programmes as part of actual carrying out of the objects which are of charitable nature are put to hardship due to present proviso to section 2(15). Therefore, now the advancement of any other object of general public utility is concerned, there is a need is to ensure appropriate balance being drawn between the object of the preventing business activity in the garb of charity, and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution.

Hence, the definition of charitable purpose has been amended by inserting new proviso from the assessment year 2016/17 instead of existing two provisos to mitigate the hardship caused to genuine charitable trust or institution.

So, now, the advancement of any other object of general public utility shall not be a charitable purpose; if it involves the carrying on the activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless

  1. Such activity is undertaken the course of actual carrying out of such advancement of any other object of general public utility, and
  2. The aggregate receipts from such activity or activities during the previous year, do not excess twenty per cent (20%) (instead of fixed amount of rupees twenty five lakh or more) of the total receipts of the trust or institution undertaking such activity or activities for the previous year.

Query No. 5 (Late filing fee u/s. 234E)

Can late filing fees u/s. 234E be levied for the period prior to June, 2015 by way intimation u/s. 200A?


Yes, Chapter XVII deals with relating to collection and recovery of tax., Section 234E in respect of fees for default in furnishing statement was introduce by the Finance Act, 2012 with effect from July 1, 2012. Thus the liability to pay fees for late furnishing or not furnishing a statement under section 200(3) or proviso to 206C(3) arose from the said date, if the statement was processed under section 200A of the Act. Only from June 1, 2015 the processing of the statement through intimation was provided. Hence, late filing fee under section 234E can be levied, while processing the statements through intimation.

Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc. to AIFTP, having interest to the Members.


Section 145(1) of the Income-tax Act, 1961 provides that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

Sub-section (2) of the said section before the amendment by the Finance (No. 2) Act, 2014 provided that the Central Government may notify in the Official Gazette from time to time Accounting Standards to be followed by any class of assessee or in respect of any class of income. In pursuance to that the Central Government vide Notification No. 9949 [F.No. 132/7/95. TPL] dated January 01,1996 had notified two Accounting Standards viz., (1) Disclosure of Accounting Policies and (2) Disclosure of Prior period and extraordinary items and changes in accounting policies. Now, in supersession of the said notification, the Central Government has notified ten “Income computation and disclosure standards” on March 31, 2015, which are effective from assessment year 2016-17, to be followed by any class of assessee or in respect of any class of income.

Sub-section (3) of section 145 provides that if the Assessing Officer is not satisfied about correctness or completeness of the accounts of the assessee or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.


  1. These Standards have to be followed by all persons following mercantile system of accounting. Thus, they are not applicable to a person who are following cash system of accounting.

  2. The Income Computation and Disclosure Standards are applicable for computation of income chargeable under the heads “Profits and gains of business or profession” or “Income from other sources” and not for the purpose of maintenance of books of account.

  3. Further, in case of conflict between the provisions of Income-tax Act, 1961 and these Computation and Disclosure Standards, the provision of the Act shall prevail to that extent.

  4. Words and expression used and not defined in these ICDSs shall have the meanings assigned to them in the Income- tax Act, 1961.

ICDS 1 – Accounting policies

Salient features

  1. Certain fundamental accounting assumption underlie the preparation and presentation of financial statement, viz: (a) Going Concern (b) Consistency and (c) Accrual remains. When the fundamental accounting assumption are followed, specific disclosure is not required, if a fundamental accounting assumption is not followed, the facts to be disclosed.

  2. The accounting policies refer to the specific accounting principles and the methods of applying those principles adopted by a person.

  3. Accounting policies adopted by a person shall be such so as to represent a true and fair view of the state of affairs and income of the business, profession or vocation.

  4. However, for this purpose:

  1. The treatment and presentation of transactions and events shall be governed by their substance and not by the legal form; and

  2. Marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is in accordance with the provisions of any other ICDS

  1. An accounting policy shall not be changed without reasonable clause.


  1. All significant accounting policies adopted by a person shall be disclosed. However, it is not clear, where to disclose in return of income.

  2. Any change in an accounting policy which has a material effect shall be disclosed. The amount by which any item is effected by such change shall also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect for the current previous year but which is reasonably expected to have a material effect in later previous years, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted and also in the previous year in which such change has material effect for the first time.

Thus, from the above, it is clear that major considerations governing the selection and application of accounting policies are substance over form and materiality have been incorporated in these ICDS except “prudence.”

  1. Disclosure of accounting policies or changes therein cannot remedy a wrong or inappropriate treatment of the item.

ICDS II – Valuation of inventories


This Standard does not apply to:

  1. Work-in-progress (WIP) arising under “Construction Contract” including directly related service contract which has been dealt with ICDS on construction contract.

  2. WIP which has been dealt by the other ICDS.

  3. Shares, debentures and other financial instruments held as stock-in-trade which has been dealt with by ICDS on securities.

  4. Producers’ inventories of livestock, agriculture and forest products, mineral oils, ores and gases, if they are measured at net realisable value.

  5. Machinery spares, which can be used only in connection with a tangible fixed asset and their use is expected to be irregular and dealt with ICDS on tangible fixed assets.


For the purpose of this Standard.

i) “Inventories” are assets:

  1. Held for sale in ordinary course of business i.e. finished goods;

  2. In the process of production for such sale, i.e. WIP

  3. In the form of materials or supplies to be consumed in the production process or in the rendering of services, i.e. raw materials and other consumable items.

ii) Net realisable value (NRV) is estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale.


Inventories shall be valued at cost or net realisable value (NRV), whichever is lower.

Cost of inventories

Cost of inventories would include all costs of purchase, cost of services, cost of conversion and other costs incurred in brining the inventories to their present location and condition. Thus, costs of service are specifically included while determining the cost of inventory. So, now, the costs of uncompleted services have to be valued and shown as WIP.

Cost of purchase

The same would consist of purchase price, including duties and taxes, freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates and other similar items be deducted in determining the costs of purchase.

Cost of services

In case of service provider, the costs of services would consist of labour and other costs of personnel directly engaged in providing the service including supervisory personnel and attributable overheads.

Cost of conversion

The costs would include costs directly related to the units of production and a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remains relatively constant regardless of volume of the production. Variable production overheads are those indirect costs of production that vary directly or indirectly with the volume of production. The allocation of fixed production overheads for the purpose of inclusion in the costs of conversion be determined on the basis of normal capacity of the production facility. For this purpose, normal capacity would be determined on an average over a number of periods or seasons under normal circumstances, after considering loss of capacity resulting from planned maintenance. The fixed overheads allocable to each unit of production should not be increased as a consequence of low production or ideal plant. Unallocable such overheads be recognised as an expense in the period in which they are incurred. In case of abnormally high production, the fixed production overheads allocated to each unit of production be decreased so that inventories are not measured above the cost.

Cost of joint production

If a production process results in more than one product and cost of conversion of each product are not separately identifiable, then, the costs shall be allocated between the products on a rational and consistent basis. Generally, by products, scrap or waste do not have significant value be measured at NRV and be deducted from the cost of main product.

Other costs

The same shall be includible in cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition.

Interest and other borrowings costs shall not be includible unless they meet the criteria for recognition of interest as component of the cost as specified in ICDS on borrowing cost.

Exclusion from the cost of inventories

The following costs shall not be included while valuing the inventory and shall be recognised as expenses of the period in which they are incurred.

  1. Abnormal amounts of wasted materials, labour or other production costs;

  2. Storage costs, unless those are necessary in the production process prior to a further production stage;

  3. Administrative overheads which do not contribute to bringing the inventories to their present location and condition; and

  4. Selling costs.

Cost formula

The cost of inventories of items that are not ordinarily interchangeable and goods and services produced and segregated for a “specific projects” should be assigned by specific identification of their individual costs. “Specific identification cost” means specific costs are attributed to identified items of inventory.

The cost of inventories, other than the above mentioned inventories, be valued using the First-in-First out (FIFO) or weighted average cost (WEC). The value should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.

The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first and consequently the items of remaining inventory at the period are those most recently purchased or produced.

Under WEC formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and cost of similar items purchased or produced during the period. The average be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances.

Retail method

In this method, the cost of inventory is determined by reducing from the sales value of the inventory, the appropriate percentage of gross margin. The percentage used takes into consideration inventory, which has been marked down to below its original selling price.

Net realizable value

Inventories are written down to NRV on an item by item basis. Where ‘items of inventory’ relating to the same product line having similar purpose or end use and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line, such inventories are grouped together and written down to NRV on aggregate basis. NRV should be based on most realisable evidence available at the time of valuation. While estimating the NRV the purpose for which inventory is held to be considered. The estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of previous year to the extent such events confirm the conditions existing on the last day of previous year

Materials and other supplies held for use in the production of inventories need not be written down below cost, if finished products in which they shall be incorporated are expected to be sold at or above cost. However, they should be written down where there has been decline in the price of materials and it is estimated the cost of finished product will exceed its NRV but not cost e.g. if cost of raw material say is Rs 175/- but NRV is say ` 145/-. If cost of finished good is say ` 250/- and sale value of the same is more than ` 250/-, then raw material be valued at its cost i.e. ` 175/- but if sale value of finished good is less than the cost of finished goods the remaining raw material be valued at ` 145/-.

Value of opening inventory

The value of the inventory as at the beginning of the previous year shall be:

  1. The cost of inventory at the commence of the business if the business has commenced during the previous year; and

  2. The value of the inventory as on the close of the immediate preceding previous year; in any other case (Chainrup Sampatram v. ITO [24 ITR 481 (SC)].

Valuation of inventory in case dissolution

In case of dissolution of a firm or AOP or BOI, irrespective of whether business is discontinued or not the inventory on the date of dissolution shall be valued at NRV [ALA Firm Vs. CIT 189 ITR 285(SC)].

Transitional provisions

Interest and other borrowing costs, which do not meet criteria for recognition of interest as a component of cost but included in the opening inventory as on April 1, 2015 shall be taken into account for determining cost of such inventory for valuation as at the cost of the previous year.


  1. The accounting policies adopted in measuring inventories including the cost formulae used; and

  2. The total carrying amount of inventories and its classification.

ICDS III – Construction contracts


This ICDS is applicable to a Construction Contract of a Contractor. Thus, this standard is not applicable to builder or developer.


  1. “Construction contract” is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely inter-related or interdependent in terms of their design, technology and function or their ultimate purpose or use and includes (i) contract for the rendering of services which are directly related to the construction of the asset e.g. services of project managers and architect and (ii) contract for destruction or restoration of assets and the restoration of the environment following the demolition of assets.

  2. “Fixed Price Contract” is a construction contract in which the contractor agrees to a fixed contract price or a fixed rate per unit of output, subject to cost escalation clauses.

  3. “Cost Plus Contract” is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a mark up on these costs or a fixed fee.

  4. “Retentions” are amounts of progress billings which are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified

Contract revenue

  1. Be recognised when there is a reasonably certainty of its ultimate collection.

  2. Contract revenue shall comprise:

  1. Initial amount of revenue agreed in the contract including retentions.

  2. Variations in contract work, claims and incentive payments, to the extent it is probable that they will result in revenue and they are capable of being measured

  1. If contract revenue is already recognised as income and is subsequently written off in the books of account as uncollectible the same shall be recognised as an expense and not to be adjusted against contract revenue. Further retention amount if already accounted in the sale price, it need not be added again e.g. say contract value is ` 100/-, which is already credited to P & L A/c and offered for tax, then retention amount say of ` 10/-, need not be added while computing the income of the contractor, otherwise it would be taxing the same income twice. When retention amount is not recoverable due to non fulfilment of the conditions the same should be written off in the books of account and the contractor can claim deduction while computing the income under proviso to section 36(1)(vii) of the Act.

• Contract Costs Shall comprise of :

  1. Costs that are directly relatable to the specific contract;

  2. Costs that are attributable to the contract;

  3. Other costs that are specifically chargeable to the customer; and

  4. Allocated borrowing costs in accordance with ICDS on borrowing costs.

• These costs would be reduced by any incidental income, not being interest, dividend or capital gains. So, only income explicitly relatable or connected with the costs be reduced [CIT v. Bokaro Steel Ltd. 231 ITR 315 (SC)].

• The cost which cannot be attributable to any contract activity be excluded from the costs of construct contract.

• Costs that are incurred for securing the contract are included, if they can be separately identifiable and it is probable that the contract shall be obtained. If costs incurred in securing a contract are recognised as an expense in the period in which they are incurred and the contract is obtained.

• Contract costs attributable to a contract be includible from the date of securing the contract to the final completion of contract.

• Contract costs that relate to future activity on the contract are recognised as an asset. Such costs represent an amount due fom customer and are classified as work-in-progress (WIP).

Recognition of contract revenue and expenses

• Be recognized as revenue and expenses by reference to the stage of completion of the contract activity at the reporting date; i.e. on the percentage of completion method. Under this method contract revenue is matched with the contract costs incurred in reaching the stage of completion.

• The stage of completion shall be determined:

  1. The proportion of the contract costs incurred for work performed up to the reporting date bear to the estimated total contract costs; or

  2. Surveys of work performed; or

  3. Completion of a physical proportion of the contract work.

So, progressive payments and advances received from customers are not determinative of the stage of completion of a contract.

• While determining the stage of completion, only contract costs that reflect the work performed of a contract are included. Therefore, the following costs are excluded:

  1. Contract costs that relate to future activity on the contract, and

  2. Payments made to sub contractors in advance for work to be performed under sub-contract.

• Where the outcome of the contract cannot be estimated reliably, the contract revenue could be recognised only to the extent of costs incurred. The early stage of a contract shall not extend beyond 25% of the stage of completion

Change in estimates

The percentage of completion method is applied on a cumulative basis in each previous year to the current estimates of contract revenue and contract costs. If there is change in estimates, the changed estimate shall be used in determination of the amount of revenue and expenses in which the change is made and subsequent periods.

Non recognition of expected losses

Unlike para 35 of AS 7 – “Construction Contracts”. This ICDS does not recognize, the expected losses i.e. when it is probable that contract costs shall exceed the total contract revenue.


The following disclosures be made:

  1. The amount of contract revenue recognised as revenue.

  2. The method used to determine the stage of completion contracts in progress

  3. The amount of costs incurred and recognised profit (less recognised losses) up to the reporting date

  4. The amount of advances received and

  5. The amount of retentions.

ICDS – IV Revenue recognition


  1. This ICDS deals with bases for recognition of revenue arising in the course of ordinary activities of a person from:

  1. The sale of goods;

  2. The rendering of services;

  3. The use by others of the person’s resources yielding interest, royalties or dividends

  1. This ICDS does not deal with the aspect of revenue recognition dealt with other ICDS e.g. ICDS III, deals with construction contract.

  2. Therefore, this ICDS would apply to builders and developers to whom ICDS III does not appl


Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of a person from the sale of goods, from the rendering of services, or from the use by others of the person’s resources yielding interest, royalties or dividends.

In the agency relationship, the revenue is the amount of commission and not the gross inflow of cash receivable or other consideration.

Sale of goods

  1. The revenue shall be recognised when the seller of goods has transferred to the buyer, the property in the goods for a price along with all significant risks and rewards of ownership and seller retains no effective control of the goods. In a case, where transfer of property in goods does not coincide with the transfer of significant risks and rewards of ownership, revenue in such situation shall be recognised at the time of transfer of risks and rewards of ownership to buyer.

  2. Revenue shall be recognised when there is reasonable certainty of its ultimate collection.

  3. In case of escalation of price and export incentives, revenue recognition in respect of such claim shall be postponed to the extent of uncertainty involved i.e. to be recognised only when they are sanctioned / approved.

Rendering of services

In such case, revenue shall be recognised by the percentage of completion method. Under this method, revenue from service transactions is matched with the cost of service. Transactions costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed.

Thus this ICDS does not recognise the completed service contract method.

Use of resources

  1. Interest shall accrue on the time basis determined by the amount outstanding and the rate applicable.

  2. Discount or premium on debt securities held is treated as if it were accruing over the period to maturity [see Madras Industrial Investment Corp. Vs. CIT 9225 ITR 8002 (SC)]

  3. Royalties shall accrue in accordance with the terms of the relevant agreement and shall be recognised on that basis unless having regard to the substance of the transaction.

  4. Dividends are recognised in accordance with the provisions of section 8 of the Act, i.e. on declaration, distribution or paid basis; as the case may be


The following disclosures are required to be made:

  1. In a transaction involving sale of goods, total amount not recognised as revenue during the previous year due to lack of reasonably certainty of its ultimate collection along with nature of uncertainty.

  2. The amount of revenue from  service transactions recognised as revenue.

  3. The method used to determine the stage of completion of service transactions in progress and

  4. For service transactions in progress at the end of previous year:

  1. Amount of costs incurred and recognized profit (less recognised losses) up to end of the previous year;

    The amount of advances received; and

    The amount of retentions

ICDS V – Tangible fixed assets


This ICDS deal with the treatment of tangible fixed assets.


  1. “Tangible Fixed Asset” is an asset being land, building, machinery, plant or furniture held with intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.

  2. Fair Value (FV) of an asset is the amount for which that asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

Identification of tangible fixed assets

  1. Stand by equipment and servicing equipment are to be capitalised.

  2. Machinery spares to be charged to the revenue as and when consumed.

  3. When such spares can be used only in connection with an item of tangible fixed asset and their use is expected to be irregular, they shall be capitalised.

Components of actual cost

  1. The actual cost shall comprise of its purchase price, import duties and other taxes (excluding those subsequently recoverable) and any directly attributable expenditure. Any trade discounts and rebates shall be deducted in arriving at the actual cost.

  2. The cost of an asset may undergo changes subsequent to its acquisition or construction on account of:

  1. Price adjustment, changes in duties or similar factors; or

  2. Exchange fluctuation as specified in ICDS VI on the effects of changes in foreign exchange rate

  1. Administrative and other general overhead expenses are to be excluded unless they relate to asset. Expenses attributable to construction of a project or to the acquisition of an asset or bringing it to its working conditions be included as a part of the cost of the project or part of the asset.

  2. The expenditure incurred on start up and commissioning of the project, including the expenditure incurred on test runs and experimental production be capitalised. The expenditure incurred after the plant has begun commercial production i.e. production intended for sale or captive consumption be treated as revenue expenditure.

  3. Similar principle would apply to set self constructed asset. However, any internal profits be eliminated from such costs.

Non monetary consideration

  1. When a fixed asset is acquired in exchange for another asset, the (FV) of the tangible fixed asset so acquired shall be its actual cost.

  2. When fixed asset is acquired in exchange for shares or securities, the FV of the fixed asset so acquired shall be its actual cost.

Improvement and repairs

  1. An expenditure that increases the future benefit from the existing asset beyond its previously assessed standard of performance be added to actual cost.

  2. The cost of an addition or extension to an existing fixed asset which is of a capital nature and which becomes an integral part of existing fixed asset is to be added to its actual cost.

  3. Any addition or extension, which has a separate identity and is capable of being used, after the existing tangible fixed asset is disposed of, shall be treated as separate asset.

Valuation of jointly owned asset

When a person owns fixed asset jointly with others, the proportion in the actual cost, accumulated depreciation and WDV is grouped together with similar fully owned asset. Details of such jointly owned asset shall be indicated separately in the fixed assets register

Consolidated price

Where several assets are purchased for a consolidated price the consideration shall be apportioned to the various assets on a fair basis.


Depreciation is to be calculated as per section 32 of the Income Tax Act, 1961 r.w. Rule 5 of the Income tax Rules, 1962.

Capital Gains

Long term / short term gains on transfer of a fixed asset shall be computed in accordance with the provisions of the Act.


Following disclosures be made:

  1. Description of asset or block of assets;

  2. Rate of depreciation

  3. Actual cost or WDV as the case may be;

  4. Additions or deductions during the year with dates. The addition to a fixed asset should indicate the date on which it was put to use including adjustment of CENVAT claimed and allowed under CENVAT Credit Rules, change in rate of exchange or currency, subsidy or grant or imbursement, by whatever named called.

  5. Depreciation allowable; and

  6. WDV at the year end.

CDS VI – Effects of changes in foreign exchange rate


This ICDS deals with:

  1. Treatment of transactions in foreign currencies.

  2. Translating the financial statements of foreign operations.

  3. Treatment of foreign currency transactions in the nature of forward exchange contracts.

A) Transactions in foreign currencies

Initial recognition

  1. A foreign currency transaction shall be recorded on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency at the date of transaction.

  2. An average rate for a week or month that approximates the actual rate at the date of transaction may be used for all transaction in each foreign currency accruing during the period.

  3. If the exchange rate fluctuates significantly the actual rate at the date of transaction be used.

Conversion at last day of previous year

At last day of previous year:

  1. Foreign currency monetary items like cash, receivable and payable, shall be converted into reporting currency by applying the closing rate.

  2. If the closing rate does not reflect with reasonable accuracy, the amount in reporting currency that is likely to be realised or disbursed.

  3. In case of non-monetary items like fixed assets, inventories and investments in equity shares in a foreign currency shall be converted into reporting currency by using the exchange rate at the date of transaction.

Recognition of exchange differences:

  1. In respect of monetary items, exchange differences arising on the settlement thereof or on conversion thereof at the last day of the previous year shall be recognised as income or expenses of the previous year.

  2. In case of non-monetary items, there will not be any difference on last day of previous year as they are recorded at exchange rate at the date of the transaction i.e. initial recognition except when section 43A is applicable.

  3. In case of non-monetary items, initial recognition, conversion and recognition of exchange difference be subject to the provisions of section 43A of the Act, r.w. rule 115 of Rules, 1962.

B) Financial statement of foreign operations

  1. The foreign operations are classified as either “integral foreign operations” or “non–integral foreign operations”.

  2. The following are inter alia indications that a foreign operation is non-integral:

  1. The activities of the foreign operation are carried out with a significant degree of autonomy.

  2. Transactions with the person (who controls the foreign operation) are not in high proportion.

  3. The activities of the foreign operation are financed mainly from its own operational activities.

  4. The foreign operation’s sales are mainly in currencies other than Indian currency.

  5. Cost of labour, material and other components of foreign operation’s products or services are primarily paid or settled in the local currency i.e. other than Indian currency.

  6. Cash flows of the person are insulated from the day-to-day activities of foreign operation.

  7. Sales prices for the foreign operation’s products or services are determined by the local competition or local government regulation etc.

The “Integral foreign operation” is a foreign operation, where the activities are an integral part of the operation of the person. The financial statement of integral operation shall be translated using the principles and procedures mentioned above, as if the transactions of foreign operation had been of those person himself.

Translation of non-integral foreign operations

In translating the financial statement of a non – integral foreign operation for a previous year, the person shall apply the following:

  1. Income and expense items of the non-integral foreign operation shall be translated at exchange rates at the date of transaction;

  2. The assets and liabilities, both monetary and non-monetary of the non-integral foreign operation be translated at closing rate; and

  3. All resulting exchange differences shall be recognised as income or as expenses in that previous year instead of “foreign currency translation reserve” as per AS-11 “Effects of changes in foreign exchange rates”.

Change in classification of foreign operation

  1. The consistency principle requires that foreign operation once classified as integral or non-integral be continued to be so classified. However, a change in the way in which a foreign operation is financed and operates in relation to the person may lead to a change in the classification of that foreign operation.

  2. When there is a change in the classification of a foreign operation, the translation procedures applicable to the revised classification shall be applied from the date of the change in the classification.

C) Forward exchange contract

  1. It means an agreement to exchange different currencies at a forward rate and includes a foreign currency option contract or another financial instrument of similar nature.

  2. Forward rate is the specified exchange rate for exchange of two currencies at specified future date.

  3. Any premium or discount arising at the inception of a forward exchange contract shall be amortised as expenses or income over the life of the contract.

  4. Exchange differences on such contract shall be recognised as income or as expenses in the year in which the exchange rates change

  5. Any profit or loss arising on cancellation or renewal of such contract shall be recognised as income or as expenses for the previous year.

  6. The above provisions shall apply, if the contract is not intended for trading or speculation purposes and is entered into for the amount of the reporting currency required or available at the settlement date of transaction.

  7. The above provisions shall not apply to the contract which is entered into hedge the foreign currency risk of a firm commitment or highly probable forecast transaction. For this purpose, firm commitment shall not include assets and liabilities existing at the end of the previous year.

  8. The premium or discount that arises on the contract is measured by difference between the exchange rate at the date of inception of the contract and forward rate specified in the contract

  9. Premium, discount or exchange difference on contracts intended for trading or speculation or to hedge the foreign currency risk of a firm commitment or highly probable forecast transaction shall be recognised at the time of settlement.

ICDC VII – Government grants


  1. This Standard deals with the treatment of Government grants. They can also be called by other names viz.; subsidies, cash incentive, duty drawbacks, waiver, concessions, reimbursement etc.

  2. This Standard does not deal with

  1. Government assistance other than in the form of Government grants and

  2. Government participation in the ownership of the enterprise.


For the purpose of this ICDS:

  1. “Government” refers to the Central Government, State Governments, agencies and similar bodies, whether local, national or international.

  2. “Government grants” are assistance by Government in cash or kind to a person for past or future compliance with certain conditions. They exclude those forms of Government assistance which cannot have a value placed upon them and the transactions with Government which can not be distinguished from normal trading transactions of the person.


  1. Government grants shall not be recognised unless there is reasonable assurance that:

  1. The person shall comply with the conditions attached to them, and

  2. The grants shall be receive

  1. Despite this ICDS provides that recognition of Government grants shall not be postponed beyond the date of actual receipt. This is contra to (i) of this paragraph because a mere receipt of grant is not necessarily a conclusive evidence that conditions attaching to the grant have been or will be fulfilled. Again Government grant on a receipt basis is not in accordance with AS 12 – Accounting for Government grants.

Treatment of Government grants:

  1. Where the Government grant relate to depreciable asset, the grant shall be deducted from the actual cost of the asset or from the WDV of block of assets to which concerned asset or assets belong to.

  2. When it relates to a non depreciable asset or assets of a person requiring fulfilment of certain obligation, the grant shall be recognised as income over the same period over which the cost of meeting such obligation is charged to income.

  3. Where the Government grant is of such nature that it cannot be directly relatable to asset acquired, so much of the amount which bears to the total Government grant, the same proportion as such asset bears to all the assets in respect of or with reference to which the Government grant is so received shall be deducted from the actual cost of the asset or shall be reduced from the WDV of block of assets to which asset or assets belong to.

  4. The Government grant is receivable as compensation for expenses or losses incurred in previous financial year or for the purpose of giving immediate financial support to the person with no further related costs shall be recognised as income of the period in which it is receivable.

  5. Other than above, the Government grants shall be recognised as income over the periods necessary to match them with related costs which they are intended to compensate.

  6. The Government grants, in the form of non-monetary assets, given at concessional rate, shall be accounted for on the basis of their acquisition cost.

  7. It seems that this ICDS does not deal with Government grants of the nature of promoters’ contribution. As per para 16 of AS 12 – Accounting for Government grants the same should be credited to capital reserve and treated as a part of shareholders fund. This grant cannot be considered as other Government grant as there is no cost, hence it cannot be debited to profit and loss statement to match the income to be credited to profit and loss account. So it seems that such grant on receipt the Department would try to tax.

Refund of Government grants

  1. The amount refundable in respect of Government grant shall be applied first against any unamortised deferred credit remaining in respect of Government grant. To the extent that the amount refundable exceeds any such deferred credit of where no deferred credit exists, the amount shall be charged to profit and loss statement.

  2. If Government grant refundable in respect of depreciable fixed asset or assets shall be recorded by increasing the actual cost or WDV of block of assets. Therefore depreciation on the revised actual cost or WDV shall be provided prospectively at the prescribe rate.


The following disclosures be made:

  1. Nature and extent of Government grants recognised during the previous year by way of deduction from the actual cost of asset or from the WDV of block of assets during the previous year.

  2. Nature and extent of Government grants recognised during the previous year

  3. Nature and extent of Government grants not recognised during the previous year by way of deduction from the actual cost of the asset or WDV or of block of assets and reason thereon; and

  4. Nature and extent of Government grants not recognised during the previous year as income and reasons thereof.

ICDS VIII – Securities


  1. This ICDS is applicable, if securities are held as stock-in-trade.

  2. This ICDS does not deal with:

  1. The recognition of interest and dividends on securities, which is dealt by ICDS IV.

  2. Securities held by a person engaged in the business of insurance;

  3. Securities held by mutual funds, venture capital funds, banks and public financial institutions formed under a Central or a State Act or so declared under the Companies Act, 1956 or the Companies Act, 2013.


  1. “Fair Value” (FV) is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in arm’s length transaction.

  2. “Securities” shall have meanings assigned to in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956, other than Derivatives referred to in sub-clause (ia) of that clause.

Recognition and initial measurement of securities

  1. On acquisition shall be recognized at actual cost. The actual cost shall comprise of its purchase price and include acquisition charges such as brokerage, fee, tax, duty or cess.

  2. If a security is acquired in exchange for other securities the FV of the security so acquired shall be its actual cost.

  3. If a security is acquired in exchange for another asset, the fair value of the security so acquired shall be its actual cost.

  4. Where unpaid interest has accrued before the acquisition of an interest-bearing securities and is included in the price paid for the security, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods. The pre-acquisition portion of interest is deducted from the actual cost.

Subsequent measurement

  1. At the end of the year, securities held as stock-in-trade shall be valued at actual cost or NRV, whichever is lower; category- wise and not for each individual security. For this purpose, the securities to be classified as under: a) shares; b) debt securities; c) convertible securities and d) any other securities not covered above.

  2. The value of securities held as stock-in-trade of a business:

  1. The cost of securities available on the day of the commencement of a business and

    In any other case, the value of the securities of the business as on the close of the immediately preceding the previous year.

  1. The value of securities not listed on a recognised stock exchange or listed but not quoted on a regularly shall be valued at actual cost initially recognised.

  2. If, the actual cost initially recognised cannot be ascertained by reference to specific identification, the cost of such security shall be determined on the basis of FIFO method.


This ICDS does not provide for any disclosure however, disclosures be made as per ICDS II.

ICDS IX – Borrowing costs


This ICDS deals with treatment of borrowing costs. However, it does not deal with actual cost or imputed cost of owners’ equity and preference shares capital.


  1. “Borrowing costs” are interest and other costs incurred by a person in connection with the borrowing funds and include:

  1. Commitment charges on borrowings.

  2. Amortised amount of discounts or premiums relating to borrowings.

  3. Amortised amount of ancillary costs incurred in connection with the arrangement of borrowings.

  4. Finance charges in respect of assets acquired under finance leases or other similar arrangements.

  1.  “Qualifying asset” means:

  1. Land building, plant or furniture, being tangible assets;

  2. Know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets;

  3. Inventories that require a period of twelve months or more to bring them to a saleable condition.


  1. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset be capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation shall be determined with this ICDS.

Eligible for capitalisation

  1. To the extent the funds are borrowed specifically for the purpose of acquisition, construction or production of qualifying asset the amount of borrowing costs to be capitalised on that asset shall be the actual borrowing costs incurred during the period on the funds as borrowed.

  2. To the extent the funds are borrowed generally and utilised for the purpose of acquisition, construction or production of a qualifying asset, the amount of borrowing costs to be capitalised shall be computed as per para 6 of ICDS. Generally, the borrowing costs incurred during the previous year (excluding borrowing costs relatable to specific purpose) to average cost of qualifying asset on first and last day of the previous year by the average amount of the total asset on first and last day of previous year i. e. Borrowing cost x average cost of qualifying asset / average amount of total assets

Commencement of capitalisation

The capitalisation of borrowing cost shall commence:

  1. If funds are specifically borrowed for the purpose of acquisition, construction or production of qualifying asset, the capitalisation would commence from the date on which funds were borrowed.

  2. In case funds were borrowed generally and utilised for the purpose of acquisition, construction or production of qualifying asset from the date on which the funds were utilised.

    Cessation of capitalisation

  1. In case of qualifying asset, tangible or intangible when such asset if first put to use.

  2. In case of qualifying inventory, when substantially all activities necessary to prepare such inventory for its intended sales are complete.

  3. In case qualifying asset is completed in parts and completed part is capable of being used while construction continues for other parts, the capitalisation of borrowing costs shall cease when such part of qualifying asset is first put to use.

  4. In case a qualifying asset is inventory which is complete in part, and substantially all the activities necessary to prepare such part of inventory for its intended sale are complete.


The following disclosures be made:

  1. The accounting policy adopted for borrowing costs; and

  2. The amount of borrowing costs capitalised during the previous year.

ICDS X – Provisions, contingent liabilities and contingent assets


  1. This ICDS does not deal with provisions, contingent liabilities and contingent assets arising as a result of:

  1. Financial instruments;

  2. Executory contracts

  3. Insurance business from contracts with policy holders; and

  4. Covered by other ICDS.

  1. The term ‘provision’ is also used in the context of depreciation impairment of assets and doubtful debts which are adjustments to the carrying amounts of assets, has not been address by this ICDS.


  1. A provision shall be recognised, when:

  1. A person has a present obligation as a result of past event.

  2. It is reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation; and

  3. A reliable estimate can be made of the amount of obligation.

If these conditions are not met, no provision shall be recognised.

  1. No provision shall be made for costs that need to be incurred to operate in the future.

  2. No provision shall be made in respect of proposed new law yet to be enacted, as obligation arises only when the legislation is enacted

Contingent liabilities

Shall not be recognised.

Contingent assets

  1. Shall not be recognised.

  2. Contingent assets are assessed continually. When it becomes reasonably certain that inflow of economic benefit will arise, the asset and related income are recognised in the year in which the change occurs.


  1. The amount of provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the year. The amount of a provision shall not be discounted to its present value.

  2. Similarly, the amount recognised an asset and related income shall be best estimate of the value of economic benefit arising at the end of the year. The amount and related income shall not be discounted to its present value.


  1. Where some of the expenditure expected to be reimbursed by another party, the reimbursement shall be recognised when it is reasonably certain that reimbursement will be received if the person settles the obligation. The amount of reimbursement shall not exceed the amount of provision.

  2. If a person is not liable for payment of costs, if third party fails to pay no provision shall be made for such costs.

  3. An obligation, for which a person is jointly and severally liable is a cogent liability to the extent that it is expected that the obligation will be settled by other party.

Review of provisions

Provision shall be reviewed at the end of the year and adjusted to reflect the current best estimate. If it is no longer reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed.


  1. The following disclosures be made in respect of provision:

  1. A brief description of the nature of obligation

  2. The carrying amount at the beginning and end of previous year;

  3. Additional provision made during the year;

  4. The amounts charged against the provision;

  5. Un-used amount of provision reversed during the year; and

  6. The amount of any expected reimbursement


  1. Following disclosures be made in respect of each class of asset and related income recognised; viz.

  1. A brief description of the nature of the asset and related income;

  2. The carrying amount of asset at the beginning and end of the previous year

  3. Additional amount of asset and related income recognised during the year, including already recognised; and

  4. Amount of asset and related income reversed during the previous year

Points to be noted

From reading the aforesaid Standards, it is clear that:

  1. These standards are applicable to all persons as defined under section 2(31) of the Act.

  2. The one of the major consideration for selection and application of the accounting policy viz., prudence has not been followed. Therefore, marked to market loss or expected loss in case of a contractor has not been considered in these Standards.

  3. Now, service providers have to account for services rendered on percentage basis even though services are not completed at the end of the financial year. Services not completed but costs of services have been incurred, have to be accounted as WIP at the end of the financial year.

  4. In case of contractor expected loss on contract shall not be considered and retention charges though not received have to be taxed, if not taxed earlier, i.e. when the sales are accounted on mercantile basis.

  5. The ICDS V shall apply only to tangible fixed assets and not to intangible assets, though borrowing costs of intangible assets have to be capitalised.

  6. In case on non-integrated foreign operations, the assets and liabilities, both monetary and non-monetary to be translated at the closing rate at the end of the year and difference to be recognised as income or expenses of the previous year instead of crediting to “Foreign Currency Translation Reserve” as per AS-11 “Foreign currency translation reserve account”. As per AS 11, such reserve could be considered as income or expense when net investment in the said operation is disposed of.

  7. The ICDS VII does not provide for Government grants in the nature of promoters’ contribution and therefore may be taxable on receipt basis.

  8. Though contingent assets is not to be considered but disclosure in respect of which has to be made, so as to keep track on accrual of income.


Thus reading the aforesaid Standards, it is clear that in most of the cases there would be preponment of income and therefore it would be necessary to a person to account for deferred tax assets / liabilities in the books of account as per AS 22. "Accounting for Taxes on Income."

The Bombay High Court vide its judgment dated 30-4-2015 dismissed four Writ Petitions challenging the constitutional validity and propriety of Notification No.VAT.1513/CR-147/Taxation-1 dated 29-1-2014 issued by the Government of Maharashtra for amending MVAT Rule 58 and of Trade Circular No. 7T of 21-2-2014 and 12T of 17-4-2014 issued by the Commissioner of Sales Tax, Maharashtra. The judgment is reported in 82VST155(Bom).

The aforesaid dismissal will have no effect in case of agreements registered on or after 1-4-2010 on which a developer is paying composition @ 1%.

In case of agreements registered prior to 1-4-2010 where a developer cannot pay composition @ 1%, the question is, what step should be taken in case of assessment order passed by working out the sale price as per amended Rule 58.

In other words, after the aforesaid judgment, the question is, whether non workability of Rule 58 cannot be established in assessment/appeal/DDQ proceeding?

In my opinion, looking to below mentioned observation and decision of the Court, non workability can be established by giving proper evidence.

Whether any further deductions can be claimed beyond those already mentioned, may depend on the nature of claims in the case of a particular assessee adducing evidence in a proper case and at proper stage. In such cases, it will be for the revenue to determine on the evidence before it and what should be the cost to be taken as value of subject of tax for the purpose of MVAT.”

For all aforesaid reasons, we are not in agreement with the petitioners. We are not impressed by the submissions made on behalf of the petitioners that valuation of goods under Rule 58 of the MVAT Rules would not let the proper authority to probe into transactions of land dealings by the developers, depending upon facts and circumstances of and evidence in particular case, as it would be open for the competent authority to make proper inquiry and seek details of the transactions and the price at which the property had been purchased.”

Investigation and inquiries incidental to valuation assessment and the recovery of tax are not precluded or prohibited under the scheme of the rules and there need not be any specific provision for the same, however, with a rider that said investigation or inquiry would not be necessary on vague and general grievances.

In the process, in some cases, if there is any over payment of tax, the provision makes allowance for its refund and would not tantamount to tax on land. Legislature does not intend to levy tax on matters other than as are intended under the enactment. Even in case of undervaluation, after determination, till such time overpayment would be towards the tax on goods so long as land value is not revalued and it would continue to tax on goods up to this time, its nature being MVAT over and in excess on taxable value. Only on redetermination, in a particular case if amount is to be refunded, it cannot be said to be bad for being tax on land.

All the above observations makes it clear that if a developer furnish proper working of value of goods transferred and services rendered, before and after the contract is entered into, the Assessing Officer is empowered to accept such working and levy tax accordingly.

After going through the entire judgment, it can be said that the challenge to amended Rule 58 and Trade Circulars and the submissions of the Petitioners has theoretical/principle base and not the actual base to establish that the actual value of goods transferred for the entire project is much lower than prescribed by sub-rule(1B) of Rule 58. Therefore the High Court has observed that Investigation and inquiries incidental to valuation assessment and the recovery of tax are not precluded or prohibited under the scheme of the rules and there need not be any specific provision for the same, however, with a rider that said investigation or inquiry would not be necessary on vague and general grievances.”

As far as the valuation of land is concerned, nothing beyond prescribed by sub-rule(1A) of Rule 58 can be done now. However after deducting the consideration towards land, a developer should produce before the lower authorities the working of the entire project after its completion, for the Assessing Officer to determine/allocate the consideration for sale of goods and for rendering of services. This is possible in case of most of the projects which were commenced before 20-6-2006 and are now completed for which the assessments are in progress. In such cases, it can be very well established that the actual value of goods transferred for the entire project is much lower than prescribed by sub-rule(1B) of Rule 58.

In view of the above, I am of the firm opinion that Special Leave Petition should not be made before the Supreme Court. Instead, it is advisable to approach the High Court, after the lower authorities including the Tribunal, turn down the submissions of a developer that as the actual value of goods transferred for the entire project is much lower than prescribed by sub-rule(1B) of Rule 58, the value as per aforesaid rule be ignored and tax be levied on taxable turnover of sale of goods worked out on actual.

Under the circumstance, it is advisable to produce before the lower authorities,
a working for the entire project, as shown

A: Break up of consideration received or receivable (Date & Amount received for each flat):

(i) Consideration received or receivable for each flat sold and break up of before and after the contract is entered into;

(ii) Consideration received or receivable for each flat sold as immovable property;

(iii) Consideration that may be received for unsold flats.

B: Total square feet area of flats sold, sold as immovable property and remained unsold.

C: Purchases of goods for the entire project (Date & amount paid for each purchase with break up of rate of tax paid on each purchase). After the purchases of goods for the entire project are accounted and taken into account, the working as shown below:

(i) Actual/Proportionate quantity and value of goods transferred before the agreement for sale of each under construction flat is entered into;

(ii) Actual/Proportionate quantity and value of goods transferred after the agreement for sale of each under construction flat is entered into;

(iii) Actual/Proportionate quantity and value of goods transferred for the construction of each flat sold as immovable property i.e. after obtaining Completion Certificate/Occupation Certificate;

(iv) Actual/Proportionate quantity and value of goods transferred for the construction of each flat remained unsold.

Note: (i) As the computation of actual quantity and value of goods transferred to each purchaser is not possible (except in case of specific goods used for a particular flat), the proportionate quantity and value depending on square feet area be worked out for each flat sold, sold as immovable property and remained unsold.

(ii) It is also not possible to ascertain the value of goods transferred for the construction of common area/facilities and for flats given free to existing tenants, landlord etc. Even otherwise, the quantity and value of material for the above construction shall be proportionately allocated to each flat sold, sold as immovable property and remained unsold depending on square feet area of such flats. This is because, the said cost is being recovered from the flats sold, sold as immovable property and remained unsold depending on square feet area of such flats.

D: After the above working is produced before the lower authorities, the picture would be as follows:

1 Consideration pertaining to construction completed before, the developer enters into a contract with the flat purchaser.(As per Para 115 of L & T’s case, such consideration is neither for ‘sale’ within the meaning of Section 2(24)(b)(ii) of the MVAT Act nor for taxable service.) Consideration pertaining to construction to be carried out after, the developer enters into a contract with the flat purchaser. (As per Para 115 of L & T’s case, such consideration is for ‘sale’ within the meaning of Section 2(24)(b)(ii) of the MVAT Act and for taxable service.) Consideration pertaining to construction of flats sold as immovable property and that may be received for flats remained unsold, which is neither for ‘sale’ within the meaning of Section 2(24)(b)(ii) of the MVAT Act nor for taxable service.
2 Less: Proportionate value of Land for the above.(Kindly note that even if land is acquired by a developer by way of gift/ancestral or by way of development right, it is to be presumed that the total consideration charged to buyer includes the consideration for transferring the proportionate interest in the land.) Less: Proportionate value of Land for the above. (Kindly note that even if land is acquired by a developer by way of gift/ancestral or by way of development right, it is to be presumed that the total consideration charged to buyer includes the consideration for transferring the proportionate interest in the land.) Less: Proportionate value of Land for the above. (Kindly note that even if land is acquired by a developer by way of gift/ancestral or by way of development right, it is to be presumed that the total consideration charged to buyer includes the consideration for transferring the proportionate interest in the land.)
3 Less: Actual/Proportionate value of services rendered for the above. Less: Actual/Proportionate value of services rendered for the above. Less: Actual/Proportionate value of services rendered for the above.
4 Balance Taxable under VAT: Actual/Proportionate value of goods transferred for the above.(This shall be taxed @ 5%, 12.5% etc. The tax rate wise break up of goods purchased for the entire project shall be applied.) Balance not Taxable under VAT: Actual/Proportionate value of goods transferred for the above. Balance not Taxable under VAT: Actual/Proportionate value of goods transferred for the above.

In fact the allocation of remaining consideration i.e. as shown in 3 & 4 above for services and goods is impossible for a developer, lower authorities, as well as to any High Court and Supreme Court. Therefore in none of the case, concrete ruling has been made to determine ‘taxable amount’ for the purpose of levy of Vat and Service Tax, out of ‘total amount’ received or receivable by the works contractor, in such a manner, that even a small portion will not be subject to both the levy. As the Courts must have realised the difficulty (rather impossibility) to determine the legitimate ‘taxable amount’ for both the enactments, it left the said issue open to law makers, assessing authorities and works contractors. The judgment in the case of BSNL is landmark in case of taxation of composite contracts. Even then, the Supreme Court left the issue of determination of taxable amount for the levy of vat on SIM card to the assessing authority.

In view of the above, the difficulty/impossibility in filling up the value at 3 & 4 of the above ‘Table’ by assessing authority can be established/shown/pleaded as non workability of Rule 58.

Moreover, unless the entire project is completed, the proportionate working of goods transferred to a flat buyer is not at all possible. This means, the taxable event though occur at the time of actual transfer/accession/accrual of goods, it will have to be postponed/deferred, till the value of entire purchase of goods is available. Even if sub-rule (1B) is accepted by a developer, the value of goods cannot be taxed @ 5%, 12.5% etc. unless entire project is completed.

In this regard the judgment of High Court of Uttarakhand decided on 10/04/2014 in the case of Valley Hotel & Resorts vs. The Commissioner, Commercial Tax, Dehradun is also worth noting. On 6-6-2012, the Government of India, Ministry of Finance (Department of Revenue) issued a Notification amending the Service Tax (Determination of Value) Rules, 2006 by introducing Service Tax (Determination of Value) Rules, 2012 by which 40% of billed value to the customer for supply of food or any other article of human consumption or any drink in restaurant, was made liable to Service Tax. Therefore an application for revision u/s. 57 of the said Vat Act was filed to the Commissioner, Commercial Tax requesting not to charge VAT on 40% billed amount, as the same has already suffered service tax. The said application was rejected and the applicant moved the High Court against the said rejection. The High Court observed that “Value Added Tax can be imposed on sale of goods and not on service. Service can be taxed by Service Tax Laws. The authority competent to impose service tax has also assumed competence to declare what is service. The State has not challenged the same. Therefore, where element of service has been so declared and brought under the Service Tax vide the said Notification dated 6-6-2012 whereby 40% of the bill amount was made liable to service tax, no VAT can be imposed thereon.” Accordingly it was held “the Commissioner, Commercial Tax erred in rejecting the application of the revisionist. Thus, the revision is allowed. Judgments of Tribunal as well as of the Commissioner, Commercial Tax are set aside. The Commissioner, Commercial Tax is directed to pass order afresh in the light of above observations.”

In view of the aforesaid decision, the value at 3 of the above ‘Table’ should be as per Service Tax Valuation Rules and balance amount only should be made liable to VAT.

Even if the proviso to sub-rule (1B) of Rule 58 is inserted on the lines of Rule 59, the taxable event in case of each and every installment of consideration due to a developer will have to be postponed till the project gets completed. In the alternative, the developer at the first instance may be forced to pay tax as worked out by sub-rule (1B) of Rule 58 and after assessment of the entire project is completed, the refund of the excess tax paid may be granted.

If the developers remain silent, in view of lucrative rate of composition @ 1%, they should not forget that the Government of Maharashtra has power to increase the aforesaid rate on one fine morning, merely by issuing a
Notification i.e. without going to Legislative Assembly.

Therefore in order to have legitimate sub-rule (1B) of Rule 58 (rather entire Rule 58), the deduction for consideration towards services in case of every works contract (not only of development) shall be as per Service Tax Valuation Rules, and only on remaining consideration, VAT shall be levied.

Summing up

In support of my opinion that a developer should approach the Supreme Court at latter stage, the judgment of the Supreme Court in case of Damodarasamy Naidu & Bros. (117 STC 1) be taken into account. The hoteliers from various States including the State of Maharashtra approached the Supreme Court after assessment, with the issue of determination of taxable turnover of sales for the purpose of levy of sales tax on food element in case of residential hotels charging composite sum for lodging and boarding. It was held “composite charges recovered by residential hotel providing boarding and lodging could not be bifurcated, unless rules were framed by the Government of Maharashtra in this behalf. Levy of Sales Tax on food and drink prior to 2nd February, 1983 in the State of Maharashtra was bad in law, as there was no such provision in the Sales Tax Act which could be validated by section 6 of the 46th Amendment Act.”

In view of the aforesaid decision, Rule 31A was prescribed under the Bombay Sales Tax Act, 1959. The aforesaid provision is also made in the Maharashtra Vat Act vide Rule 59 which prescribes a fixed percentage under various situations for determination of sale price for supply of food and non-alcoholic drinks where the charges are composite. This percentage in many cases may be high. However this Rule has a proviso for reduction of the sale price, “if the claimant dealer produces evidence to the satisfaction of the Commissioner that the component of the taxable turnover of sales in the composite sum is less than the percentage given above, the Commissioner shall reduce the above percentage to the extent of actual sum of turnover of sales so proved.”

It is important to note that the proviso like the one provided under Rule 59 is not made under sub-rule (1B) of Rule 58. Therefore, if the developer establish that the actual value of goods transferred for the entire project is much lower than prescribed by sub-rule (1B) of Rule 58, the High Court or Supreme Court may direct the Government of Maharashtra to insert such proviso retrospectively.


Cambodia has emerged as a high economic growth attracting large number of investors from the world. It offers a long-term growth opportunities among various sectors and industries. A free economy country with liberal FDI policy has always been the reason for this newly emerged under developing country to grow at a faster rate. In spite of the global slowdown in 2010 the country has been developing rapidly with an annual GDP growth of 7.2% in 2014 and an expected growth rate of 7.5%, 7.2% and 7.0% in 2015, 2016 and 2017 respectively as mentioned in the World Bank report (http://data.worldbank.org/country/cambodia).

Cambodia is strategically located in the heart of Southeast Asia and as a member of Association of South Asian Nations (ASEAN) it benefits from lower traffic on most goods traded within its neighbours. Further, as Cambodia is ensuring that its legal system integrates successfully with the other members of ASEAN. The investment in Cambodia is straightforward, direct and open process with a simplified process of setting up a company and various investment incentives granted by the local authority i.e. The Ministry of Commerce and the Council for the Development of Cambodia (CDC).

Currently, the available forms of business entities that can be established in Cambodia are mentioned below:

1. Sole Proprietorship

A sole proprietorship is an enterprise established and operated by a single natural person who owns all of its capital and is responsible for all the obligations and liabilities related to the business operations sole and exclusively.

2. Partnership

The partnership is the favoured method of business organisation for many professionals like doctors, lawyers, and accountants. According a partnership can consist of a general partnership and/or a limited partnership.

3. Private Limited Company

For most types of businesses, “Private limited company” is the most suitable corporate form. Under the law on commercial enterprises, Private Limited Company is a form of a limited company that has 2 to 30 shareholders. A private company can have minimum one or more directors and will be managed by a chairman of board. The company cannot offer its share to the public but only to its shareholders. A private limited company has restriction on transfer of shares. The company shall issue a minimum of one thousand shares with a par value of not less than KHR 4,000 per share. That is, the minimum share capital for setting up is KHR 4,000,000 (approximately US $1,000). The company may not offer its shares or other securities to the public generally, but may offer them to shareholders, family members and manager as there is restriction on transfer of each class of shares.

Foreigner may profit the company owner (100%) in establishing any business activities in Cambodia. The right and the benefit of a locally-owned will be provided to foreign-owned. However, the foreign-owned cannot own the land.

4. Single Member Private Limited Company

A natural person can establish a Single Member Private Limited Company and can converted into private limited company after having approval of the shareholders to include one or more additional persons or legal entity as shareholders of the company.

5. Public Limited Company

A Public Limited Company (PLC) is a form of limited company that the law authorises to issue securities to the public. Unlike private limited companies, it may have more than 30 shareholders. In Cambodia, banks are the only type of companies that can register as PLCs. Once the Stock Exchange has been established, this rule will change.

6. Foreign Business in Cambodia

According to the Law on Commercial Enterprises, a foreign business is a legal person formed under the laws of a foreign country, which has a place of business and conducts business in the Kingdom of Cambodia. It is subject to registration at the Ministry of Commerce. The three main forms of a foreign business are a representative office, a branch and a subsidiary.

6.1 Representative Office

An eligible foreign investor need to establish a Representative Office (RO) to facilitate the operation of local goods and services on behalf of its parent company. The ROs is responsible for promoting and marketing the parent company products and services. Further the RO is not subject to tax under the Cambodia Tax laws as it is cost centre and does not derive any income from its activities but is responsible for withholding tax on salaries, patent tax and an annual business operation tax.

6.2 Branch Office

Foreign companies can also work through a branch and can undertake the same business activities as Cambodian-owned companies, with the notable exception of land ownership.

However, the foreign parent company will be liable for the losses and debts of a branch as its assets shall be the assets of the parent company. A branch shall be managed by one or more managers appointed and removed and also may be closed by the decision of its parent company. There is no minimum capital requirement applicable to a branch. Branch cannot hold qualified investment projects (QIPs) and cannot executed contracts with the Government.

6.3 Subsidiary

A subsidiary is a company that incorporated by the foreign company with at least fifty one (51) per cent of its capital that held by the foreign company. A subsidiary has legal personality separate from their parent company from the dated of its registration pursuant to the law on commercial rules and register. In addition, it may be incorporated in the form of partnership or limited company that may regularly carry on business same as the local company.

Investment Incentives and Procedures

The Council for Development of Cambodia (CDC) is the sole and One-Stop Service organisation responsible for the rehabilitation, development and oversight of investment activities and for the evaluation and the decision-making on all rehabilitation, development and investment project activities. The investment projects shall be submitted for approval of Council of Minister by CDC:

• Capital investment of US $ 50 million and above

• Politically sensitive issues

• Exploration and the exploitation of mineral and natural resources

• Possible negative impact on the environment

• Long-term development strategy

• Infrastructure projects such as projects on the basis of Build-Own-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO) or Build-Lease-Transfer (BLT).

Under the Council for Development of Cambodia (CDC), there are two boards related to investment, the Cambodian Investment Board (CIB) and Cambodian Special Economic Zones Board (CSEZB).

1. Cambodian Investment Board (CIB)

The roles and responsibilities of CIB is to Co-ordinate and implement the “One-stop Service mechanism” for evaluating and approving application for QIPs:

• Strategic planning and co-ordination for the promotion of overall private investment;

• Marketing and promotion for potential investors;

• Policy advocacy for the improvement of the legal framework for investment promotion; and

• Co-ordination and reporting for relevant people both inside and outside the government.

2. Cambodian Special Economic Zones Board (CSEZB)

The CSEZB is responsible for the “One-stop Service” of the development, management, and supervision of the operations of special economic zones.

The following is the application procedure involved with CDC

Application Process of QIP outside of SEZ

A Qualified Investment Project (QIP), an investor has to register the investment project with the CDC or PMIS and receive a Conditional Registration Certificate (CRC) and then a Final Registration Certificate (FRC), under the Law on Investment. The QIP application process from submission of Investment Proposal until obtaining a Final Registration Certificate (FRC) is summarised as follows, the Applicant to submit an Investment proposal to CDC or PMIS with a complete application and fees. The CDC or PMIS (full form of PMIS) will issue a “conditional registration certificate” and “Letter of non-compliance” within three working days after receiving the investment proposal. If not issued within the three working days then it is considered as an automatically approved. The CDC or PMIS shall obtain all the licences from relevant ministries entities listed in the CRC and the licence, permit or registration listed should be issued not later than 28 working days from the date of CRC. After receiving the relevant approvals “final registration certificate” will be issued within 28 working days which shall be the date of commencement.

Registration Process of QIP of Investment Project in the SEZ

The Zone Investor who starts its activity of production or services in the fields permitted by related Laws and Sub-Decrees in any SEZ shall complete the formalities based on the procedure by preparing all the required documents and submit to the office of the SEZ Administration in the SEZ for registering investment proposals during working hours and before the office of the SEZ Administration.

The SEZ Administration has a duty to decide on the registration of the investment proposal based on the legal, administrative and technical aspects and on the issuance of the FRC. Any incentive provided to the Zone Investor shall be decided by the SEZ Administration through the “One-Stop Service” mechanism located on the site and in accordance to the relevant laws and regulations. On all other requests in the investment process of Zone Investors, the SEZ Administration shall play the role of facilitator to address issues of the Zone Investor with the relevant ministries/institutions.

Profit of qualification of investment project

QIPs can select between a profit-tax holiday or a depreciation allowance. The tax holiday cuts the profit tax from 20% to 0% for a specific number of years. The tax exemption period is composed of a Trigger Period + 3 years + Priority Period.

The depreciation allowance can give a generous tax break for investor that need to import large amounts of machinery or other capital goods. In addition, all QIPs are exempted from import duties on construction materials and input materials, production equipment, and input materials. With certain exceptions, any goods manufactured by the QIP are also exempted from export taxes. The projects over a certain size can apply for QIP incentives. Specific activities are also excluded such as restaurants, casinos, and professional services.


The tax system in Cambodia is more lenient tax regimes. Further the companies are taxable under the Self-Assessment System (Real Regime Tax System), regardless of the type of business activity or the level of annual revenue. All the business in Cambodia depending on their registered office must register with the Ministry of Commerce it much then be registered at the local branch or province for Tax Identification Number (TIN). The company complying with one of the following conditions, the registration shall go to the Large Tax Payer Bureau of General Tax Department:

• A qualified investment project;

• A branch of a foreign enterprise or multinational company; or

• An enterprise with annual turnover of over KHR1 billion (approximately US D 250,000).

If the above conditions are not complied or met, the registration shall go to the local Tax Branch.

Patent Tax

While registering for the Taxpayer Identification Number (TIN), the company is required to apply and pay a Patent Tax which is an annual chargeable tax at a fixed amount of KHR 1,140,000 (approximately US D 285) and the Government fiscal year is (1st July – 31 December) and must be paid within 15 days of business registration. The Patent Tax is payable annually thereafter for each business activity and each location of the business. A company must apply and pay to renew its patent tax before 31st March each year.

Value Added Tax (VAT) Registration

Enterprises providing taxable supplies of goods and services are required to register for VAT if they fit the criteria specified below:

• Companies, importers, exporters and investment companies

• Taxpayers with taxable turnover with respect to goods sold exceeding KHR 125 million for the preceding three consecutive months or in the next three consecutive months

• Taxpayers with taxable turnover with respect to services provided exceeding KHR 60 million for the preceding three consecutive months or in the next three consecutive months

• Taxpayers undertaking government contracts with a total taxable turnover exceeding KHR 30 million

Businesses must register for VAT before the commencement of business operations for investment and import-export businesses, or within 30 days from when the taxpayer becomes a taxable person. Normally, businesses register for VAT at the same time as the business registration. If a company does not have a VAT certificate, it cannot import goods.

Stamp Duty and Tax Rate:

A newly established company, branch or representative office is required to register with the Tax Department’s local tax branch office and pay the stamp duty (registration tax) within 15 days after obtaining the principal approval and the business certificate at the Ministry of Commerce. The stamp duty is levied on 3 types of legal documents at a fixed amount of KHR 1,000,000 (approximately $250): a Newly Established Company, a Merger Company and a Dissolved Company. Additionally, the Stamp Duty is imposed at the rate of 0.1% of share value for the transfer of shares or at 0.1% of contract value for the contract of supply of goods or services which is used to state the budget.


Real estate

This new era of political stability and economic growth has given the Royal Government an opportunity to implement new policies of land administration and management. The 2001 Land Law reflected Cambodia’s focus on domestic land issues, addressing the following topics:

• Private ownership for both residential and agricultural holdings;

• Creation of a land registry and systems for registering titles and encumbrances;

• Mechanisms for identifying the boundaries of state land;

• Mechanisms for distribution of state land (“social concessions”);

• Communal tenure for indigenous communities and religious sites; and

• A cap on industrial agricultural concessions (10,000 hectare)

During these last few years, a number of significant changes were introduced by the new Civil Code and new laws, sub-decrees, inter-ministerial Prakas on the implementation of the Civil Code and other types of regulations. It is important for investors to perform due diligence before acquiring any property interests in land.

Land in Cambodia may be privately owned by individuals with Cambodian citizenship or by legal entities having Cambodian nationality. A legal entity has Cambodian nationality if 51% or more of its voting shares are held by Cambodian citizens or by another legal entity. Land can also be owned by public Cambodian communities or associations. The state owns a significant portion of the land, and state property is used for public purposes and services. The Land Law (2001) established natural reserve boundaries and immovable royal properties.

Foreigners cannot own land in Cambodia, however, the investors are permitted to use and develop land, and to sign long-term lease agreements, which will be referred to as “perpetual leases”. However, a recent law allows foreigners to purchase individual apartments within a building creating a form of co-ownership. Foreigners can exercise their right to use the buildings or structures they develop on leased land or on land owned by a locally incorporated company and can also take advantage of the significant incentives and tax breaks that the Cambodian government grants to Qualified Investment Projects (“QIP”), as long as a majority ownership of land is vested in legal entities of Cambodian citizenship.


Mineral resource licence permit is granted by a competent institution to the holder for conducting activities of mining operations. A legal entity or a natural person cannot conduct mineral resources exploration or exploitation without obtaining relevant licence except private owners of the land. The only licence that be issued is for a consideration, technical and financial capability and commercial registration for natural person or legal entity. In case of privately owned land a written agreement need to be obtained by holder of a license with non-interference and non-infringement upon the property. In case of State owned land a written permission need to be obtained from the competent authority or inter-ministerial institution for conduction exploration or mining. The activated like conducting the prospecting, exploration and mining is not permitted on national cultural, historical and heritage sites owned by the state. In case of licence issued to another holder a written permission of existing licence holder or an approval from Minister in charge of mineral resources is necessary. There are six categories under which a licence can be issued after satisfying the relevant conditions as prescribed:

• An artisan mining licence

• A pit and quarries mining licence

• A gem stone mining licence.

• A mineral transforming licence.

• An Exploration Licence.

• An Industrial Mining Licence

Special Economic Zone

The Special Economic Zone may be established by the State, private enterprise or joint venture between State and private enterprise. SEZ refers to the special area for the development of the economic sectors which brings together all industrial and other related activities and may include General Industrial Zones and/or Export Processing Zones. Each Special Economic Zone shall have a Production Area which may have a Free Trade Area, Service Area, Residential Area and Tourist Area and must have a land of more than 50 hectares with management office building and Zone Administration offices and all necessary infrastructures must be provided. The CSEZB under the CDC is the “One-Stop Service” organisation in charge of the development, management and supervision of operations of the SEZ

Intellectual Property Rights (IPR)

IPR is an important issue for companies or firm doing business in Cambodia. Cambodia accession to World Trade Organization (WTO) in 2004 promoted the adoption of several laws regulating intellectual property rights. It may take few years before Cambodia comes into full compliance with WTO but the investors or the companies doing business here can take the advantage of the developing regulatory framework and seek out protection for their inventions, trademarks, industrial designs and other creative products. In addition to the progress Cambodia has enacted the following IPR laws:

• Law on Marks, Trade Names and Act of Unfair Competition (2002), procedural sub-decree (2006)

• Laws on Patent, Utility Model Certificates and Industrial Designs (2003), procedural Prakas (2006).

• Laws on Copyright and Related Rights (2003)

• Law on Seed Management and Plant Breeder’s Right (2008)

• Law on Geographical Indications (2014)

• Prakas on the Registration of Integrated Circuit Layout Design (2011)

Cambodia is a member of various international and regional organizations that facilitate trade. Among these are the World Trade Organization (WTO), Association of Southeast Asian Nations (ASEAN) and ASEAN-China Free Trade Area (ACFTA), in which Cambodia enjoys duty-free privileges for exports and Most Favoured Nation (MFN) treatment. Cambodia also accedes to the ASEAN Free Trade Area, ASEAN-China Comprehensive Economic Co-operation Agreement, ASEAN-Japan Comprehensive Economic Partnership, ASEAN-Korea Comprehensive Economic Co-operation Agreement and a dozen other multilateral agreements. Through this regional integration, there is the potential for investors to reach billions of customers; the population of ASEAN alone is roughly 560 million, while the population of ACFTA consists of approximately 1.7 billion people.

In addition recently Indian Government incentive in setting up a project development company by introduction to facilitate investment in Cambodia’s private sector by Indian firms and the recently proposal by Indian Government by introduction of the “Act East” policy which will boost the trade not only Cambodia by also Laos, Myanmar and Vietnam.

[Source: Paper presented in National Tax Conference held at Ahmedabad on 11th and 12th July, 2015.]

Since times immemorial profession of law, medicine and divinity have been recognised as noble professions. Profession of accountancy have been added with industrialisation, globalisation and trade and commerce. With socialistic pattern of society, levy of tax, duty, cess, fee etc. became life and blood, rather a necessity and no Government can function smoothly without national tax policy. Taxation became a power of political superior.

After independence many more tax legislations became operative, to meet with cost of governance, defence, internal security and social welfare; to provide water, food, cloth, housing, electricity and basic necessities of life. Service Tax has been introduced and is expanding its wings each year. It became necessary to collect, to meet with cost of establishment, salaries, interests, payment of debts and to bear with scams, scandals, wasteful lavish expenditure and unaccountability, negligence and arrogance at all levels. There have been rat race with the Union and the States, to invent new innovative tax legislations. Goods and Service Tax legislation is in making with enormous powers and discretions, the corrupt and the inefficient tax authorities, instead of functioning as regulators, became revenue collectors for exchequer as well as personal gains. The greedy tax payers were prompted and a large number became evaders. Culture to pay due taxes eliminated.

Tax and Corporate laws are highly complex, complicated and are flooded with frequent amendments of Act and Rules and plethora of decisions of the Hon’ble Supreme Court, High Courts and Tribunals and instructions, directions and circulars of the competent authorities. With unprecedented expansion of tax net, a tax payer is amazed and unused. He has to represent before large number of authorities. Records are in a mess. Even PAN numbers are not issued on time. Refunds are abnormally delayed and not automatic. Rectifications and appeal effects have to be reminded again and again, with no result. Staff for administrative work is in plenty, but very little number to assist an assessing officer. The ‘Great Income-tax Officer’ cannot frame assessment independently and his powers have been substantially curtailed. There is no accountability. Transparency is absent. Work culture is no more. Punctuality and discipline have diminished. High pitched assessments and harassment at all levels have increased. It caused unprecedented increase in the number of tax advocates, chartered accountants, tax practitioners, return prepares over years, to assist and guide the tax payers and to make them to comply with the legislative requirements and demands of the errant tax administrators.

The Tax laws are complicated, complex, highly technical and beyond understanding of a commoner. Interpretation of tax laws is very much painful and difficult. Lately, there has developed a tendency to amend tax laws frequently, on a slight provocation as to misuse by ignorable few and retrospectively. It is not a healthy sign. It is immoral and unethical. It does not very much affect the national exchequer but puts a greater injury to a citizen of this great democracy. It shakes faith of the tax payers in tax laws and prompt them to resort to unethical practices.

It is highly desirable to change our mindset. Electronic typewriters, E-mail, FAX, fast communication gadgets, Computers, CD Rom, Whatsapp, mobile and other facilities, to save time space and energy as also to be accurate, deserves to be availed off. One shall have to change the pattern of functioning individually to a group of persons, having expertise in different fields and to function under one roof like a departmental store. To stand with competition one shall have to keep pace with fast emerging changes. Need of the hour is to change the old, outdated and obsolete way of practice. However, I am of the definite view that “Machine" is not substitute to “Man” and “Human Mind” is superb and not “Computer”. New emerging technology are to add and assist but not to replace an human being. “Man makes machines and not machines make a man”. Ultimate aim of life should be not to make oneself as maintain machine and run in rat race with stress and turmoil and without mental peace and satisfaction of life. One should keep fine a balance between knowledge, vision, character and action.

The tax professional has a tripartite relation; one with his colleague, another with the tax administration and the third with the client. The duties are unique. Tax Professionals are every where deemed essential to protect the public interest and interest of the tax payer in an orderly society. The tax professionals participation is ordinarily an assurance that the tax payer shall not be required to pay a single rupee more or a single rupee less than due to the exchequer. A tax professional is an officer, just as an Advocate is an officer of the court. He is master of an expertise, but more than that accountable to the tax administration and governed by a high ethic. The success of the tax assessments depend upon the services of the tax profession. He is a bridge between the tax payer and the tax authorities.

Tax profession is not a craft but a calling, a profession wherein devotion to duty constitutes the hall mark. Sincerity of performance and the earnestness of endeavour are the two wings that will bare aloft the tax professionals to the tower of success. Given these virtues other qualifications will follow on their own. A strong united and independent bar ready to see that due taxes alone are paid, will have a very sobering effect on the tax administration. A principled tax professional with sterling character will be a great check on the tax administration as well as tax payers. The tax profession should have a sense of sacrifice and sense of service. Tax consultants are professionals and not businessmen. To serve should be the object.

A tax professional should have the professional capacity, proper professional training, good knowledge of the tax laws and the procedure. He should maintain a very good library and should devote at least two to three hours a day in the study. The profession should get rid of corrupt and corrupting elements prevailing in abundance. The members must unite to fight this evil. Unity is strength. A sense of sacrifice and sense of service would be required to tackle this problem. Code of conduct and a code of ethic should be adopted and strictly enforced.

A tax professional should be very punctual, methodic and systematic. He should represent his client’s case to the best of his ability. No effort should be spared in properly arming oneself on the questions of law and fact. Deep study of more than 100 laws is the necessity as noticed by the Hon’ble Supreme Court. Submission of all relevant evidence at proper time and proper stage would help the tax payer. Detailed written submissions and explanations should be furnished with sufficient evidence, direct as well as circumstantial, before the assessing authority itself. The return should accompany all the required papers, documents and accompaniments. Grounds of appeal should be detailed and should accompany Statement of facts. As far as possible written submissions should be submitted before the appellate authorities along with detailed Paper Book as per rules. While selecting judicial citations, one should be very choosy and selective. Only relevant case laws matching with facts be cited. One should adhere to the dress code. It is highly desirable that a tax consultant functions deligently, with caution and care and discharges his duties and obligations without negligence.

The tax payer need a helping hand from the tax profession. No effort should be made or allowed to be made by which a tax payer is deprived of his rights, statutory as well as constitutional and is put to sufferance, financial as well as mental. Tendency to retain the records and not to return need to be eschewed. No right vests to retain the records even if fees remains as outstanding. Any communication between the client and the counsel is secret and it is the duty of the tax profession not to divulge or disclose or discuss without permission of the tax payer. Loose talks deserve to be avoided. Gossips impermissible. Utmost care and caution is essential in proper discharge of duty and trust, else may amount to misconduct.

Rules provide that an Advocate/Chartered Accountant shall not enter appearance in any case in which there is already an Advocate/Chartered Accountant on record except with his consent. It is highly, desirable to seek “No Objection Certificate” from previous Tax Consultant before putting appearance. It is healthy practice and need to be adhered to. Files and records deserve to be returned after discharge of duty and obligation. Vakalatnamah and power of attorney duly stamped must be filed before the appearance. Fees to commemorate with the time and energy involved. No guarantee briefs or fees looking to the stakes involved. There is sufficient for “needs” but not for “greed”.

Justice delayed is justice denied. Speedy disposal of case is the need of the hour. Efforts need be made for early disposal. Adjournments deserve to be avoided. Adjournment should be the last resort. Application in advance to be filed. On the date responsible person to attend. Due regard to be paid to the officers and the members. Greatest advantage in tax profession is that the clientele is constant, continuous, permanent and a tax professional is considered as a friend, philosopher, guide and member of the client’s family. Social contacts are close.

It is rightly said that corruption is rampant in all fields of life and tax departments are no exception. Corruption is cancerous. There is no will to fight the menace. Nobody is born corrupt, it is the vitiated atmosphere and the system of governance which converts the "clean" into the "corrupt". An honest person resists corruption but allurements and temptations at times prevail upon him and once corrupt, even an honest person prefers and finds it convenient to stay corrupt. The seeds of corruption are sown in the mind of the man and the cure, if any, lies in eradicating the seeds of corruption from ones mind. It is self generated. There is hue and cry for its elimination, but it is increasing day by day, affecting national image and affecting growth. To me only solution is self introspection. “FEAR NONE, EXCEPT ONE, WHO IS ABOVE EVERYONE”. Respected Mahatma Gandhi, Father of the Nation said “THERE IS HIGHER COURT, THAN COURT OF JUSTICE, THAT IS THE COURT OF CONSCIENCE”.

Peace requires liberty. Liberty demands a self-disciplined people of strong moral fibre adhering to the highest values of ethics and reverence for life. The first step is to vow to do no harm. There is need to reiterate Gandhian values. We must translate his ideals into real life. Let us have an Inner Revolution and transform ourselves : ‘From fear to love, from greed to generosity. From selfishness to compassion; deceit to truth. From dependence to self-reliance; war to peace. From enslavement to Liberty.’

What is required is : Unity of thoughts, unity of understanding and unity of action to achieve the goal with due regard to dignity, liberty and humanity. Success is celebration. Let us realise “Professional Social Responsibility” to Serve the tax fraternity. Inculcate the humble suggestions and become a successful tax professional. Future is bright. Maintain its dignity, honour and reputation. ‘Build The Nation’ & Achieve Self-Satisfaction.

My beloved Members,


We have borrowed the above title of a illuminating column dated 19-8-2015 written by Mr. Jug Suraiya, the distinguished writer, who writes on the edit page of TOI.

The above is in the context of a news item, based on a CAG report, published in TOI dated 27-7-2015 under the heading – ‘No proof of Govt. spending of Rs. 44,000 Cr.’ The CAG, among others reported top defaulters who did not submit Utilisation Certificates pending at the end of March 2014. Here below is the tally of top defaulters:

Top Defaulters

Sl. No. Ministry * Pending UCs Amount in crore Rs.
1 Health 6,724 16,192
2 Agriculture 3,089 12,380
3 HRD 3,889 9,954
4 Youth Affairs & Sports 7,100 1,439
5 Social Justice and Empowerment 10,046 653

*Utilisation certificates pending at the end of March 2014.

As per Comptroller and Auditor General (CAG) in a new report which pointed to close Rs. 44,000 crore released over the past few years without getting utilisation certificates or accounts of grants given to statutory bodies and organisations, resulting in spending without any evidence of gains flowing to the beneficiaries. The numbers would be much higher as at least 13 Ministries including power, panchayati raj, rural development, petroleum, public enterprises and commerce and industry did not share information with the CAG. The CAG findings, however, point to a completely careless approach where funds were repeatedly released without any evidence of spending having taken place.

We tax practitioners always take pride in saying that we act as a bridge between the taxpayer and the tax gatherer, and, thus, are a part and parcel to earn revenue for the Government which spent the same for the overall growth of the civilised society. But we miserably failed to see whether such revenue is really spent for the aforesaid cause? However, Mr. Jug Suraiya loudly and boldly opine that public money comes from the hard-earned private money out of which taxpayers pay their taxes. But once this private money goes into government coffers it becomes public money for which no hisaab (i.e. no account) is required. We keep asking for an accountable government. Let alone accountability, our Sarkar seems often in capable of basic accountancy. Literally and figuratively, a Sarkar of no account. Who is going to find out a solution for this malady for Mr. Jug Suraiya and for ourselves? Your feedback on this issue will be highly appreciated.


As per PTI report dt. 15-9-2015, the Income Tax Dept. has updated its CPC working and from the current year i.e. A.Y. 2015-16, assessees’ who filed their returns on or before 7-9-2015 on the e-filing portals will certainly be given their refunds within 10 days time. If so happens, we will heartily congratulate IT Dept. and CBDT. Simultaneously, the new Revenue Secretary Mr. Hasmukh Adhia, who took charge of the Revenue Dept. recently, commented – “Government to act against bad elements in Tax Dept.” He further said, “There is no tax terror in the Dept.” As far as the back-log mess created by the CPC in non-granting refunds due to mismatch data uploaded by the ward offices across the country, yet no solution is found and the solution given to such problems by the Delhi High Court in a landmark judgment dated March 14, 2013 given in the case of Court on its own motion v. CIT And AIFTP v. UOI And Ors., reported in (2013) 352 ITR 273 (Delhi), is not even known to the ITOs and even in many cases to the CIT’s also. As a result, large number of assessees running into thousands across the country, are yet to receive their refunds and still the Dept. is silent on their rectification applications. So, who says that the IT Dept. due to technology advancement has found a solution to serve its taxpayers ?

Notwithstanding the above observation, for A.Y. 2015-16, the honest taxpayers numbering 2.06 crore have had e-filed their returns on the e-filing portal on or before 7-9-2015, which are more than 26.12% as compared to the previous assessment year. So let us see whether the IT Dept. and CBDT keep their assurance of refunds within 10 days time ! With best wishes and regards,

J.D. Nankani
National President

Income-tax Appellate Tribunal is the final fact finding authority on direct taxes, orientation course and judicial training will help new Members to discharge their duties more efficiently, uphold the dignity and honour of the Tribunal

Income–tax Appellate Tribunal which was established on 25-1-1941 will be celebrating its platinum jubilee on 25-1-2016. Today, the Tribunal is considered as one of the finest institutions in our country. The credit must go to the Hon’ble Members who administer the justice and to the Tax Bar which represents matters before the Bench. Very recently, the Government has appointed 36 new members, many of who are very young and they have a long tenure to serve as members of the Tribunal. They have greater responsibility to preserve the purity and integrity of this Institution being one of the finest institutions in our country.

Earlier, whenever new members were appointed, there used to be an orientation course for the new members for at least 15 days which was addressed by Hon’ble judges of the Supreme Court, judges of High Courts and senior members of the Tribunal on subjects like natural justice, tax Jurisprudence, principles of interpretation especially of taxation statutes, etc. There also used be an ‘All India Members’ Annual Conference’ to discuss and deliberate on various issues concerning the Tribunal, to enhance its working and performance to a remarkable level. I have had the opportunity and fortune of attending and addressing four such conferences.

One would appreciate that the Income-tax Act, 1961 refers to 98 other Central Acts and various State legislations. So, there is a marriage of these allied laws referred into IT legislation, which too are required to be necessarily studied in the course of delivery of judgments, if relied upon by the Bar in the course of hearing before the Tribunal. Therefore, in-depth knowledge of these general laws referred to in the IT Act, will surely help Members to deliver qualitative judgments.

Various articles published in ‘Diamond Jubilee Souvenir of Income–tax Appellate Tribunal in the year 2001’ will be a fountain of inspiration to all young Members of the Tribunal, who have joined the Bench very recently. They may therefore like to read the same for their grooming. For their ready reference, few of them, are cited below:

– “Principles of Natural Justice” by Hon’ble Justice Mrs. Sujata V. Manohar, Supreme Court of India (2008) AIFTPJ – March- P. 5

– “Rules of Precedence” by Hon’ble Justice Mr. B. N. Srikrishna, Supreme Court of India

– “Vision 2020-A Road ahead” by Hon’ble Justice Mr Ashok Bhan, Supreme Court of India (2008) AIFTPJ – June – P. 5

– “The Key to the Success of the Tribunal” by Hon’ble Justice Mr. Mohit S. Shah (2011) AIFTPJ – December – P. 6

– “Role of Tax Tribunal in the era of globalisation” by Hon’ble Mr. Justice (Dr.) D.Y. Chandrachud

– “Rules of Interpretation of Tax Laws” and “Conventions & Procedure of Income Tax Appellate Tribunal, and “Qualities of a Good Judge” by Hon’ble Justice Mr. T. N. C. Rangarajan

– “Qualities of a Judge and Principle of Natural Justice” by Hon’ble Justice Mr R.V.Easwar Judge Delhi High Court (2012) AIFTPJ – March – P. 7

– “Effective dispensation of Justice: Role of the Tribunal” by Hon’ble Mr. R.V. Easwar, President ITAT. (2010) AIFTPJ – June – P. 5

– “The Art of Writing Judgments” by Hon’ble Mr. M.A. Bakshi, Vice-President (2008) AIFTPJ – April – P. 4

– “Conduct of Members – On and off the Bench” by Hon’ble R.P.Garg, Vice President, (Regional Conference of ITAT, 15th July, 2006

– “Conduct on and off the Bench” by Hon’ble Mr. P.P. Parikh, Vice President (2008) AIFTPJ –April– P. 15

– “Art of writing Judgment” by Hon’ble D. Manmohan, Vice President, ITAT (2012) AIFTPJ – March – 19

– “Landmark cases” (Selected Cases) by S. Rajaratnam (2008) AIFTPJ – April – P.21

– Guidelines to Hon’ble members of ITAT for drafting orders, letter addressed to the Hon’ble Members by The President of ITAT posted on 25-6-2008 .www.itatonline.org

– Code of Ethics adopted by the members of the ITAT – Letter dated 20-6-2008 by the President of ITAT.

– “My Ideal Tribunal Member by Shri S.E. Dastur, Senior Advocate (2001) AIFTPJ –
April-June – P.33

There are conventions which members may have to follow, both on and off the Bench, which can be shared by the senior Members of the Tribunal as well, with new members to have good rapport and brotherhood amongst themselves.

It may be desirable to make a compilation of all the above cited articles and whenever a new Member joins the Bench, the same may be presented to him along with convention book which may prove a treasure of learning at his desk to help him to deliver qualitative and landmark Judgments. If an opportunity is provided the Federation will compile all the above referred articles and will present the same to the new members along with message and vision from the Hon’ble President.

An assessee rings the bell of justice in the Tribunal and High Court only when the Assessing Officer levies taxes or make additions which are not in accordance with law. As appeals involves time and money, before doing so he makes a careful cost benefit analysis and elects to file an appeal where the stakes are high and there are chances of success. Many a times though he may be having very good case in appeal considering the litigation cost he prefers not to file an appeal. He is no academician and he does not derive any pleasure in obtaining a judgment for the sake of publicity or for laying down a legal precedent. The revenue on the other hand files an appeal in most of the cases mainly because there is no accountability and the fear of investigation. One will find more than 65% appeals before the High Court is of the revenue.

In one of the Conferences a well-known tax Judge who headed the Tax Bench for number of years stated that whenever an assessee filed an Reference Application under section 256(2) for referring question of law he normally used to admit the reference on sound reasoning that he always felt that when an assessee approaches High Court defiantly some injustice must have been done to him otherwise why he will spend lakhs of rupees in tax litigation, therefore at least he deserves admission. Whether he will succeed or not the decision will be taken at final hearing.

The Tribunal being a final fact finding authority the assessee can file an appeal to High Court only on a substantial question of law. In Mumbai, for admission it takes nearly two years and if admitted, another 13 years for final hearing and disposal. Therefore, if any wrong order is passed against an assessee, it takes nearly 15 years to get it reversed.

Under the circumstances, there is greater responsibility on the Bar to assist the Bench to arrive at correct decision. Members of the Tribunal may please bear in mind that by hearing the appeals, they are not merely adjudicating on the issues before them but they are invariably deciding on the fortunes of the assessees, as per law. Therefore, one wrong decision against an assessee may possibly ruin his life and relegate him to the position of a pauper, and he may be held liable for penalty and prosecution, the same against the Government, may affect the coffers of the Government to an extent of a drop in a vast ocean. Considering this gravity and effect of the judgment, Tribunal has a greater responsibility to the citizen in our democratic set-up.

Learning is a continuous process for any professional for continuous updation, professionals attend various seminars, workshops to get updated on case laws and to understand the development of law. It may equally be desirable that there could be an annual conference of Members of the Tribunal to interact with each other and share knowledge and experience to improve the justice delivery system so that the name of the Tribunal will be a shining feature of the IT Act.

The Hon’ble President of the ITAT, Hon’ble Justice Dev Darshan Sud (Retd.) is making a sincere attempt by sharing his judicial experience and knowledge to enhance the status of the institution by following the convention and practice followed by High Courts. One will be able to see the changes in the process of justice delivery system in the years to come. Hon’ble President is open to any constructive suggestions for better administration of justice. Readers may therefore send their suggestions to the AIFTP which will enable the ITAT Bar Associations’ Co-ordination Committee, to forward the same for the consideration of the Hon’ble President.

On behalf of Editorial Board and on behalf of the AIFTP,
we offer our best wishes to all the new Members of the Tribunal, a
sustained judicial career and a very bright tenure as Members of the
Tribunal. We trust that the Tribunal should become paragon in the
administration of justice.

Dr. K. Shivaram