The present Covid-19 Pandemic situation has put the whole world on a grinding halt. The pandemic has ravaged the country and, indeed, the world. Our government has come out with various stimulus package and remedial steps to ease out citizens from present situation. CBDT notification are being issued from time to time granting concessions and benefits to assessee’s. More such reliefs are expected in near future. Similarly courts have passed various orders relaxing limitation periods under various laws. Certain aspect are still unclear eg. Uncertainty in payment of wages/ salary to employees, uncertainty about rent, uncertainty of completion of contract, goods in transit, unclaimed goods etc. The lockdown will have financial impacts on business and individuals, difficulty will arise in recognition of income or expenses. Financial reporting or auditing vis a vis taxability of the transaction are two different aspect, which one has to take in to consideration while computing its income. Entries in books of account cannot decide whether a receipt is taxable or not or whether expenses are allowable as deduction or not. Courts are compelled to go by the true nature of the receipts and not go by the entry in the books of account [CIT vs. India Discount Co. Ltd. (1970) 75 ITR 191 (195)(SC); Kedernath Jute Manufacturing Co Ltd. vs. CIT (1971) 82 ITR 363 (367)(SC)]. This lockdown will have direct impact on profitability / income of assessee’s. Assessee’s need to relook in their transaction and give appropriate effect in their books. Subsequent events are to be identified by the company. Subsequent events are broadly those events occurring between the date of financial statements and the date of auditor’s report. Management will have to consider the events happening during the lockdown period as the same falls within the definition of subsequent events. ICAI has issued guidance notes on subsequent events for auditing considerations. Question arises how tax officers are going to look into such arrangement / transaction. While interpreting tax provisions it is settled that tax and equities do not go together. Interpretation which creates unjust and discriminatory situation, has to be avoided K. M. Sharma vs. ITO (2002) 257 ITR 772 SC. Similarly Tax Laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach [CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 SCBajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188 SC]. One expects that the courts and tribunals would be taking a harmonious and liberal Interpretation. One needs to visualize special equities, in this distinct circumstances, the existence of which would justify an liberal approach by tax authorities

As courts has already taken judicial notice of the present situation and treated the same as natural calamity. Govt action of invoking Disaster Management Act, 2005 itself prove that situation is exceptional and requires a liberal approach from tax authorities. It is also necessary for assessee’s’ to record and compute its income and expenditure in just and fair manner alongwith supporting documents. In such unprecedented times, when the wheels of global and regional supply chains are clogged, it becomes imperative to have a relook at all financial affairs, so that the unintended breaches and damages/losses may be taken into consideration. The influence on this aspect will largely depend on facts and circumstances, including the degree to which a assessee / company’s operations are exposed to the impacts of the outbreak.

Force majeure’:

Before we proceed further we need to understand a legal term Force Majeure very commonly used since the beginning of this Pandemic. ‘Force majeure’, more popularly known as an ‘Act of God’. FORCE MAJEURE means contracts stands terminated as unenforceable on account of frustration, impossibility and impracticability.

Black’s Law Dictionary, 11th Edition; Page 788 defines ‘Force Majeure’ as an event or effect that can be neither anticipated nor controlled. The term includes both, acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes and wars)

The Government of India vide its office memorandum dated February 19, 2020 [Office Memorandum no. F. 18/4/2020-PPD dated February 19, 2020, issued by Ministry of Finance (Department of Expenditure – Procurement Policy Division), Government of India. May be accessed at], has referred to the definition of ‘force majeure’ which is appearing in the Manual for Procurement of Goods, 2017, and has categorised the Covid-19 outbreak as a natural calamity.

We need to understand the utility and implications of a force majeure clause. Under Indian Contract Act, the consequences of a force majeure event are provided for u/s. 56 of the Contract Act, which states that on the occurrence of an event which renders the performance impossible, the contract becomes void thereafter.

Section 56 of the Contract Act reads as

  1. Agreement to do impossible act.—An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

In India, the Contract Act had already recognized the harsh consequences of such frustration to some extent and had provided for a limited mechanism to ameliorate the same u/s. 65 of the Contract Act. Section 65 provides as under:

  1. Obligation of person who has received advantage undervoid agreement, or contract that becomes void:When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.

The aforesaid provision provides the basis of restitution for ‘failure of contract’. We are cognizant that the aforesaid provision addresses limited circumstances wherein an agreement is void ab initio or the contract becomes subsequently void.

The Hon Delhi High Court has already considered the circumstance in case of M/s HALLIBURTON OFFSHORE SERVICES INC. vs. VEDANTA LIMITED & ANR [O.M.P. (I) (COMM) 88/2020 & I.A. 3697/2020; dt 20th April, 2020]

“The countrywide lockdown, which came into place on 24th March, 2020 was, in my opinion, prima facie in the nature of force majeure. Such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner……..


We are placed, today, in uncomfortably peculiar circumstances. A pandemic, of the nature which affects the world today, has not visited us during the lifetime of any of us and, hopefully, would not visit us hereinafter either. The devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented. The measures, to which the executive administration has had to resort, to somehow contain the fury of the pandemic, are equally unprecedented. The situation of nationwide lockdown, in which we find ourselves today, has never, earlier, been imposed on the country. The imposition of the lockdown was by way of a sudden and emergent measure, of which no advance knowledge could be credited to the petitioner – or, indeed, to anyone else. As a consequence, submits Mr. Sethi, the petitioner’s activities had to suddenly discontinue on 22nd March, 2020, and have not been able to resume ever since.

The lockdown, as imposed by the Central and State Government, is presently in place till 3rd May, 2020. Restrictions, on free movement of personnel and normal continuance of activities, had come into place even before 22nd March, 2020.”

One can also refer to the recent decision of Supreme Court in the case of SOUTH EAST ASIA MARINE ENGINEERING AND CONSTRUCTIONS LTD. (SEAMEC LTD.) vs. OIL INDIA LIMITED [CIVIL APPEAL NO. 673 OF 2012 ; 11th May, 2020] wherein the court has dealt and explained force majeure clause in detail.

In this write up we shall consider some tax issues due to the covid 19 lockdown:

  1. Uncertainty of Rental Income /Payment :

At the outset before taking a stand a reference can be made to directions issued by government authorities to landlords asking them not to charge rent or evict the tenants during covid 19 lockdown period. Also attention is invited to the case of ALJO J. JOSEPH vs UOI (SC) Writ Petition (Civil) Diary No. 11055/2020 wherein the Petitioner, a lawyer through prayer sought exemption to lawyers from paying rentals. The SC observed that it is not inclined to pass any relief as rentals are livelihood for many landlords and the Petitioner should approach BCI or Government. The Writ Petition was dismissed as withdrawn.

The Delhi High Court in the case of RAMANAND & ORS. vs. DR. GIRISH SONI & ANR. RC. REV. 447/2017. Dt 21-05-2020. rejected the Tenant’s application for suspension of rent during COVID-19 lockdown and stated that some postponement or relaxation in the schedule of payment can be granted owing to the lockdown. The Court further observed that there is no rent agreement or lease deed between the parties and hence Section 32 of the Indian Contract Act has no applicability. The case is governed by the provisions of the Delhi Rent Control Act, 1958. Section 56 of the Indian Contract Act does not apply to tenancies. The Tenants also do not urge that the tenancy is void under Section 180 (B)(e) of the Transfer of Property Act. The tenants are also not ₹Lessees’ as an eviction decree has already been passed against them.

If the income is taxable under Head House property the Computation of Income and it taxability will be dealt by sec 22 to 24 of the Act in arriving at ALV of the property. According to me there is no scope of such arguments as uncertainty. Rent once earned having become due under valid and subsisting agreement has to be charged to tax. Subsequent waiver would not entitle any reduction in annual value chargeable to tax. The word ‘receivable’ in clause (b) to sec 23 refers to the amount of rent which is due but yet to be received. Rent which is due but could not be realised cannot be excluded. However due to unprecedented events leading to lockdown, if the tenant/licensee has expressed unwillingness to pay the whole of the amount for the lockdown period or wants to suspend the same for particularly period the parties may record the same in writing subject to tenant paying the agreed rent regularly post the period of lockdown. Subject to other conditions being fulfilled the actual rent may be computed under clause (b) to sec 23 of the Act. However, this is subject to parties have intended and preferably documented their intention to modify the agreement before the rent had accrued under the agreement.

However if the parties do not arrive at any understanding and there is a genuine dispute between the parties, from owners point of view it will be better to cancel the agreement by giving notice. In such a situation the recipient/owner can offer rent to the extend whatever he has actually received showing the change in the circumstances. However to what extent tax authority will accept the proposition needs to be tested. In a situation where the payment of rent /license fee is suspended for a particular period, the balance rent if realised in next year can be offered as unrealised rent u/s. 25A of the Act in the year whenever it is received.

25A. Special provision for arrears of rent and unrealised rent received subsequently.— (1) The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head – Income from house propertyΠ, whether the assessee is the owner of the property or not in that financial year. (2) A sum equal to thirty per cent. of the arrears of rent or the unrealised rent referred to in sub-section (1) shall be allowed as deduction.]

As regards the licensee/ tenant is concerned they can claim the expenses to the extend it is agreed between the parties. If no such understanding is arrived at by the parties the better course could be to claim the full expenses in the books. On later date when ever the amount is settled the excess amount claimed if any can be offered to tax.

In a case where the recipient offers the rent/license fee as business income on the same principle as discussed above the rent /license fee can be offered to tax. Here the dept will have to adopt a realistic view rather than a hyper technical view while dealing with the issue. As dept cannot lose sight of the real ground situation prevailing during lockdown. However the assessee needs to keep all such material/documents available at the time of assessment.

  1. Invoice Issued in March 2020 but Goods Not Delivered till Lockdown :

In mercantile system of accounting the income is deemed to have been accured once invoice is raised though the goods might be delivered at a later date. However in present circumstances due to lockdown there is impossibility in performance of the contract. One needs to see the terms of contract.

Subject to facts of each case vis a vis the prevailing ground reality in each area /locality, if both the parties invoke force majeure clause or decide to cancel the contract or suspend the same till normalcy is sustained, income will not be accrued nor liable to be taxed. It is advisable to place on record the actual ground reality in the area along with communication exchanged between the parties. e.g Mumbai is in red zone during lockdown and maximum business activities were closed. People were even not allowed to reach their office or godown or factory, in such a situation the normal accounting policy should not apply. Where the assessee’s contract or transaction get cancelled at year end due to exceptional situations or the transaction is not materialised, income may not accrue merely because invoice is raised. There is no performance of the contract. The assessee should preserve the records of communication with the parties.

  1. Salary for Lockdown Period not paid when to Deduct Tax and will it Include in Case of Employee :

On March 29, 2020 The Ministry of Home Affairs (MHA) issued an order under Section 10(2)(I) of the Disaster Management Act stating : ” All employers, be it in the industry or in shops and commercial establishments, shall make payment of wages of their workers at their workplaces, on the due date, without any deduction, for the period their establishments are under closure during the lockdown.”

The constitutional validity of the above order on wages was challenged by several companies who had moved the Supreme Court. On 15/5/2020, the Supreme court asked the government not to take any coercive action against private companies who were unable to pay wages to workers. The SC was to hear the petition next week. The court, terming it as an “omnibus order”, had asked the government to re-examine it.

The Ministry of Home Affairs (MHA) had issued a fresh set of guidelines which was applicable from 18/5/2020. It had repealed the order dated March 29, 2020 which had talked about compulsory wage payment to workers during lockdown.

Considering the above factor an assessee needs to account for salary /wages what it has decided to pay. It will be better to have the decision documented as it is change in the contract between the employees or workers. However if there is any likely hood of dispute arising relating to the quantum of payment a provision to that effect maybe made. Tax have to be deducted on the actual or agreed amount. To avoid any dispute proper documentation will be necessary. Most of the companies are informing all the employees about the cut in salaries/postponement, through proper notice.

As far as employees are concerned they will account for the actual salary received.

  1. Expenses Incurred in FY: 2019-20 but Invoice Received in FY: 2020-21 Due to Lock Down Expense of Which Year and When to Deduct Tax :

Expenses incurred in FY 2019-20 should be accounted in same year though the invoice is received in next year. Lockdown is exceptional circumstances and one can prove through documentary evidence that expense were actually incurred in FY. Further the invoice could not be raised /furnished due to lockdown.

As far as payer is concerned though invoice is raised in FY 2020-21 he can account for the expenses in FY 2019-20 if he is able to prove that same is a prior period expenses and delay in raising the invoice was beyond his control due to lockdown. Other circumstantial evidence like email correspondence can be useful to support the claim. However whenever he is raising the invoice at that time he will deduct tax and deposit the same. The CBDT has issued an Office Order dated 31st March 2020 u/s 119 of the Income-tax Act in which it has issued various directions and clarifications on the issue of certificates for lower rate/ nil deduction/collection of TDS or TCS u/s 195, 197 and 206C (9) considering the constraints of the Field Officers in disposing of the applications for lower or nil rate of TDS/ TCS and to mitigate hardships of payees and buyers /licensees /lessees.

5) Claim of depreciation for assets purchased in FY: 2019-20 but could not be used due to lockdown in that year. Additional depreciation for lockdown period:

If asset is purchased and installed but not used, depreciation shall be allowed. However if the asset is not ready to be used depreciation shall not be allowed. Additional depreciation will accordingly be allowed. One should note that if asset is not ready to be used the depreciation benefit will be available next year.

Your attention is invited to the decision of Gujarat High Court in case of PCIT v. Babul Products (P.) Ltd. (2018) 257 Taxman 100 (Guj.)(HC) [Editorial : Order in Babul Products (P.) Ltd v. ACIT (2017) 167 ITD 402 (Ahd) (Trib.) is affirmed]. Wherein it was held that the Factory could not run due to stay order of Court therefore depreciation cannot be disallowed. Dismissing the appeal of the revenue the Court held that ; as the Factory could not run due to stay order of Court, depreciation cannot be disallowed. Business is not closed permanently.
(AY. 2009-10)

6) Payment Could Not be Made to MSME within Prescribed Period Due to Lockdown – Whether Period of Lockdown to be Excluded For Mandatory Interest.

If interest is payable on delayed payment as per the general terms of contract assessee should invoke force majeure clause and deny the payment of interest for the period of lockdown. However if the assessee feels that this could be a point of dispute at later point of time he should make a provision for the interest in the books. If at later point of time interest is not payable the amount can be reversed and offered for taxation. As mentions in the query due date is falling in lockdown period therefore I am of the view that interest would not be chargeable nor payable. Any expenditure incurred in course of business is allowable expenditure.


The occurrence of the Covid-19 outbreak does not by itself automatically entitle a party to take a plea u/s. 56 of the Contract Act. Considering that the Covid-19 pandemic is an unprecedented and unanticipated event, which has crippled the economy in its wake, it may very well be argued that the present circumstances are special and that if parties to the contract have invoked for non-performance during such period when businesses have been mandatorily closed and/ or have suffered, the tax treatment would require a different approach by the tax authorities considering the amended agreement / contract. Nevertheless, such a plea would have to be explored on a case to case basis.

Posted in May.


The Covid 19 outbreak has already had a significant effect on the economy of India and most other countries. As companies in India prepare for their year-end reporting, there is an urgent need to evaluate the impact of this outbreak on accounting and financial reporting. Companies need to carefully consider these unique circumstances [including the ‘work from home’ (WFH) which was almost forced overnight], increased risk exposures and its’ the impact on financial reporting. Auditors of these companies also face several challenges to issue audit reports.

Most regulators across the world including Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) have already extended the dates for filing the quarterly / yearly financial results for 31st March 2020 by at least 30-45 days. Relaxations have also been given so as to enable companies to hold virtual meetings of the board of directors and shareholders.

In-spite of these trying situations, as on date of publication of this journal, several prominent companies have already finalised their financial statements and auditors have issued reports thereon.

The following paragraphs discuss some of the key accounting and financial reporting considerations for companies. The role of auditors is also discussed simultaneously since without the report of the auditors, the financial results may not be relied upon by the lenders, investors and analysts. The Institute of Chartered Accountants of India (ICAI) has also come out with several announcements to guide its members (i.e. those who would be auditing these companies) for conduct of audit and reporting in this situation.


For manufacturing companies this is a very important item in financial statements. In accordance with Ind AS 2 ‘Inventories’ and AS 2 ‘Valuation of Inventories’, cost of inventories shall comprise of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location. As per the above definition, all additional costs incurred by the Company to bring the inventories to their present location needs to be a component of the cost of inventory. In COVID 19 scenario, companies may incur incremental costs like:

  • Storage/ warehouse costs as the goods were not removed from the warehouse;

  • Transportation costs incurred to get the goods delivered at the required location;

  • Abnormal amounts of wastage materials as the goods would be of perishable nature;

  • Selling costs.

Further, inventories are usually written down to net realisable value item by item. The cost of inventories, including the additional costs, as discussed above, may not be recoverable if those inventories are damaged or, if they have become wholly or partially obsolete, or their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs to be incurred to sell have increased. The practice of writing off inventories down below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use.

Further, there would be fixed production overheads or indirect costs of production that remain relatively constant regardless of the volume of production (like depreciation, maintenance of factory buildings / equipment, factory overheads). These are normally based on the normal capacity of the production facilities. However, amid the COVID crisis, a Company may need to review its production capacity depending upon on the availability of raw materials or on account of low production due to idle capacity resulting from lower demand. These unallocated overheads may need to be expensed in the statement of profit and loss in the year they are incurred.

Regarding role of auditors, in accordance with Standards on Auditing 501, ‘Audit Evidence – Specific Considerations for Selected Items’ when inventory is material to the financial statements, the auditor has to obtain sufficient and appropriate audit evidence regarding the evidence and condition by:

  • Attendance at physical inventory counting (observe the performance of management count procedures, inspect the inventory, perform test counts, etc);

  • Performing audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.

If the physical verification is done at a date other than the date of reporting, the auditor needs to perform additional procedures to obtain audit evidence that whether the changes in inventory between the count date and the reporting date of the financial statements are properly recorded.

Due to government-imposed lockdowns, it would have been impracticable in almost all companies (except maybe some companies in the essential services sector like pharma) to perform a physical inventory counting. In such cases, the auditor is required to perform alternative audit procedures to obtain sufficient and appropriate audit evidence. In absence of the same, the auditor shall use its judgement upon whether his report should be modified under SA 705 or whether an Emphasis of Matter (EoM) is needed. Further, the auditor is also required to use his judgement on the estimates used by the management as discussed above in ‘Management’s Role’. In this context, ICAI has come out with specific guidance on ‘Key Audit Considerations amid Covid 19 for physical inventory verification’.

Property, Plant and Equipment

Ind AS 16 ‘Property, plant and equipment’ and AS 10 ‘Property, plant and equipment’ defines property, plant and equipment as tangible items that are held for use in the production and supply of goods and services, for rental to others, or for administrative purposes and are expected to be used for periods more than one year (or twelve months). However, in these pandemic conditions, Companies need to use its judgement as to whether it can be extended to fifteen months. Further, management estimates will be needed for evaluation of the useful lives of the assets as the assets have remained idle during the lockdown period.

It is important for the Company to charge depreciation even for the period the plant has remained idle. In case a Company is following the useful lives mentioned in Schedule II to the Companies Act, 2013, the management will have to use judgement as to whether it should use the same or different rates – esp. in case of continuous process plants.

The auditor will have to obtain sufficient and appropriate audit evidence regarding the physical verification of property, plant and equipment at the reporting date. Further, the auditor needs to review the capital work in progress for the projects which have started in the lockdown period. In case of such assets, the auditor will need to decide whether additional costs due to the delay in commissioning of the assets can be capitalised or need to be expensed. Further, an impairment testing may also be required particularly for the capital work in progress assets.

Borrowing Costs

Ind AS 23 ‘Borrowing costs’ and AS 16 ‘Borrowing costs’, requires the Company to suspend the capitalisation of interest when the development/ capitalisation of the asset is suspended. Hence, a Company needs to consider whether this lock down period attracts the conditions for suspension of capitalisation of borrowing costs in which case the same would need to be expensed for this period.

The auditor is required to use its judgement with respect to the suspension of activities for assets under construction or erection. Also, the auditor is required to obtain sufficient and appropriate audit evidence with regard to the availment of any moratorium for its borrowings. If appropriate audit evidence is not obtained and there has been a delay in the repayment of loans, auditor will have to consider whether he should report in the main audit report or in CARO.

Impairment of Non-financial assets:

Ind AS 36 ‘Impairment of Non-financial assets’ and AS 28 ‘Impairment of Assets’ requires impairment testing for all non-financial assets. For the same, recoverable value of the asset or a group of assets (called Cash generating Unit or CGU) needs to be computed. The recoverable value of any asset is the higher of ‘value in use’ or ‘value on sale’ for which extensive management estimates and judgements are required. In the current situation, where there is likelihood of factory shut-downs, reduction of prices, reduction in demand etc., such estimations and judgements can become difficult. Also, to calculate ‘value in use’, assumptions for DCF like discounting rates, dependence of imports, projections, production capacity etc., can become challenging. Further, due to COVID – 19, there might be significant changes having adverse effect (and hence impairment) in operations of a CGU to which goodwill has been allocated in the past.

In cases where Goodwill or other Intangible assets (like software development costs, product development costs, etc.) are recognised in the financial statements, the need for impairment testing for such assets would be even more required since the future economic benefits from utilisation of these assets and the period over which they can accrue can be very different than the earlier estimates.

Auditor will have to use his judgement in evaluating the management estimates and the assumptions for the same. It will have to ensure that same are in line with the industry. Further the auditor needs to ensure by performing analytical procedures that these assumptions are forward looking based on the current scenario. These assumptions or cash flows should not be confined to next twelve months but also consider the long-term prospects. Auditor will also have to perform additional audit procedures to have reasonable assurance upon the impairment valuation.

Provisions, Contingent Liabilities and Contingent Assets

Besides the normal year-end provisioning, management will have to consider whether any of its contracts have become onerous in the current scenario. Onerous contracts are those contracts where the unavoidable costs are more than the economic benefits. In such cases, the unavoidable costs in the contract may need to be provided upfront for the entire contract period. Further, there could be penalty clauses embedded in the contracts, which could have been triggered due the lock-down situation. Unless the management can invoke the ‘force majeure’ clause in such agreements, provision may be necessary for all such penalties. If there are on-going negotiations in these contracts and provision is not warranted, the possible liability may need to be disclosed as a contingent liability. The management will, thus, have to review all its major contracts for the above. In case of delays in payments to vendors esp. those in the MSME sector, provision for interest on delayed payments may also need to be looked into.

Coupled with the above, the Company will also have to review its insurance policies as to whether any insurance claims are receivable due to loss of profits due to business disruptions. If the Company has a policy, management may need to estimate the probability of receiving such amounts.

Auditor will have to obtain sufficient and appropriate audit evidence that all provisions on account of onerous contracts / penalties imposed / interest for delayed payments for all open contracts or outstanding payments are provided or disclosed as contingent liabilities.

Financial Instruments

All companies following Ind AS need to fair value their investments on Mark-to-market (MTM) basis and the resultant profit / loss taken to Statement of profit and loss or Other Comprehensive Income depending on the classification of the investment as “Fair Value though Profit and Loss” or “Fair Value through Other Comprehensive Income”. In the current scenario where all investments have suffered a massive erosion in their market values, management needs to consider whether the same truly represents ‘fair value’ or some other basis can be followed.

Also, for all trade and loan receivables companies need to do provisioning using the Expected Credit Loss (ECL) model as laid down in Ind AS 109. There can be a possibility that in this pandemic situation, some of its performing assets would have become under-performing assets or non-performing assets. In all such cases, management will need to revisit all assumptions to decide the likelihood of the recoverability or the delay in such recoverability. Further, adequate disclosure of all the methods followed, assumptions and information used in determining the revised ECL needs to be disclosed. Under certain circumstances, if management was not able to obtain sufficient information (which is possible in current scenario), the fact should also be disclosed in the financial statements.

The auditor, in all the above cases, will have to obtain sufficient and appropriate audit evidence regarding the assumptions and estimates for the revised ECL model. The auditor will have to ensure the same is done by taking the industry practice and the information is forward looking. The auditor will have to obtain reasonable assurance that the provisioning done by the Company is reflecting the true and fair picture of the financial assets held by the Company and is not unduly optimistic but is based on most realistic scenarios. The disclosures in case of both how investments are fair valued and the ECL model is followed will also need to be carefully evaluated by the auditor to ensure that it not only meets the requirements of Ind AS 109, but also captures the reality of the situation and how the management has dealt with the same.

Impairment for Investments

For companies who do not need to follow Ind AS, AS 13 is the relevant standard. The Company will have to assess provision for diminution of assets for its long-term investments. Management will also have to consider the impact on determination of market value for its short-term (or current) investments. In both cases, careful evaluation needs to be done whether the sudden fall in value of the investments really reflect the fair value of the investments.

Auditor will have to use its judgement whether the provision for diminution of value in case of investments (both long-term and current) can be of considered temporary in nature. If so, no provision for fall in value or MTM is warranted. Also, he will have to obtain a reasonable assurance that the data used for determining the fair value measurement is reliable and does, in fact, reflect the fair value.


Many companies are looking to review the lease terms in the period of lockdown and subsequently. This review will in most cases, be effective from 1st April 2020. For companies following Ind AS, where FY 2019-20 is the first year for implementing the new Ind AS 116 on ‘Leases’, such modifications in lease terms can result in complex adjustments to be done in the recognition of the “Right of Use” (ROU) asset and the corresponding liability. Besides this, estimates of the discount rate may also need to be reviewed.

For companies not following Ind AS, a similar exercise will also be necessary to determine adjustments that maybe necessary for recognition and measurement of finance leases and lease payment liability for Operating leases.

In both the above cases, the auditor will have to review lease agreements in order to obtain sufficient and appropriate audit evidence that no lease contract has become an onerous contract. Further, he will have to re-confirm lease liability recognised in the financial statements and assumptions used by the management for the discounting rates and the concessions.

Revenue Recognition

For companies following Ind AS, there are several challenges for revenue recognition. The management will have to consider impact of likelihood of increased sales returns, discounts, estimate changes for contracts with variable consideration or target based incentives, warranty or AMC periods, etc. In many cases, customers may invoke the ‘force majeure’ clause to avoid taking delivery of goods, etc. For subscription-based revenue models, the subscription periods or AMC periods may also be extended. In all such cases, significant estimate assumptions will need to be considered by the management and can impact revenue recognition – as noticed in several FMCG companies that have declared their results. For companies in real estate and construction sector, these challenges could be still more as in most cases the contract terms will get re-negotiated or in some there could be terminations. Ind AS 115, the relevant standard for revenue, also requires extensive disclosures for all of the above.

For companies not following Ind AS (i.e. following AS 7 / AS 9), though the accounting complexities in measurement and disclosures could be lesser, nonetheless, the recognition issues as described above would remain.

For auditors, ensuring accurate revenue recognition by the companies is one of the most important verification areas. In this uncertain situation, they can face challenges in evaluating the assumptions and estimates adopted by management for changes in revenue recognition. Several contracts and changes thereto will need to be reviewed to make sure that the management is not reporting inaccurate revenue amounts. Reconciliation of these revenue figures with other regulatory filings like GST, with bankers, etc. will also become very important. In the WFH scenario, carrying out verification (even on sampling basis) can also prove very difficult.

Income Taxes

For income tax provisioning (including for deferred tax), Companies will face many challenges. The following issues would need to be addressed:

  • Companies who have opted for the lower tax rates as per the September amendment, may need to reassess the same as they may anticipate losses in the current year and in future also;

  • For various provisions for liabilities and MTM for investments or other financial assets to be mandatorily done as per the applicable standards, application of the ICDS to ascertain their allowability;

  • As per the Covid-19 related concessions given, deduction is available in the FY 2019-20 for donations (esp. for Covid19 related and CSR related) made in the period 1st April 2020 to 30th June 2020 – impact of the same on the financial statements for FY 2019-20 would need to be ascertained;

  • Those companies who intended to take benefit of the“Vivad se Vishwas”scheme may need to re-evaluate the same – this has a corresponding impact on the financial statements;

  • For companies having unabsorbed losses and MAT credit, recognising the corresponding deferred tax assets for the same would need to be re-evaluated based on revised estimates of future profitability.

Auditors will have to carefully evaluate the assumptions based on which the provision for tax (including the rate applied) is done by the company. Further, auditor will have to obtain sufficient and appropriate audit evidence with respect to the virtual certainty (AS 22) / probable certainty (Ind AS 12) for the recognition of deferred tax assets in the books of accounts. A good checkpoint in such cases is to reconcile the effective tax rate (i.e. current tax plus deferred tax) with that of the earlier year.

Employee Benefits and Costs

Companies will have to decide on its revisions for increments, pay cuts, leave policies, work from home policies and its other related costs for and after the lock-down period. The same would need to be incorporated in the actuarial valuation reports. Year-end provisions like bonus and performance incentives would need to be reviewed based on the new policies and estimates made by the Company.

The auditor will have to confirm the actuarial valuations and the revised assumptions. In case of waiver or pay cuts of salaries/ policy, he would need to ascertain whether the same have the appropriate approvals and the same has been properly accounted.

Subsequent Events

Subsequent events are broadly those events occurring between the date of financial statements and the date of auditor’s report. Management will have to consider the events happening during the lockdown period as the same falls within the definition of subsequent events. In case some of these relate back to the year end and become adjusting events, effect will need to be given in the FY 2019-20 results (e.g. insolvency of a customer, impairment indications, NRV determination for inventory). If, however, the event is a non-adjusting event, the same will need to be specifically disclosed in the financial statements without passing any entries in FY 2019-20.

The auditor in such a scenario will have added responsibility to ensure that all subsequent events are identified by the company and appropriate treatment depending on whether the subsequent events as adjusting or non – adjusting events. For this, he may need to perform additional audit procedures like reviewing minutes for the current financial year with respect to the decisions taken by the management for such events.

Government Grants

The Reserve Bank of India and the central / state governments have announced several concessions to industry to mitigate the adverse impact of Covid19. Some of these measures like direct contribution by government to employees’ provident fund can trigger the definition of government grants. If so, companies will have to consider accounting for the same at either cost or fair value as per the relevant standards (Ind AS 20 or AS 20) and as per the previously adopted policy, if any, by the company for such grants.

The auditors would also need to understand the nature of the concessions applicable to the auditee company and whether accounting for the same as government grant needs to be done for the same.

Exceptional Items

If any item/s of the Statement of profit and loss are one-time, non-recurring and can provide additional information for understanding of the financial statements, the accounting standards and the ICAI Guidance Note on format of financial statements for companies provide that such items can be classified as “Exceptional” with adequate disclosure of why the same is so considered. In this scenario, many companies have considered items like inventory losses, impairment, etc. which have pre-dominantly arisen due to the Covid19 impact and the lockdown as ‘exceptional’ and have disclosed them accordingly.

Auditors will have to evaluate whether, if a company, wants to consider a particular item as ‘exceptional’ does it really meet the definition as per the applicable standards.

Going Concern

Normally, the financial statements are prepared on a going concern basis. This means that the company is likely and intends to continue its activities in the near foreseeable future. In the Covid19 situation and the drastic fall in economic activities, it is likely that survival of many companies may become questionable. This would be especially true for company which have high borrowings or are highly leveraged. The management needs to evaluate all factors like industry, likely demand revival and other factors to decide whether the company can continue into the future and meet all its liabilities as and when they fall due. This assumption is not only limited for the next twelve months, but even beyond that to continue as a going concern. There are several industries which are likely to be severely impacted by Covid19 – viz., airlines, hospitality, film exhibition, etc.

From the auditors’ point of view, he has to understand the business continuity plan of the company, how it plans to meet the future liabilities as and when they fall due, demonstratable support available from promoters to the company, etc. If the auditor is not comfortable with the above as represented by the management, he may well need to modify his report and include remarks under the para “material uncertainty about going concern”. ICAI has also come with specific guidance for auditors to deal with the going concern aspect in situation of Covid19.

Audit and reporting considerations

In the current Covid19 scenario with start of normal activities still months away, auditors face several challenges both for his own office functioning as well as conducting audits and issuing reports. Auditors will need to be very cautious and evaluate all facts and circumstances, including scope limitations due to the extended lockdown, before opining on the financial statements. In case, he does not agree with the management assessment of the estimates and assumptions, he may very well modify his audit report and include qualifications, or ’Emphasis of matter’ paragraphs. He can also include some of the limitations in the ‘Key Audit Matters’ or KAM for large companies.

Compliance with the Standards of Auditing (SAs) esp. on audit planning in WFH scenario, risk assessment, audit evidence, materiality and documentation also assume added significance for FY 2019-20. Auditors may well need to spend more time in ensuring adequate compliance with these and other SAs.


Though concessions have been given by the regulators and governments for taxation related compliances, no such concessions have been given (or seem likely) for financial reporting or auditing. These are, therefore, difficult and testing times for both, companies and auditors. Only time (or hindsight) will tell whether the companies and auditors have been able to appropriately capture the current uncertainties in the financial statements and reports. Besides, the additional procedures and WFH challenges, auditors may also face the stark reality that in many cases, the auditees may ask for reduction in fees or delayed payment thereof.

Note: A compilation by the same author of disclosures related to Covid19 by companies and auditors reporting thereon for some companies who have declared their results till mid-May 2020 can be referred in the BCA Journal June 2020 issue.

Posted in May.

COVID-19 has resulted in lockdowns or restricted movements in countries. Consequently, businesses have been impacted and so have operations and consequently contracts and obligations under contracts are being revisited to assess these impacts. The term that has assumed relevance in contractual context today for businesses today and heard most often is “force majeure” and how will this term be construed in a contract in the background of COVID-19.

COVID-19 has affected cross-border trade, real estate market, specifically the developers, the home-buyers and the commercial lease arrangements, EPC (engineering, procurement & construction), joint-venture agreements as well as M&A deals in India. It has also impacted the parties’ ability to meet their contractual obligations due to restriction in movement, stoppage of production, increase in costs due to scarcity of raw materials components, labor shortages, shortage of funds, disruption in the supply chains, etc.. Presently companies in various sectors have already declared or are likely to declare a force majeure.

What is Force Majeure?

Force majeure translates into “superior force”. Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure. A force majeure may work to excuse all or part of the obligations of one or both parties. For example, a strike might prevent timely delivery of goods. A force majeure may also be the overpowering force itself, which prevents the fulfillment of a contract.

Force majeure is generally intended to include occurrences beyond the reasonable control of a party, and therefore would not cover:

  • Any result of the negligence or malfeasance of a party, which has a materially adverse effect on the ability of such party to perform its obligations.

  • Any result of the usual and natural consequences of external forces.

o To illuminate this distinction, take the example of an outdoor public event abruptly called off.

– If the cause for cancellation is ordinary predictable rain, this is most probably not force majeure.

– If the cause is a flash flood that damages the venue or makes the event hazardous to attend, then this almost certainly is force majeure, other than where the venue was on a known flood plain or the area of the venue was known to be subject to torrential rain.

– Some causes might be arguable borderline cases (for instance, if unusually heavy rain occurred, rendering the event significantly more difficult, but not impossible, to safely hold or attend); these must be assessed in light of the circumstances.

  • Any circumstances that are specifically contemplated (included) in the contract—for example, if the contract for the outdoor event specifically permits or requires cancellation in the event of rain.

The importance of the force majeure clause in a contract, particularly one of any length in time, cannot be overstated as it relieves a party from an obligation under the contract (or suspends that obligation). What is permitted to be a force majeure event or circumstance can be the source of much controversy in the negotiation of a contract and a party should generally resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party.

Even if a force majeure clause covers the relevant supervening event, the party unable to perform will not have the benefit of the clause where performance merely become (1) more difficult, (2) more expensive, and/or (3) less profitable.

Under Indian Contract law, the consequences of a force majeure event are provided for under Section 56 of the Indian Contract Act, 1872 which states that on the occurrence of an event which renders the performance impossible, the contract becomes void thereafter. Section 56 of the Contract Act stands as follows:

  1. Agreement to do impossible act.—An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

When the parties have not provided for what would take place when an event which renders the performance of the contract impossible, then Section 56 of the Contract Act applies. When the act contracted for becomes impossible, then under Section 56, the parties are exempted from further performance and the contract becomes void.

Hon’ble Supreme Court in Satyabrata Ghose v. Mugneeram Bangur & Co. has held: These differences in the way of formulating legal theories really do not concern us so long as we have a statutory provision in the Indian Contract Act. In deciding cases in India the only doctrine that we have to go by is that of supervening impossibility or illegality as laid down in Section 56 of the Contract Act, taking the word “impossible” in its practical and not literal sense. It must be borne in mind, however, that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.

However, there is no doubt that the parties may instead choose the consequences that would flow on the happening of an uncertain future event, under section 32 of the Contract Act. The concept of restitution as set out in Section 65 of the Contract Act also assumes significance in the context of the frustration of contract. Section 65 states that when an agreement is discovered to be void, such as in case of a contract getting frustrated, the person who has received any advantage under such agreement is ‘bound’ to restore it or to make compensation for it, from whom he received it. Thus, one of the consequences of frustration of a contract is restitution whereby parties are to be put in the same position they were if the contract had never been executed.

The general rule of force majeure under Section 56 of the Indian Contract Act, 1872 does not apply to lease deeds. The Supreme Court clarified this position early on in Raja Dhruv v. Raja Harmohinder Singh. The Supreme Court dismissed the claim of force majeure under Section 56 on two broad grounds. First, it held that rights under a lease are not simply contractual rights but are instead governed under the provisions of the Transfer of Property Act, 1872. Second, the Court reasoned that Section 56 does not apply to a concluded contract where no further performance was required. The Supreme Court re-affirmed this position in Sushila Devi v. Hari Singh which also involved a claim for refund of rent and deposit in relation to lands that now formed part of Pakistan. It is important to bear in mind that although the general law of force majeure is inapplicable to lease deeds, this does not prevent parties by way of contract to agree to certain protections in the event a force majeure event does arise. In Shankar Prasad and Ors. v. State of MP (ILR [2013] MP 2146) the High Court held that the obligation to pay rent by the lessee did not cease, even though the godown leased out was completely destroyed by a fire, as the lessee had not sent a notice under Section 108(B)(e) of the TPA to the lessor. This position of law has also been followed by the High Court of Bombay in Amalgamated Bean Coffee Trading Company v. Surjit Singh Jolly and the Delhi High Court in Chamber of Colours and Chemicals Pvt. Ltd. v. Trilok Chand and Airport Authority of India v. Hotel Leela Venture Ltd. The logic governing these transactions is that unless the lessee satisfactorily surrenders the property by way of a notice, the lessee is deemed to be using the property and is obligated to pay rent. The lessee should be mindful to elaborate, in its notice, reasons as to why COVID-19 is an event of irresistible force under Section 108(B)(e) of the TPA. It is also settled law that a financial inconvenience in making payment does not qualify as a force majeure event.

Is Covid-19 a force majeure event?

Force majeure clauses will generally adopt one of the following approaches to defining the type of event which may, depending on its impact, relieve a party from contractual liability:

Listing specific events

  • These may include events such as war, terrorism, earthquakes, hurricanes, acts of government, plagues or epidemics. Where the term epidemic, or pandemic, has been used, that will clearly cover Covid-19.

  • An act of government will have occurred where a government body has imposed travel restrictions, quarantines, or trade embargoes, or has closed buildings or borders, however the position is less clear where the government makes recommendations rather than makes orders using legal powers.

Where no relevant event is specifically mentioned, it is a question of interpretation of the clause whether the parties intended such an event to be covered. This involves considering whether the list of events included was intended to be exhaustive or non-exhaustive. Unless specific words are used to suggest that a list is non-exhaustive, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event, such as an epidemic, nonetheless intended that event to be covered.

In unprecedented circumstances like the present, the courts are likely to be generous in their interpretation by holding that the events or circumstances were “beyond the parties’ reasonable control” when faced with parties who have encountered genuine difficulties in performing.

Ministry of Finance has issued Office Memorandum No. 18/4/2020-PPD dated 19.02.2020 inter alia citing “A force majeure (FM) means extraordinary events or circumstance beyond human control such as an event described as an Act of God (like a natural calamity)” clarifying that spread of corona virus should be considered as a natural calamity and Force Majeure clause may be invoked.” This has been followed by similar clarifications issued by Ministry of Railways, etc. Thus there should be NO DOUBT left that the present lockdown due to COVID-19 would fall under Force Majeure event.

What if there is no force majeure clause?

Since force majeure is a creature of contract rather than a rule imposed by the general law, if there is no force majeure clause, an affected party will have to look to other provisions of the contract for potential routes out of its difficulties. If the contract does not provide any such routes, it may in certain circumstances be possible to rely on the doctrine of frustration of contract.

However, it is very difficult to show that a contract has been frustrated. Frustration requires that an unforeseen subsequent event outside the control of the parties has made the contract impossible to perform, or has transformed performance of the obligations under the contract into something so radically different from that which the parties intended that it would be unfair to hold the parties to their obligations. One extreme situation where the courts have held that a contract was frustrated was when war broke out and the government banned the works and seized and sold the necessary equipment.

As with the test for “prevention” of performance under force majeure clauses, the fact that performance has been made more difficult or costly is not enough. In addition, it is questionable whether an epidemic, or even a pandemic, would be considered to be unforeseeable, given previous recent epidemics and warnings that further epidemics or pandemics are likely to occur. However, it might be possible to argue that the extent of the global government enforced lockdowns was unforeseeable.

Frustration may also be commercially undesirable in some circumstances, since its effect, regardless of the wishes of the parties, is to bring all parties’ obligations under the contract to an end immediately.

Practical steps if seeking to rely on a force majeure clause:

Parties seeking to rely on a force majeure clause should follow the following practical steps:

  • Consider in detail the precise wording of the force majeure clause, the contract as a whole and the circumstances that have arisen. Determining whether performance is excused by a force majeure clause can be a difficult and highly fact-sensitive exercise, so early legal advice should be sought.

  • Explore alternative means of performing, reducing delay, or minimizing any loss to the other party. This may require considering alternative suppliers, or alternative methods of delivery, even if at higher cost.

  • Serve any notices as required under the contract, as soon as possible and in accordance with the notice provisions. Consider carefully what event or circumstance you allege constitutes the force majeure event, taking into account the wording of the clause and the timescales required for service of notice: the outbreak of Covid-19 itself, or subsequent government restrictions put in place.

  • Do not attempt to rely on increased costs to excuse non performance or delay, as this will not usually be sufficient.

  • Keep a documentary record, particularly of: why performance was impossible, hindered or delayed as the case may be; the steps taken to find alternatives and mitigate loss; and the service of any notices.

  • If there is no force majeure clause, consider frustration, but be aware of the high bar for establishing that a contract has been frustrated.

  • Consider other routes and remedies, either under the contract or through agreeing binding variations to contracts with other parties.

A party seeking to rely on a force majeure clause must also show that:

  • the force majeure event was the cause of the inability to perform or delayed performance;

  • their non-performance was due to circumstances beyond their control; and

  • there were no reasonable steps that they could have taken to avoid or mitigate the event or its consequences.

As a result, where a party anticipates falling into difficulty with meeting its obligations, for example due to staff shortages through self-isolation in accordance with government guidelines or issues with the supply of materials, it is crucial to explore whether alternatives, such as alternative sources of labour or materials, are reasonably available – including at higher cost, unless this involves breaching existing contracts.


With widespread disruption in business, manufacturing and transport, due to COVID-19 the stage seems set for India to see a flood of ‘force majeure’ invocations. It is expected that over a period of time more and more Indian companies may invoke ‘force majeure’ clauses in their contracts resulting perhaps in a spew of litigations should parties not come to a workable understanding. Of course, in such events, the courts and arbitrators will have to evaluate and decide each dispute on individual merits, which would be based on the terms of the contract, the intent of the parties, steps taken to mitigate.

How the courts will interpret COVID-19 in relation to force majeure provisions will be interesting to watch out in the course of this year once the impact of COVID-19 settles. Invocation of force majeure provisions in light of COVID-19 will have to be assessed on a case-to-case basis depending on the terms of the contract entered into between the parties. The courts will then have to ascertain whether the contract has become impossible to perform and whether the doctrine of frustration of contract could be made applicable to such a contract.

Posted in May.

Joint Development Arrangement (JDA) has always been a bone of contention between the assessee and the tax department. The dispute lies in measuring the correct amount of tax both under Direct and Indirect Taxes. Hence it has always been an area of litigation. But inspite of this fact, JDA is the most common and popular form of arrangement for constructing properties in our Country. It is a preferable form both to the developer and to the Land owner. In this write up the author has tried to put a broad concept of taxability of JDA under Income Tax law and GST law.

Joint Development Agreement –Meaning & Benefits

There is no specific definition of the term ‘Joint Development’ prescribed under the law. But generally in a JDA, a landowner contributes his land for the construction of a real estate project and developer undertakes the responsibility for the development of property, obtaining approvals, performing legal formalities and marketing the project. The landowner enters into an agreement and gives a General Power of Attorney to the developer, assigning him duty to obtain the mandatory approvals from various authorities and allows the developer to enter the land and do all necessary things for undertaking the construction. It will also give the Developer the rights to sell and register agreed portions of land with respective undivided shares by way of flats to other buyers. When the construction is completed, the landowner is handed over flats allocated to his share which he will normally keep for personal use or may even rent out or sell outright to the buyers.

The landlord may also get his share at a specified percentage of the sale consideration of the entire project as and when actual collection from customers made. Sometimes the developer would give a lump sum amount to the landowner as refundable security deposit on entering into JDA.

The key benefits arising out of JDA are:

  • Huge investment for purchasing land is saved/minimized by the Developer.

  • Payment of stamp duty is avoided for transfer of land.

  • Lucrative offer / consideration for the landlord.

  • Speedy construction of property by the developer.

‘Joint Development’ should not be understood as ‘Joint Venture’ because both the terms are quite different having different meaning, areas of operation, taxability etc.

Taxability under the Income Tax Law

The income arising to the developer under a JDA, in the form of sale consideration of his share in the developed property is considered as his Business Income and is taxed as per the applicable provisions. On the other hand, the amount received by the landowner either as a percentage of the sales consideration or as a percentage of the built up area in the developed property is considered as Capital Gain in his hands. But this calculation of Capital Gain is the most controversial part where consideration is in the form of built up area. JDA model is generally challenged by the assessing officers due to the lack of clarity in respect of point of taxation in the hands of landowner and the determination of the amount of taxable consideration received by the landowner.

Taxability of JDA entered till 31.03.2017 (AY 2017-18):

Prior to 01.04.2017, capital gain was chargeable to tax under the provisions of section 45 of the Income Tax Act, 1961 in the year in which the transfer take place except in certain cases. The definition of ‘transfer’ u/s 2(47) (v), inter alia, includes any arrangement or transaction whereby any rights are handed over in execution of part performance of contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) even though the legal right has not been transferred. In such a case, execution of Joint Development Agreement between the owner of immovable property and the developer triggered the capital gain tax liability in the hands of the owner in the year in which the agreement is entered into and the possession of immovable property is handed over to the developer for development of a project. The taxing authorities consider this as the point of time u/s 45(1) at which the landlord was supposed to pay the Capital Gain tax as against the fact that the landlord, in real, never received any consideration at that point of time. Contrary to that, the actual receipts or consideration starts accruing only after the property starts developing or developed. So the taxable event was never triggered merely on signing of the agreement. So it caused genuine hardship to the land owners to pay capital gain tax from his pocket in absence of realization of actual consideration. Not only this, the authorities determined fair market value of the project including land as deemed consideration u/s 50D for such transfer when the project is just on papers at the time of signing of JDA, with no real existence. The above provision of law as existed till 31.03.2017 was ambiguous and caused several litigations.

Taxability of JDA entered on or after 01.4.2017 (AY 2018-19)

But with the view to minimize the genuine hardship which the owner of land may face in paying capital gains, it was proposed in the Union Budget 2017 to insert a new sub section (5A) in section 45. The same was made effective from 01.04.2017 onwards i.e. from the F.Y. 2017-18 onwards. Let’s us understand the new provisions of section 45(5A) of the Income Tax Act’1961.

According to this new provision, the individuals/ HUF who enters registered Joint Development Agreement with the builder/developer are liable to capital gains in the year in which the certificate of completion for the whole or part of the project is issued by the competent authority. Therefore, the tax liability is postponed from the year of transfer of land to the year of completion of project. Further the Stamp Duty Value (SDV) of land or building or both, of the landowner’s share in the project, on the date of issue of said certificate, as increased by the consideration received in cash, if any, shall be deemed to be the full value of consideration.

However, in case where the landowner transfers his share in the project on or before the date of issue of said certificate, the capital gains shall be deemed to be the income of the previous year in which such transfer takes place. Also, the provision of section 45(5A) shall not be applicable in such cases and thus the recourse to other normal provisions of section 45 as applicable prior to insertion of new section has to be made. Also, consequential amendment in section 49 was made so as to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said provision of section 45(5A).

Thus the key points of the newly inserted sub -section 5A can be summarized as follows:

  • Applicable in respect of JDA entered on or after 01.04.2017.

  • Applicable only to the Individual and HUF assessees.

  • Land or building is held or treated as capital asset by the land owner.

  • Not applicable where entire sale consideration is received/receivable by landowner in monetary terms.

  • Applicable only where a registered agreement/deed is executed.

  • Not applicable where share is transferred before completion.

The author feels that though the liability of landowner in terms of the newly inserted sub-section is postponed till the completion of the project but still one has to be very careful in drafting the JDA. A small slip in drafting may give impression to the AO that there is a ‘transfer’ on the date of agreement itself as per section 2(47) read with section 53A of the Transfer of Property Act, 1882. So the various clauses of the agreement should be drafted as per the spirit of the law so that one may not unnecessarily interpret it to be ‘transfer’ within the four walls of section 2(47) as on the date of agreement itself.

Issues With Respect to New Section 45(5a):

  1. Why the Govt. has not extended the benefit of this section to the assessees other than the Individual and HUF?

This perhaps was an intentional move to not to extend the benefit of this section to assesses other than Individual & HUF. Generally JDA model is preferred by the Individuals & HUFs who apart from ownership of land do not possess any funds or expertise to construct. So they join hands with developer to get construction done. So that’s why the Govt. perhaps visualized the situation and that’s why extended benefit only to such petty assesses. Now, a question comes can’t it be considered as discrimination with other assesses like Partnership, AOP, LLP, Companies etc? If we see the entire Income Tax law there are various benefits extended by the Govt. only to a particular class of assesses. So it is absolutely the choice and policy of the Govt. to extend benefit to the desired class of assessees only. So this should not be considered as discrimination with other assessees.

  1. Whether the indexation will be given up to the date of Joint Development Agreement or to the date of completion certificate or to the date of registration of constructed flats?

According to the provision of section 45(5A), actual date of transfer of asset is not relevant for the purpose of computing capital gain. In such a situation, in the opinion of the author the period of holding should also be computed with reference to the date on which capital gain is chargeable to tax. So indexation should be considered upto the date of completion certificate accordingly.

  1. When will be the time limit to make investment u/s. 54 and 54F will be reckoned- From date of Joint Development Agreement or from the date of completion certificate?

The logical interpretation would be the date of transfer for claiming exemption and making investment as required under section 54/54F/54EC etc. should be taken to be the date on which capital gains is chargeable to tax as provided under section 45(5A). Taking such interpretation would avoid undue hardship in claiming exemptions under those sections. So the same should be reckoned from date of completion only.

  1. Whether reference to the valuation officer u/s 50C is permissible in case the SDV is higher than FMV?

Section 50C of Income Tax Act provides that in case stamp duty value is higher than fair market value of the asset, assessee may challenge and refer to valuation officer and in case fair market value assessed by valuation officer is less than the stamp duty value, the value assessed by valuation officer being fair market value shall be deemed to be the full value of consideration for computing capital gain. But if we read section 45(5A), no such stipulation is provided therein. So does it mean that reference to section 50C is not possible?

Since Section 50C is a legal fiction and its area and scope are confined to what is stated in the provision. Therefore, this provision can be invoked only when there is a transfer of land or building or both. Its operation cannot be extended to the other assessees or to other properties or to other circumstances than what is stated therein. It has also been held that Section 50C can be invoked if development rights are transferred along with the transfer of the land. What is to be seen is that there is a registered transfer deed. The additional rights given would not make any difference. So long as condition laid down under section 50C. i.e. instrument of transfer is registered in respect of the immovable property other events or additional transfer or rights or liabilities would be in consequential [Arif Akhatar Hussain v. ITO [2011] 45 SOT 257/(Mum]

  1. Whether capital gain on entire land shall be attracted in the year in which certificate of completion for even part of the project is issued or in such a situation capital gains on land should be attracted on proportionate basis in the ratio of the land utilized for the part of the project for which certificate of completion has been issued?

As per the provision of section 45(5A), capital gain is chargeable to tax even when certificate of completion is issued for part of the project. But in the above stated scenario, the logical and reasonable interpretation would suggest that the capital gain should be attracted on proportionate basis in the ratio of the land utilized for the part of the project for which certificate of completion has been issued.

  1. In case agricultural land, not covered within the definition of capital asset u/s 2(14) is contributed for joint development – Whether capital gain liability shall be attracted?

The nature of agricultural land in such a case is to be seen as on the date of transfer of land by landowner to the developer. In case land transferred by land owner to the developer was rural agricultural land in terms of section 2(14) of the Act at the time of transfer of land, it is not a capital asset. In the case of transfer of rural agricultural land, there is no transfer of capital asset by land owner. Provision of section 45(5A) is applicable when there is transfer of capital asset. Therefore, in such a case there should not arise any capital gain tax liability in the hands of the land owner.

  1. Whether section 45(5A) can be applied retrospectively?

This section was made applicable from A.Y. 2018-19 onwards only which leave no room of doubt that it would be applicable prospectively only from the said assessment year. But if one looks at the object of this section as explained in Finance Bill 2017 it seeks to minimize the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer. So it is basically a beneficial or curative provision which seeks to eliminate hardship faced. So one can interpret that such a provision should be applied retrospectively only. Reliance can be placed on the decision of Hon’ble Supreme Court in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 (SC) and CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 (SC).

However, the Hon’ble ITAT Hyderabad Bench ‘B’ in case of Adhinarayana Reddy Kummeta v. Assistant Commissioner of Income Tax, Circle-11(1), Hyderabad [2018] 91 360 (Hyderabad-Trib.) held that section 45(5A) being substantive provision cannot be applied to the development agreement entered into earlier, in which section 2(47)(v) would certainly get attracted.

Provision of TDS introduced w.e.f. 01.04.2017 for JDA:

A new section 194IC has been inserted whereby deduction of tax at source (TDS) @ 10% is made applicable by the developer on any monetary consideration paid/payable to the resident individual /HUF landowner. Further no threshold limit is provided meaning thereby it is applicable irrespective of quantum of payment.

So the above discussed provisions are presently governing JDA arrangements under the Income Tax Act.

Taxability under the GST Law

Under a Joint development agreement, the land owner normally transfers development right or permits activities on his land and developer/builder in turn construct the building on the land owned by landowner. In consideration, the builder gives certain built up area or flats as agreed upon to the land owner and the remaining area or flats is to be sold by the builder to the buyers. The landowner may keep his share of built up area or flats for own use or he may also sale such area or flats to the buyers. So this type of arrangement has got the following limbs:

  1. Transfer of development right from landowner to the builder.

  2. Service provided by builder to landowner in the form of transfer of constructed area or flats in lieu of land development right given.

  3. Sale of under construction area or flats to the ultimate buyer by the builder.

  4. Sale of under construction area or flat by the landowner to the buyer out of his own share.

Before discussing the GST impact on the above transactions (i) to (iv) let us first understand the provision of law for the sake of clarity.

Under the GST, the term ‘supply’ is defined u/s 7 in a very wide term which also includes barter/ exchange of goods or services whereas the term ‘services’ is defined to be anything other than goods. Further, entry no. 5 of Schedule III of the CGST Act, 2017, excludes sale of land from the scope of supply. There is still a debate regarding taxability of transfer of development rights under JDA, as to whether the same are liable to GST or not. The argument advanced is that the transfer of development right is as good as sale of immovable property and thus should be out of the GST purview. However, time and again the Govt. has clarified its intention and made it clear through notifications/ FAQs etc. that the transfer of development rights from the landowner to a developer is a taxable service. Further the same was also clarified by AAR Maharashtra Ruling in the case of Vilas Chandanmal Gandhi dt. 15.01.2020 and also by the AAR Karnataka in the case of Maarq Spaces Pvt. Ltd. (order no. KAR ADRG/199/2019).

The GST provision in respect of real estate sector has undergone a sea change w.e.f. 01.04.2019 onwards. Prior to 01.04.2019 there were higher rates of tax and further lack of clarity in respect of some areas. So in order to get a clear idea of the taxability we have divided our discussion into two parts viz: taxability prior to 01.04.2019 and taxability after 01.04.2019.

Taxability of JDA under GST upto 31.03.2019:

GST on Land owner

Liability to pay tax –

The land owner is liable to charge 18% GST on supply of development rights. [S.No. 16(iii) of Notification No. 11/2017-CT(R) dt. 28.06.2017]

In cases where land owner further sales his share of constructed area or flats allotted by builder and he receives any amount as advance from the prospective buyers during the construction stage then landlord will be liable to pay GST on it. No GST applicable if entire consideration is received after completion construction or the time of supply falls after completion of project.

The landowner is also entitled to ITC on the construction services rendered by the developer to him.

Time of supply-

Liability to pay tax shall arise at the time when the said builder, transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument. [Notification No. 4/2018-CT(R) dt. 25.01.2018]

In case of further sales of constructed area/flats the landowner will be liable to pay GST on receipt of advance /booking amount from the customers against sales as per provision of section 13.

Value of supply-

Value of TDR, shall be equal to the amount charged by the promoter for similar apartments from the independent buyers booked on the date that is nearest to the date on which such development rights or FSI is transferred by the land owner to the promoter.

As against sales of constructed area/flats the actual sales value realizable from buyers as per transaction value will be the value of supply.

GST on Developer/ Builder

Liability to pay tax-

The builder is required to charge GST on supply of flats @12% (18% less 1/3 value of land).

ITC on tax paid to land owner on supply of TDR & other ITC on materials etc. consumed is available.

However, No GST is required to be charged where the entire consideration is received completion of the project.

Time of supply-

At the time of raising bill or receipt of advance as per section 13. [Notification No. 4/2018 C.T.(R) 25.01.2018]

Value of supply-

Sale Value of the project (Including transfer of flats against development rights to Land Owner at a value similar to the last booking)

Let us take an example:

Total Sale Value of the project

= 30 Crore

Share of Land owner’s value

= 12 Crore

Other sales to buyers

= 18 Crore

ITC on materials claimed by builder

= 1 Crore

Assumed: Area/Flats are sold before completion

GST liability of the Landowner

= On 12 Crore @ 18%

= 2.16 Crore

GST liability of the Builder

= On 30 Crore @ 12%

= 3.60 Crore

Less: ITC available:


Paid to Landowner

= 2.16 Crore


Other ITC

= 1.00 Crore

3.16 Crore

Net Liability of the Builder


=0.44 Crore

TDR in between 01.07.2017 to 31.03.2019 but actual allotment after 31.03.2019

In case where the Development rights are supplied by the Landowner to the Builder, under an area/flat sharing arrangement between 01.07.2017 and 31.03.2019, but the allotment of constructed area in an ongoing project is made by the Builder to the Landowner on or after 01.04.2019, Tax liability on service by way of transfer of development rights prior to 01.04.2019 is required to be discharged in terms of Notification No. 4/2018-CentralTax (Rate) dated 5.01.2018 i.e in the old manner only.

Taxability of JDA under GST w.e.f. 01.04.2019:

GST on Land owner

Liability to pay tax –

GST is though applicable on supply of development rights, but w.e.f. 01.04.2019 the responsibility to pay tax is no more in the hands of land owner rather it is shifted to builder under reverse charge mechanism (RCM). It is immaterial whether the landowner is registered under GST or not. So it can be construed that transfer of development right is not taxable in the hands of landowner w.e.f. 01.04.2019. [Notification No. 13/2017-CT (R) dt. 28.06.2017 as amended by Notification No. 05/2019-Central Tax (Rate)] Dated: 29th March, 2019]

In cases where land owner further sales his share of constructed area or flats allotted by builder and he receives any amount as advance from the prospective buyers during the construction stage then landlord will be liable to pay GST on it. No GST applicable if such sales are made or entire consideration is received after completion of construction.

Rate of tax –

In case of further sales of area/flats by the landowner he will be liable to pay tax @ 1% or 5% depending on the nature of the residential apartments viz: affordable or non-affordable category. However, if the developer opted for existing system of 8%/12% then landowner has also to opt for the same. (Refer FAQs dated: 14.05.2019). Further he is also entitled to claim ITC charged by the builder in both the situation (old rates and new rates) on the consideration value against transfer of development right in land.

Time of supply-

Landowner will be liable to pay GST on receipt of advance /booking amount from the customers against sales as per provisions of section 13.

Value of supply-

The actual sales value realizable from buyers as transaction value will be the value of supply.

Further the landowner is also entitled to ITC on the construction services rendered by the developer subject to the condition that he pays output tax not less than the amount charged by the developer.

GST on Developer/ Builder

Liability to pay tax /Rate of Tax-

New GST rates (1% and 5% without ITC) effective from 01-04-2019 are applicable to construction of residential apartments in a project which commences on or after 01-04-2019. [Notification No. 03/2019-Central Tax (Rate) 29/03/2019]

1% GST — It is applicable on Affordable housing project.

5% GST — It is applicable on project in which the carpet area of the commercial apartments is not more than 15 % of the total carpet area of all the apartments in the project.

The new tax rates shall be available subject to following conditions,-

(a) Input tax credit shall not be available and GST liability to be discharged in cash only,

(b) 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums), electricity, high speed diesel, motor spirit, natural gas) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis u/s 9(4). However, Tax on Cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates only.

Reverse Charge on TDR-

Supply of TDR or FSI or long term lease of land used for the construction of residential apartments in a project that are booked before issue of completion certificate or first occupation is exempt vide S.N. 41A of notification number 12/2017-CT(Rate) dated 28.06.2017.

Supply of TDR or FSI or long term lease of land, on such value which is proportionate to construction of residential apartments that remain un-booked on the date of issue of completion certificate or first occupation, would attract GST at the rate of 18%, but the amount of tax shall be limited to 1% or 5% of value of apartment (un-booked) depending upon whether the residential apartments for which such TDR or FSI is used, in the affordable residential apartment category or in other than affordable residential apartment.

TDR or FSI or long term lease of land used for construction of commercial apartments shall attract GST of 18%. However, the same has to be paid by the builder on reverse charge basis u/s 9(3). [S. No. 16(iii) of Notification No. 11/2017-CT(R) dt. 28.06.2017 as confirmed by AAR Maharashtra Ruling in the case of Vilas Chandanmal Gandhi dt. 15.01.2020]

Thus builder is liable to pay GST @18% on TDR or floor space index supplied on or after 01-04-2019 on reverse charge basis and can take ITC thereof.

Time of supply-

The liability to pay GST on development rights shall arise on the date of completion or first occupation of the project, whichever is earlier. Therefore, builder shall be liable to pay tax on reverse charge basis, on supply of TDR on or after 01-04-2019, which is attributable to the residential apartments that remain un-booked on the date of issuance of completion certificate, or first occupation of the project. The same is applicable both in case of monetary and non-monetary consideration given for residential complex.

However, liability to pay tax shall arise immediately if such FSI is relatable to construction of commercial apartments. [Press Release 07/05/2019]

In case of sales of constructed area/flats to the buyer by the builder, the time of supply shall be time of sale or receipt of advance against such sale.

Value of supply-

Value of TDR, shall be equal to the amount charged by the builder for similar apartments from the independent buyers booked on the date that is nearest to the date on which such development rights or FSI is transferred by the land owner to the builder. [Press Release 07/05/2019]

In case of sales of constructed area /flats to buyers the actual sale price of flats to the buyers as transaction value will be the value of supply.

Let us take an example:

Total Sale Value of the non-affordable residential project

= 30 Crore

Share of Land owner’s value

= 12 Crore

Other sales to buyers

= 18 Crore

Case-I: Project booked/sold before completion

GST liability of the Landowner

= NIL ( RCM on builder, if at all applicable)

GST liability of the Builder:


On Sales value of Project ( including value of area/flats given to landowner)

30 Crore @ 5%

=1.50 Crore

On TDR under RCM

NIL (as the project is sold/booked fully before completion)

Case-II: Project booked/sold after completion

GST liability of the Landowner

= NIL ( RCM on builder is applicable)

GST liability of the Builder:


On Sales value of Project (including value of area/flats given to landowner)

NIL since it sold after completion only

On TDR on unsold area /flats under RCM

18 Crore @ 18%

= 3.24 Crore

But it will not exceed 5% of the un-booked value of the project

18 Crore @ 5%

= 0.90 Crore

Therefore liability of builder under RCM


= 0.90 Crore

Issues Under GST:

  1. Whether transfer of rights in land/TDR really liable to GST?

It is a settled legal position that the word ‘land’ not just includes full title in land but also rights which gives benefits associated with it. [Sunil Siddharthbhai v. CIT [1985] SC 156 ITR 509/23 Taxman 1] TDR under JDA is also neither ‘lease’ not ‘license’ as mentioned in the scope of supply u/s 7 and Entry sl. 2(a) of Schedule-II. License is a permission to use the land without the right to exclusive possession. Lease means allowing right to enjoy the immovable property for a specified period. So TDR is not a lease transaction because it is a right to develop a land.

As per general clauses Act, 1897 section 3(26) defines -immovable property -shall include land and benefit arises out of land. So TDR is nothing but rights arising out of land and thus an Immovable property. Under the erstwhile law of Service Tax the same was not also made liable to tax by the various judicial authorities on the ground that TDR is nothing but a benefit arising out of land. [DLF Commercial Projects 2019 (27) GSTL 712 (Tri. Chan.)]

The author feels that TDR is an immovable property inasmuch as TDR is connected with land and it is a benefit arising out of land. [Chheda Housing Development Corporation (Bombay HC)]. But unfortunately the Govt. has considered TDR as a service under GST law and collecting tax on it. [NN- 04/2018 and AAR ruling in case of Vilas Chandanmal Gandhi and AAR Karnataka in the case of Maarq Spaces Pvt. Ltd.] However, once this matter will come under judicial scrutiny there would be further clarity on this matter whether it actually a service or an immovable property.

  1. Whether JDA entered under GST regime prior to 25.01.2018 are liable to tax under GST?

Govt. has notified its intention to tax landowners and developers vide notification no. 04/2018 w.e.f 25.01.2018 only. Prior to that there was no specific mention of such persons and services by them in the CGST Act whereby they were liable to pay tax under JDA. So prior to 25.01.2018 neither the taxable person notified nor the valuation mechanism of the services prescribed. So one may argue that prior to 25.01.2018 there was never the intention of Govt. to tax JDA transactions. So in this scenario can there be a levy at all? At the same time there may be a counter argument that levy was already there, residuary entry was always there in the law and valuation mechanism u/s 15 read with rule 27 to 31 were in force. So tax was always leviable within the four walls of the law.

But the author believes that if the taxable person and valuation mechanism were already there in the law prior to 25.01.2018 then what necessitated the Govt. to notify it again w.e.f. 25.01.2018? Further one may be wrong to read a gazette notification issued by the Govt. as clarificatory in nature. So the conclusion we draw is that the taxable person and valuation mechanism was never prescribed in the law earlier. A levy must specify taxable person and measure or value on which the rate will be applied for computing the tax liability. If it is missing or not clearly and definitely ascertainable it is difficult to say that the levy exists. Any uncertainty or vagueness in the legislative scheme of defining measure or value will lead the levy fatal to its validity. [Govind Saran Ganga Saran v. CST (1985) 155 ITR 144 (SC)]

So the author is of the opinion this is a litigation prone area and who knows Govt. may introduce retrospective legislation to cover up the gap. So before taking final call one should first obtain a legal opinion and then assess the case in terms of cost-benefit –analysis.

  1. Whether 1/3rd deemed deduction on account of value of land as envisaged in rate notification 03/2019-CT (R) is enough? Is it Compulsory to follow the same?

The Govt. has made it clear in the rate notification itself that the value of land would be considered equivalent to 1/3rd of the total value only. Therefore the original rates of 18%/12% prior to 01.04.2019 and new rates w.e.f. 01.04.2019 1.5%/7.5% reduced to the effective rate of 12%/8% and 1%/5% respectively i.e after allowing 1/3rd deduction towards land. This standard deduction is applicable to all the cities across the Country irrespective of the actual price of land prevailing in each locality. But in real life the position is totally different. The value of land is not same across the Country. It varies from place to place. In big cities like Mumbai, Delhi, Kolkata etc. where land is scarce the prices of land are rocket high. So in such a situation the value of land would be quite high and it is illogical to allow only 1/3rd value for land. So by no means it is enough rather it should be in inverse ratio only.

Any deeming fiction cannot prescribe a value which is higher than actual value or value as determined under section 15 of the CGST Act. It is a settled legal position that rule or notification cannot override the provisions of Act. [UOI v. Jalyan Udyog – Para 34 – 1993 (68) ELT 9 (SC)] The instant notification is going beyond the provision of section 15 which is legally not permissible. The same is already under challenge in different High Courts of the Country.

  1. Whether valuation of flats/area given by the developer to the landowner against TDR on the basis of value of similar flats is correct?

In JDA, the landowner transfers development rights to the developer and developers in turns undertake to construct and give specified agreed constructed area on free of cost basis to landowner. Though the para 2 & 2A of the notification 11/2017 CT(R) (as amended by NN 03/2019) prescribes that the amount charged for value of similar apartment to the independent buyer to be the value of construction service rendered by the developer to the landlord. But such value appears to be excessive and unreasonable. This is because open market value of similar flats includes value of land also. Further the land on which construction activity done by the developer and transferred to the landowner is already owned by landlord only. So the value of construction services in such cases will not resemble the value of construction of flats given ‘free’. It is also pertinent to mention here that developer generally recovers the value of land from the actual buyer who pays him. The value of land is apportioned to the saleable flats /area only not to flats/area given free to landowner. Also, the developer incurs huge marketing and other expenses which are recovered from buyers of flat/area only. So naturally the price charged to the buyer will be much higher than the actual cost of construction service rendered to the landowner. So the deduction of only 1/3rd on account of value of land in such a scenario leads to exorbitant value of such services. The author feels rather valuation in such cases should either be after deducting actual value of land or on the basis of cost of construction plus 10% thereon as prescribed in rule 30 of the CGST Rules, 2017.

  1. Is it correct to first include value of land while making valuation and then allow only 1/3rd deemed deduction from total value on account of land?

In many parts of the Country there is a practice to have separate registry for land and separate for Constructed flat. So in such cases often a problem of valuation arises. In case of Kara Property Ventures LLP the AAR Tamilnadu [2019] 103 279 the assessee entered into two separate agreements –one for sale of proportionate share of undivided land and other for construction of complex service to the buyer whereby two separate consideration was charged from the buyer. So a question was raised regarding the measure of tax. The AAR held that both the agreements are co-existent and co-terminus and shall run concurrently; each agreement cannot be terminated without terminating the other., it is a single supply which is squarely covered under Entry No. 5(b) of Schedule II of the Central Goods and Services Tax Act making this transaction a supply of service as ‘Construction of a Complex’ and thus held that the GST is leviable on 2/3rd of the total value of both the agreements.

Similar views were expressed in case of Sanjeev Sharma [2018] 93 494 (AAR – New Delhi) wherein the authority hold that GST would be payable on two-third of the total amount consisting of amount charged for transfer of land or undivided share of land, as the case may be, and whole of the consideration charged for the supply of goods and services.

But with due respect to the AAR, the author begs to differ here. Land being an immovable property and a State specific matter has already been kept out of constitutional framework as well as GST law. So there is no GST on the Land. So once the valuation is done including the value of land and thereafter only 1/3rd (which is much less than the actual value of land) of such value is deducted implies that a lion’s share on account of value of land is still included in the valuation and tax is being collected on such value. So indirectly Govt. is charging GST on supply of land also. It is a settled position that what is not permissible directly the Govt. cannot do it indirectly also. [Acer India Ltd. 2004 (172) E.L.T. 289 (S.C.) Approved in 2018 (360) ELT 769 (Supreme Court)]. Also, article 265 of the Constitution of India provides that no tax can be collected without the authority of the law. So prima-facie it appears wrong to collect tax indirectly on the value of land as well.

If the fair value of land is ascertainable and easily available from revenue /circle offices or the Stamp Duty Value is determinable or the value thereof is also recorded in the books of the assessee then such value should only be allowed as deduction. If the same is not available then only the standard deduction should be made applicable. It is worthwhile to refer that the Apex Court in case of Gannon Dunkerley & Co. and Ors. v. State of Rajasthan and Ors. (1983) 1 SCC 364: (1993) 88 STC 204 prescribed similar mechanism to ascertain the value of deemed sales of goods liable to tax under a works contract. The deductions for labour and other services are to be made from total contract value for determining value of goods sold for levy of tax. So accordingly the Hon’ble Apex Court has laid down certain deductions and if the same are maintained and ascertainable from the records of the assessee then the same has to be deducted to derive the taxable value. Therefore deriving force from the above judgment of Apex Court the author is of the opinion that under GST also 1/3rd deduction for land should be optional and applicable to only those cases where actual value thereof is not ascertainable.

  1. What will be the nature of services rendered by the developer to the landowner under JDA and how it would be valued?

In case of JDA arrangement the developer is basically rendering construction service only without transfer of land. So in such case it should be purely a ‘Works Contract’ service. But the notification issued by the Govt. recognizes such service as ‘Construction of Complex Service’ only which in the opinion of the author is not justifiable inasmuch as the developer is doing only works contract of the nature of composite supply of goods and services only. Further the landowner is already owner of the land on which such construction is undertaken by the developer. Hence it should only be a ‘works contract’ service. So once it is considered as works contract service then again its valuation should not be done in the manner laid down in para 2A of the notification 03/2019. Rather appropriate valuation in such cases should be as per rule 30 of CGST rules i.e cost plus 10% only.

  1. Whether valuation mechanism as introduced by the rate notification (NN-11/2017 -28.06.2017 as amended by NN-04/2019 – 29.03.2019) is legally valid?

As we know that section 15 of the CGST is the governing section for valuations under GST. So in order to answer this question it becomes important to first understand the provision of section 15(5) of the CGST Act, 2017 which reads as:

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.

Now, if we read the opening para of said notification it is revealed that the notification was issued in exercise of powers conferred under various sections which, inter-alia, includes sub-section 5 of section 15 of the CGST Act also. So apparently it seems that the said notification is issued under the authority of the law. The same was also discussed in case of Sanjeev Sharma [2018] 93 494 (AAR – New Delhi) wherein in para-26 the Ld. Authority concluded that the said notification has been issued under Section 15(5) of the CGST Act, 2017 by the Government on the recommendation of the GST Council and hence, no separate Rule was required to be issued. Hence, Paragraph 2 of the Notification No. 11/2017- Central Tax (Rate) dated 28-06-2017 is fully authorized by Section 15(5) of the CGST Act, 2017 to provide machinery provisions to ascertain the value of land for exclusion and to measures the value of supply of goods and services for levy of GST.

But if we read section 15(5) again as reproduced above we find the word ‘prescribed’ is used therein. Further the law has got a very specific meaning of word ‘prescribed’ under section 2(87) which read as:-

(87) “prescribed” means prescribed by rules made under this Act on the recommendations of the Council”

So it is clear that any valuation mechanism under sub-section 5 of section 15 has to be prescribed through rules only. A rate notification will not substitute rules under the law. It is a settled legal position that where a statute requires doing certain thing in a certain way, the thing must be done in that way or not at all. Other methods or mode of performance are impliedly and necessarily forbidden. When the law provides that something is to be prescribed in the Rules then that thing must be prescribed in the Rules to make the provisions workable and constitutionally valid. [Voltas Ltd 2007 (7) STR 106 (SC)]

Similar matter was also questioned in Service Tax regime to the Hon’ble Delhi High Court in case of Suresh Kumar Bansal, W.P.(C) 2235/2011 dated: 03.06.2016 wherein the Hon’ble Court held that the abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure of tax, that is, the value of services which are charged to service tax.

Interestingly, the AAR in case of Sanjeev Sharma as discussed above has distinguished the judgment of Suresh Kumar Bansal on the ground that in GST, the machinery provisions to ascertain the value of land is available in the notification which has been issued under sub-section (5) of section 15 regarding value of taxable supply. The said Notification has been issued under section 15(5) by the Government on the recommendation of the GST Council and hence, no separate Rule was required to be issued. Hence, paragraph 2 of the Notification No. 11/2017- Central Tax (Rate), dated 28-6-2017 is fully authorized by section 15(5) to provide machinery provisions to ascertain the value of land for exclusion and to measures the value of supply of goods and services for levy of GST. The AAR also held that the said machinery provisions cannot be equated with exemption Notification issued under section 93(1) of the Finance Act, 1994 which were held to be insufficient by the Hon’ble High Court.

But the Ld. AAR has neither discussed nor pressed upon the meaning of the word ‘Prescribed’ anywhere in the ruling. So without discussing this provision the logic explained by the AAR seems to be perverse. Had it been examined then there it would have been certainly an interesting scenario.

  1. Is it compulsory to follow the new taxing structure i.e. without claiming ITC for the new projects commenced on or after 01.04.2019?

The author is of the opinion that whenever a statue prescribes rate of tax on an item with certain conditions then in such cases the same should be optional only. In other words those who are willing to fulfill those conditions are subject to such rate of tax. Otherwise there is always a residuary entry and tax can be paid under such entry and input is also not denied once conditions u/s 16 is fulfilled. The Govt. in 23rd GST Council meeting on 10th November, 2017 has decided to cut rate of tax on restaurants and accordingly changed the tax rate for all stand alone restaurants whereby a uniform rate of 5% is kept without input tax credit. This matter was challenged in Gujrat High Court and recently the Hon’ble Court has issued notice to the Centre seeking to know why the option of input tax credit under goods and services tax (GST) regime is not available for restaurants, unlike others. W.e.f.01.04.2019 the real estate sector is also feeling the heat of new tax rates without ITC in residential projects. So a question arises what happens if one fails to fulfill conditions of new rate notification? There may be an argument that the provision whereby the right of the petitioner is restricted is introduced by virtue of a notification and is not prescribed by the rules is not correct. So why not one pay tax under residuary entry and avail ITC? The author finds some force in this argument. But again it should not be followed blindly rather based on cost-benefit analysis with proper legal opinion.

  1. What will be the taxability of TDR on the new projects on or after 01.04.2019 which are not intended for sale?

The notification number 04/2019 CT-(R), 05/2019 CT-(R) & 06/2019 CT(R) are applicable in case of projects meant for sale only. So it means that these notifications are not going to be applicable for a project which is not intended for sale. Also, such projects would be out of the purview of RERA and builder in such case would not be termed as ‘Promoter’. So what will be the position for taxability of TDR? Whether it will be under Forward Charge Mechanism or Reverse Charge Mechanism (RCM)? The author opines that since RCM is applicable only on the projects meant for sale whereby developer-promoter is liable to pay. Thus in case of a project which are not meant for sale the liability of landowner under Forward Charge Mechanism will continue to operate is similar manner as existed prior to 01.04.2019.

  1. Whether development of Plots from land and sale of such plots is taxable under GST?

Activity of purchase of land and selling such land by converting in to integrated residential sub plots of varying sizes under name of “Bliss Homes” with basic facilities is liable to GST. [020 (4) TMI 633-Authority For Advance Ruling Gujarat- In Re: M/S. Satyaja Infratech]

In case of MAARQ Spaces (P.) Ltd., [2019] 111 368 (AAR – KARNATAKA) applicant has entered into a joint development agreement with landowners for development of land into residential layout and cost of development shall be borne by applicant. The revenue accruing from sale of plots is shared in ratio of 75 per cent for landowners and 25 per cent for applicant. It was held that activities undertaken by applicant amount to supply of service to landowners and taxable value of supply in terms of rule 31 (residuary rules using reasonable means consistent with the principles and the general provisions of section 15) is equal to total amount received by applicant.

If we look at the definition of Real Estate Project (under section 2(zn) of RERA Act) the activity of development of land into plots is included therein. Further GST law also recognizes this definition under RERA for the purpose of taxing Real Estate Projects. So this definition perhaps might be attracting the attention of the authorities in taxing sale of under construction plots.

The Hon’ble Apex Court in case of A. V Fernandez v. State Of Kerala, AIR 1957 SC 657 while explaining interpretation of taxation provisions, made the observations that tax can be charged only if the activity sought to be taxed falls squarely within the taxing entry. A tax cannot be imposed by presumption, but must be imposed only as per the specific language of the taxing entry.

The development of land into Plots and thereafter sales of such Plot should not be liable to tax inasmuch as when land per se is out of the purview of GST (under SCH-III neither supply of goods nor services) so how can there be a question of taxing plots? When plots are sold, they very much possess all the characteristics of land. Merely development of land into plot will not change the character of the land. The same will remain immovable property always and known as plot of land only in common parlance. So it would be out of the purview of GST. The only taxable transaction in such cases will be the value of construction services/works contract service. So the sale of plot should not be subject to tax.

  1. Can developer pre-pone his liability on construction services rendered to landowner under JDA to enable landowner to claim ITC?

Under the new scheme of taxation of real estate w.e.f. 01.04.2019 the landowner is entitled to claim ITC on the construction services rendered by developer to him. However, the same is subject to fulfillment of some conditions. Further the time of supply of such services by developer to the landowner will be on the issuance of completion certificate or first occupation whichever is earlier. But by that time the landowner might have sold his share of flats/constructed area and discharged his liability by paying in cash to the Govt. account. So the input tax as mentioned in the bill of the developer is not going to help him and would be useless rather become cost only. Further refund of ITC is also not eligible u/s 54 in such cases. So this creates a big problem for the landowner and thus a question comes can developer pre-pone his liability on the construction services rendered to the landowner? In view of the author in such cases the legal and operational harmony necessitates that both the parties can mutually decide to pre-pone developer’s liability by intimating to their jurisdictional officer. So by this way the landowner can adjust the input tax charged by the developer with his output tax liability on the sale of under construction flats. There is no bar in the CGST Act, 2017 for harmonizing the provision of time of supply in such cases.

  1. Is TDR taxable when landowner gets construction on its individual /ancestral land for its own use (without any business) under JDA?

Sometimes landowner may get construction done for his own use for the purpose of his residence and agrees to share a potion of constructed area with the developer also under a JDA model. In such case there is never an intention on the part of the landowner to sale his share of the constructed area. So in such a situation whether TDR is taxable? The author believes that TDR in such cases should not be taxable because the same was never with an intention to do business or in the course of furtherance of any business by the landlord. So the conditions of section 7 are not wholly satisfied and thus there should not be supply. Also there will never be a business or profit motive in such transactions. But one may also argue that the definition of ‘Business’ under section 2(17) is very wide and it includes any trade, commerce, manufacture, profession, vacation, adventure, or any other similar activity whether or not it is for a pecuniary benefit irrespective of the volume, frequency, continuity or regularity of such activity or transaction. Therefore, the activity of transfer of development rights by a land owner, whether an individual or not, to a promoter is a supply of service subject to GST.

But again, the author has different argument that when the Govt. has already clarified in the year 2017 itself that sale of old jewellery and private used vehicles will not be considered as supply because the same are not in furtherance of business. So why not the same principle is applicable for exchange of TDR services with construction services? Does it mean that there will be separate principles applicable to goods and separate to services? The author apprehends taxability in such cases. However, disputes in such cases can still be mitigated by way of drafting the JDA agreement very carefully so that unnecessarily the same is not interpreted as in furtherance of business or supply.

  1. Whether exempted inward supply would be included in the value of supply from unregistered person while calculating 80% threshold?

If we see the answer to question no. 18 of the FAQs released by the Govt. on 14.05.2019 it has been clarified that value of such exempted supplies needs to be included in the value of supply of goods or services received from unregistered person for the purpose of calculating 80% threshold. It implies that the developer needs to pay tax on such exempted goods or services @18% under RCM if there is shortfall. Further no input of such payment made under RCM is entitled to the developer. So here a question arises that can Govt. charge tax on exempted goods or services under RCM? There may be an argument that section 9(4) prior to its amendment was referring ‘….supply of taxable goods or services or both…..’ but after amendment w.e.f. 01.02.2019 the new wordings are ‘… respect of supply of specified categories of goods or services or both…..’. So there is no such stipulation in the amended section 9(4) to tax only taxable supplies of goods or services or both. But the author believes that when a supply per se is exempted then how the same can be taxed even under RCM? We all know that the Govt. can exempt goods or services or both in the public interest etc. by exercising powers conferred u/s 11 of the CGST Act. Further section 11 has got overriding effect over section 9. So when a particular class of goods or services is exempted u/s 11 why it would at all taxable u/s 9(4)? It would be absolutely without the authority of law and violation of article 265 to demand tax even under RCM on exempted goods or services or both. So the answer given in the FAQs is also beyond one’s understanding.

  1. When would a project be considered as ‘Completed’ or ‘First Occupied’?

The explanation to entry 5(b) of Schedule –II has prescribed the meaning of ‘Competent authority’ who can issue Completion certificate or Occupation certificate. It provides that in cases where completion certificate is not issued by any Governmental Authority, the certificate issued by an architect or a chartered engineer or a licensed surveyor shall be regarded as the completion certificate and hence the date of issuance of such certificate is to be considered. It is thus a State/ Municipal Board/ Local Authority specific matter and each State/UT has got its own law for issuance of such certificate. But in real life situation it takes years to get completion certificate from Governmental authority even where actual completion of the project completed long back. By that time the apartments are occupied by owners and inhabited by them. So in such a situation in absence of Government certificate it really becomes difficult to determine the exact date when the project was completed or first occupied. The developer issues possession letters usually only after receiving ‘completion certificate’ from the Architect/Engineer. Hence date of ‘first occupation’ will be only after the date of issuance of ‘completion certificate’. Thus it will be the date of issuance of the “completion certificate” which will be the relevant date to determine the taxability of the units. If it is available or issued by Govt. authority (wherever applicable) then there is no dispute. But the difficulty arises in determining actual first occupancy. One should also not misunderstand date of handing over possession as date of first occupancy. The Hon’ble Delhi High Court in case of K. Industries v. Mohan Investments and Properties Private Limited (Suit No. 507 of 1984) held that where ‘first occupation’ takes place before the issuance of ‘completion certificate’ especially when such certificate is required to be issued by the Governmental Authority. In such cases the date of first occupation will be the relevant date even if the occupation is granted in violation of other laws.

So here again a question arises -when will one assume ‘first occupation’?

The author is of the opinion that occupancy generally takes place in an apartment which has provision for civic infrastructure such as water, sanitation and electricity. So once such amenities are stared operating in a building and the owner actually occupies the apartment it can safely be presumed that it is occupied. The documents available with builder like Lift License, Fire NOC etc. along with other documents like Sale deed, Electric Bill, Telephone Bill and Water bill etc with owners may be relevant to determine date of first occupation in such cases.


The above discussion reveals that both the laws were earlier recognizing date of agreement /deed/conveyance as the date of transfer of property in development rights. It was the biggest problem for the assessees as well as tax dept. and causing litigations after litigations. However, the Govt. has made efforts from time to time to streamline, synchronize and simplify the law. Further various definitions and provisions under GST law are also linked to RERA Act 2016. It is evident from the fact that the point of taxation and taxable value under IT & GST laws are now more or less synchronized.

Both the laws are quite similar inasmuch as having various contentious issues. Each law has got its own inherent limitations. Under the Income Tax law, the retrospective amendments was a unique feature in past. Now, GST law seems to have adopted the same path. GST law has its peculiar problem of governing everything through notifications only. Further the contrary AARs under GST are also making life more difficult. Whereas on the other hand Income Tax law has also left certain questions unanswered in the newly inserted section 45(5A). In such a situation the assessees and professionals are in a big dilemma as what to suggest and whom to follow. The author feels that where a notification issued by the Govt. is patently in violation of the settled legal principles or in contradiction of the provisions of the Act then one may safely follow the provision of Act only. But the difficulty arises in a situation where it is not practical to follow such impugned notifications. This will lead to litigations. The author firmly believes
that strong judicial system of our country will certainly take care of such vires & challenges.

Disclaimer: The above expressed views are purely the personal views of the author. The possibility of other views on the subject matter cannot be ruled out. So the readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The author is not responsible in anyway.

Posted in May.


During the financial year 2019-20, the country witnessed two Finance Bills due to the election for the Central Government. Firstly, the earlier NDA government had brought out a limited Budget, in what is technically known as “The Vote on Account”, wherein it introduced a small Finance Act, 2019. After the conclusion of the General Election, the newly elected government presented the full-fledged budget, wherein it enacted the Finance (No. 2) Act, 2019 which contained several amendments to the Income Tax Act, 1961. Further, in December 2019, The Taxation Laws (Amendment) Act, 2019 was enacted which amended certain provisions introduced vide the Finance (No. 2) Act, 2019. The present article examines the amendments made by both the Finance Acts and also by the above referred Amendment Act, in so far as they are relevant for the purpose of filing the return of income for A.Y. 2020-21.


  1. Individuals, HUFs, Association of Persons, Body of Individuals, Artificial Jurisdictional Person.

Tax Slab and rates:


Individuals (Age < 60 years), HUFs, AOP, BOI Or AJP

Senior Citizen Individuals

Super Senior Citizens Individuals

Upto ₹ 2,50,000/-


Upto ₹ 3,00,000/-


₹ 2,50,001/- to
₹ 5,00,000/-


₹ 3,00,001/- to
₹ 5,00,000/-


Upto ₹ 5,00,000/-


₹ 5,00,001/- to
₹ 10,00,000/-




Above ₹ 10,00,000/-




 Rebate u/s. 87A for a Resident Individual:

If the total income of a resident individual does not exceed ₹ 5,00,000/- then such individual shall be allowed deduction from the income tax payable of upto ₹ 12,500/- or the amount of tax payable, whichever is lower.

 Rate of Surcharge to be applied on the amount of Income Tax:


Total Income


Surcharge on income
other than :

– Capital Gains taxable u/s. 111A, 112A &115AD(1)(b)

– Income taxable u/s.115BBE

Exceeds ₹ 50 Lakhs but less than ₹ 1 Crore


Exceeds ₹ 1 Crore but less than ₹ 2 Crore


Exceeds ₹ 2 Crore but less than ₹ 5 Crore


Exceeds ₹ 5 Crore

37% *

Surcharge (on Income chargeable u/s. 115BBE)

Any Sum


*Note: The enhanced surcharge of 25% & 37%, as the case may be, is not levied, on income chargeable to tax u/s. 111A, 112A and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.

 The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge

  1. Co-operative societies.

Total Income

Rate of Tax

Surcharge & Cess

Upto ₹ 10,000/-


Surcharge will be levied on the income tax @12% if total income exceeds Rs. 1Crore

₹ 10,001/- to ₹ 20,000/-


The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge

exceeds ₹ 20,000/-


  1. Partnership Firms, LLP and Local Authority

Flat rate of tax @ 30% of the total income. If total income exceeds ₹ 1 crore, then surcharge will be levied @ 12% on the amount of tax payable on total income.

The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge

  1. Companies

 Domestic Companies:

 Various Tax Options:


Important Conditions

Rate of Tax



The company is set up and registered on or after 01/03/2016




The company is not exercising option u/s. 115BAA or 115BAB.



It is engaged in manufacture or production of any article or thing



It does not claim specified exemption, incentive or deduction.



Option to opt in for this section should be exercised by filing the declaration in Form No. 10-IB on or before the due date of filing Return of Income as specified in Section 139(1).



Once the option has been exercised under this section then it cannot be subsequently withdrawn for the same or any other assessment year, except for opting for section 115BAA.



Domestic company not opting for Section 115BA or Section 115BAB can opt for this Section.



It does not claim specified exemption, incentive or deduction.


Option to opt in for this section should be exercised by filing the declaration in Form No. 10-IC on or before the due date of filing Return of Income as specified in Section 139(1).


Once the option has been exercised under this section then it cannot be subsequently withdrawn for the same or any other assessment year.



The company is set up and registered on or after 01/10/2019.



The company is not exercising option u/s. 115BA or 115BAA.


It is engaged in manufacture or production of any article or thing and is not engaged in any other business.


It commences manufacturing on or before 31-03-2023


It is not formed by splitting up or reconstruction of existing business and does not use second hand machinery or plant and does not use a building previously used as a hotel or convention centre in respect of which deduction under section 80ID has been claimed and allowed.


It does not claim specified exemption, incentive or deduction.


Option to opt in for this Section should be exercised by filing the declaration in Form No. 10-ID on or before the due date of filing Return of Income as specified in Section 139(1).


Once the option has been exercised under this section then it cannot be subsequently withdrawn for the same or any other assessment year.


Where the total income includes income which is not derived or incidental to manufacturing or production of an article or thing and for which separate rate of tax in not specified then the rate of tax on such income shall be 22% on gross basis.



Where course of business between company opting for this section and any other person are so arranged that it produces to the company more than the ordinary profits, the assessing officer can re-compute the profit which may be reasonably deemed to have been derived therefrom. Rate of Tax on such excess income derived by assessing officer shall be 30%.



Rate of Tax in case of short term capital gain arising from transfer of capital asset on which depreciation is not allowable, will be 22% of such gains.

First Schedule to Finance Act

If total turnover or gross receipts during the financial year 2017-18 does not exceed ₹ 400 crore


First Schedule to Finance Act

Any other domestic company


 Surcharge on Income Tax:

Company covered by

Total Income


Upto  1Crore

Exceeds  1 Cr. but is Upto  10 Cr.

Exceeds  10 Cr

Section 115BA




Section 115BAA*




Section 115BAB*




Other Domestic company




(*) The rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB shall be flat 10%, except on that part of total income which is chargeable to tax u/s. 115BBE of the Income Tax Act, 1961, where the rate of surcharge is 25% of the income tax.)

 The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge

 Foreign Companies:

  • A foreign company is liable to pay tax at the rate of 40% of total income.

  • The rate of surcharge:

  • 2% If Total Income exceeds Rs. 1 Crore but is upto Rs. 10 Crore

  • 5% If Total Income exceeds Rs.10 Crore

  • The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge.


 MAT is not applicable in case of following Companies:

– A domestic company which has opted for Section 115BAA (22% Tax Rate)

– A domestic company which has opted for Section 115BAB (15% Tax Rate)

– Foreign company which is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or section 90A(1) and the assessee does not have a permanent establishment in India.

– Foreign company which is a resident of a country with which India does not have such an agreement and the assessee is not required to seek registration under any law for the time being in force relating to companies.

– Foreign companies whose total income consists solely of income referred to in Section 44B, Section 44BB, Section 44BBA or Section 44BBB.

– Income accruing or arising to a company from life insurance business as referred to in Section 115B

 Rate of MAT under Section 115JB is reduced from 18.5% to 15% by Taxation Laws (Amendment) Ordinance, 2019

 Rate of MAT under Section 115JB is 9% in case of Domestic Company located in International Financial Service Centre.


Rate of AMT is unchanged @ 18.5% on the adjusted total income. However, for the assessee located in International Financial Service Centre it shall be 9%. Further, if a person has exercised the option under section 115BAA, then AMT will not be leviable on him.


  1. Section 10(4C)

Section 10(4C) is inserted to provide that specified interest income shall be exempt if the following conditions are fulfilled:

(a) the interest is payable to a non-resident (including a foreign company);

(b) the interest is payable by any Indian company or business trust;

(c) the interest is payable in respect of monies borrowed from a source outside India;

(d) the borrowing is by way of issue of rupee denominated bond referred to in section 194LC(2)(ia); and

(e) the bond is issued between 17th September 2018 & 31st March 2019.

  1. Section 10(12A)

    Upto AY 2019-20 any payment from National Pension System (NPS) trust to an assessee on closure or opting out of scheme was exempt upto 40% of the amount payable to him. In order to enable the pensioners to have more disposable funds, the exemption limit of 40% is increased to 60% from AY 2020-21.

  2. Section 10(34A)

    Consequent to the amendment in section 115QA providing for taxation of buyback of listed shares, section 10(34A) has been amended w.e.f. 05.07.2019 to provide that the exemption shall be available to all buyback of shares including those listed on a recognized stock exchange.


  1. From AY 2020-21, the standard deduction from salary income, as provided in clause (ia) of Section 16 is increased from ₹ 40,000/- to ₹ 50,000/-.

  2. While calculating interest u/s. 234A, 234B and 234C the amount of Advance Tax, TDS/TCS, Relief u/s. 90,90A or 91, MAT & AMT credit is allowed to be reduced from the tax liability.

However, relief u/s. 89 was not allowed to be reduced form the amount of tax liability. From AY 2020-21, the said relief is also required to be reduced for calculating the amount on which interest u/s. 234A, 234B and 234C shall be determined. Similar amendment is also made in section 140A for calculation of self assessment tax payable before filing the return of income.


  1. Benefit of Self Occupied Property expanded: [Section 23(4)]

Upto AY 2019-20, as per Section 23(4) an assessee could claim only one residential house property as a self occupied property and accordingly it’s Annual Letting Value (ALV) was taken as Nil.

From A.Y. 2020-21 onwards, the benefit of self occupied property is expanded from one house property to two house properties. Hence, now an assessee who owns two or more than two residential house properties which are not let out, can claim any two of such properties as self occupied properties and accordingly for both of those properties the ALV will be considered as NIL.

However, it is important to note that the threshold limit of deduction of Rs. 2,00,000/- as specified in second proviso to section 24(b); for the amount of interest, on capital borrowed for acquisition, construction, repair, renewal or reconstruction of self occupied property is not changed. In short, the combined overall threshold limit for claiming interest u/s. 24(b) for self occupied properties will be Rs. 2,00,000/- only, even though the ALV of two house properties is considered as NIL.

  1. Taxability of Property held as stock-in-trade.

Sub-section (5) was inserted in Section 23 vide Finance Act, 2017 which provided that in case where property is held as stock-in-trade and the property or any part of the property was not let during the whole or any part of the previous year, Annual Letting Value (ALV) shall be taken as NIL for a period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.

Thus, no notional rent is chargeable to tax on such properties which were
held as stock-in-trade for a period upto one year form the end of financial Year
in which completion certificate from competent authority is received.

From A.Y. 2020-21 onwards, the benefit of non-taxability of notional rent for
a period upto one year in case of properties held as stock in trade is extended
to two years.


  1. Section 40(a)(i)

Finance (No. 2) Act, 2019 has inserted second proviso to section 40(a)(i) to provide that if payment is made to a non-resident without deduction of tax and the assessee is not deemed as assessee in default in terms of proviso to section 201(1), then it is deemed that the assessee has deducted and paid the tax on date of furnishing of return by non-resident. Similar provision was already existing under section 40(a)(ia) for payments to resident.

  1. Section 43B:

From A.Y. 2020-21 onwards, deduction in respect of interest payable on loans taken from deposit taking non banking financial company or non- deposit taking non banking financial company having total assets of not less than five hundred crore rupees as per the last audited balance sheet, will be allowable only on actual payment basis. In other words, if such interest for a financial year remains unpaid till the due date of filing return of income under section 139(1), the same shall not be allowed as deduction in that year.

  1. Presumptive Taxation u/s. 44AD:

Upto AY 2019-20, an eligible assessee could declare 6% as profit rate u/s. 44AD in respect of the amount of total turnover or gross receipts which was received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

From AY 2020-21 onwards, an assessee can declare the same 6% profit rate even on turnover or receipts through other digitalized mode of money transmission. Notification No. 8 of 2020 dated 29/01/2020 provides for following additional electronic modes:

  1. Credit Card

  2. Debit Card

  3. Net Banking

  4. IMPS

  5. UPI

  6. RTGS

  7. NEFT

  8. BHIM Aadhar Pay.

There is a similar amendment in section 35AD, 40A(3), 43(1), 43CA, 50C, 56(2)(x) and 80JJAA, where there is a requirement of payment through banking channels, the above notified modes of payments will also meet the requirements of these sections.


Deduction u/s. 54 of Long Term Capital Gains on Sale of Residential House Property.

Deduction under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. This benefit is available only to an individual or HUF. The benefit can be claimed by purchasing or by constructing a residential house within a specified period. Upto AY 2019-20, the benefit of deduction u/s. 54 against the capital gain was restricted to the investment made in only one residential house in India.

From A.Y. 2020-21 onwards, the benefit of section 54 is extended, at the option of the assessee, to investment made in two residential house properties. However, this benefit can be availed only if the amount of such long term capital gains does not exceed ₹ 2,00,00,000/-. Further, if the assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year. In other words, this benefit of deduction for investment in two residential houses can be availed of only once in the lifetime of an assessee.

  1. Section 54GB:

Section 54GB provides for exemption from capital gain arising on sale of a residential house; in case the net consideration arising from sale of a residential property made upto 31.3.2019 is invested in start-ups.

Amendment is made in the section to cover within its ambit cases where the property is sold upto 31.03.2021 (from 31.03.2019).

Thus, a person who has sold specified asset during Financial Year 2019-20 can also avail the deduction under this section in his return of income of AY 2020-21.

Further the requirement of holding more than fifty per cent share capital or voting rights in the eligible company is reduced to twenty five per cent.


Section 79 provides that in case of a closely held company, carry forward and set-off of loss is allowable only if on the last day of the previous year in which the loss is sought to be set off, the shares of the company carrying not less than 51% of voting power are beneficially held by the persons who beneficially held the shares of the company carrying not less than 51% of the voting power on the last day of the previous year in which the loss was incurred.

Finance Act, 2017 had amended Section 79 for eligible start-ups wherein it was provided that the loss would be allowed to be carry forward only if:

  1. “all the shareholders” who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year (when loss is intended to be set-off)


  1. loss is incurred during the period of seven years beginning from the year of incorporation.

The implication of this amendment was that, if the eligible start-up failed to fulfill the new condition, the carry forward and set-off of loss will be denied even when the 1st condition of retaining 51% of beneficial ownership shareholder was fulfilled.

Finance (No. 2) Act, 2019 has now amended section 79 to provide that in case of an eligible start-up, carry forward & set-off of loss would be allowed if either of the two conditions are satisfied namely:

  1. On the last day of the previous year in which the loss is sought to be set off, the shares of the company carrying not less than 51% of voting power are beneficially held by the persons who beneficially held the shares of the company carrying not less than 51% of the voting power on the last day of the previous year in which the loss was incurred.

  2. All the shareholders who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year (when loss is intended to be set-off) and loss is incurred during the period of seven years beginning from the year of incorporation. Thus, there is no bar for admitting new share holders by fresh issue of shares and diluting the stake of existing shareholders below 51%.


  1. Section 80C:

Central Government employees can now avail deduction u/s 80C also on contribution to Tire-II account of pension scheme referred to in section 80CCD, if the same is for a fixed period of not less than 3 years.

  1. Section 80CCD:

Deduction u/s. 80CCD(2) is allowed in respect of employer’s contribution to the account of employee under the National Pension Scheme upto 10% of his salary.

From A.Y. 2020-21 onwards, the amount of deduction in respect of employer’s contribution for an assessee who is employee of Central Government is enhanced from 10% of the salary to 14% of the salary.

  1. Section 80EEA:

From AY 2020-21 onwards, an individual assessee who is not claiming deduction u/s.80EE can claim deduction of upto  1,50,000/- u/s. 80EEA in respect of interest payable on loan borrowed by him from any financial institution for the purpose of acquisition of a residential house property, subject to fulfillment of following conditions:

1) Loan has been sanctioned during the financial year 2019-20,

2) the stamp duty value of house property does not exceed forty-five lakh rupees;

3) assessee does not own any residential house property on the date of sanction of loan.

Where deduction is claimed under this section for any interest, then no further deduction shall be allowed in respect of ‘such interest’ under any other provision of this Act [E.g. Section 24(b)]. However, in author’s opinion the term ‘such interest’ refers to only that part of total interest which is claimed under this section and hence the balance (if any) can be claimed u/s. 24(b), subject to threshold provided therein. Even the Hon’ble Finance Minister in her budget speech mentioned that the deduction u/s 80EEA will be over and above the deduction under section 24(b).

  1. Section 80EEB:

Deduction u/s. 80EEB of upto ₹ 1,50,000/- will be allowed to an individual for interest on loan borrowed for purchase of an electric vehicle provided that the sanction of loan must be between 01/04/2019 to 31/03/2023. Further, it is also provided that the said interest shall not be eligible for any other deduction under any other provision of this Act [E.g. Section 36(1)(iii)].

  1. Section 80-IBA:

The cut off date for approval of housing projects by the competent authority for being eligible to claim deduction under section 80-IBA is extended from 31.03.2019 to 31.03.2020.

Further. in respect of projects approved on or after 1st September, 2019, following modified conditions are introduced in order to avail benefit of deduction u/s. 80-IBA:

❖ The carpet area of residential units comprised in the housing project does not exceed the following area:

Sr. No.

Location of project

Carpet area of residential unit (in sq.mtrs.)


within the specified cities [Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)]

≤ 60


Any place other than specified cities

≤ 90

❖ The area of the plot of land on which the project is situated is as follows:

Sr. No.

Location of Project



within the specified cities (as listed above)

> 1000 sq. mtr.


Any place other than specified cities

> 2000 sq. mtr.

❖ The project is the only housing project on such plot of land as specified above table.

❖ The stamp duty value of a residential unit in the housing project does not exceed Rs. 45 lakhs.

❖ Where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual

❖ The project utilises the following percentage of permissible floor area under the rules to be made by the Central Government or the State Government or the local authority as the case may be:

Sr. No.

Location of project

Floor Area


within the specified cities

≥ 90% of permissible floor area ratio


Any place other specified cities

≥ 80% of permissible floor area ratio

❖ The assessee maintains separate books of account in respect of the housing project.

  1. Section 80LA

With the view to incentivize operation of units of International Financial Services Centre, section 80LA is amended so as to provide that the deduction shall be allowed at 100% for any 10 consecutive assessment years out of 15 years beginning with the year in which the necessary permission was obtained.


  1. The scope of Section 139(1) is expanded so as to make it mandatory for an assessee (not being a company or firm) who otherwise may not be liable to file Return of Income, if:

    1. such assessee has deposited an amount (or aggregate of amount) in excess of ₹ 1,00,00,000/- in one or more current account maintained with a banking company or a co-operative bank, or

    2. such assessee has incurred expenditure in excess of Rs. 2,00,000/- for himself or any other person for travel to a foreign country, or

    3. such assessee has incurred expenditure in excess of Rs. 1,00,000/- towards consumption of electricity, or

    4. such assessee fulfils such other conditions as may be prescribed.

  2. Further there were instances where assessee (being individual, huf, association of persons or body of individuals or artificial juridical person) earned huge capital gains on transfer of capital assets; however after claiming various deductions and exemption as provided in section 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB, their total income did not exceed the basic exemption limits and hence such assesses were not under any obligation to file their return of income.

    An amendment has been brought vide Finance (No.2) Act, 2019 applicable for returns filed for AY 2020-21 onwards, which provides that the persons in whose case, if the total income, before allowing the above mentioned deduction, exceeds the maximum amount not liable to tax, would also be required to file their return of income by the due date.

  3. In the wake of Covid-19 several measures have been taken to ease the compliance burden on taxpayers. One of the recent announcement made by Hon’ble Finance Minister in the Press Conference dated 13.05.2020 is extension of all the due dates for filing return of income as provided in Section 139 from the existing due date, as specified therein, to 30.11.2020. Further, the due date for furnishing Tax Audit Report is also proposed to be extended from 30.09.2020 to 31.10.2020.


The Finance (No.2) Act, 2019 has inserted a new clause (viii) in Section 9(1) to provide that any income arising outside India, being any sum of money referred to in Section 56(2)(x), paid on or after 05.07.2019 by a person resident in India to a non-resident, not being a company or to a foreign company shall be deemed to accrue or arise in India.

This provision sets at rest the controversy as to the place of accrual of income in the nature of monetary gifts received outside India by a non resident person from a resident person. Such gifts will be deemed to accrue or arise in India and accordingly will be taxed in the hands of the recipient non-resident.

Even after the above mentioned amendments, the taxability of such gifts shall also depend on the provisions of relevant Double Taxation Avoidance Agreement (DTAA). Hence, if the provisions of DTAA are more beneficial, then the non-resident person can choose to apply the provisions of DTAA.


As per Section 56(2)(viib) where a closely held company, receives, from a resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be considered as income under the head ‘Income Form Other Sources’.

However, the above provisions are not applicable in case of a ‘Start ups’ claiming exemption u/s. 80-IAC, provided they fulfill certain conditions specified in the notification issued by the Central Government. (Ref: Notification No. 127(E), dated 19th February, 2019)

Finance (No.2) Act, 2019 by inserting a proviso to Section 56(2)(viib) has provided that in case of violation of the conditions specified in the notification by such start-ups:

  1. Any consideration received for issue of share by such star-ups that exceeds the fair market value of such share shall be deemed to be the income for the previous year in which such non-compliance to the conditions specified in notification has taken place.

  2. It shall also be deemed that the company has under-reported the income in consequence of the misreporting referred to in section 270A(8) & 270A(9).


1) Apart from the existing eligibility conditions in order to file ITR-1 or ITR-4, following new conditions are inserted:

  1. In case where an assessee owns a house property in joint-ownership with two or more persons than he shall not be eligible to fill-up Form ITR-1 or Form ITR-4.

  2. An assessee cannot opt to File Form ITR-1 in case where he is required to file return of income on account of mandate provided in seventh proviso to Section 139(1) [refer circumstances enumerated in ‘Para IX (a)’, above.]

2) Following new reporting requirements are inserted in Form ITR-4 (SUGAM):

  1. In case if eligible assessee is required to file return on account of the circumstances provided in seventh proviso to Section 139(1), then, applicable clause is required to be selected.

  2. In schedule-BP it is now mandatory for the assessee who is opting for presumptive taxation u/s. 44AD, 44ADA and 44AE or where assessee is not required to maintain books of Accounts, to report the following particulars of cash and bank transaction relating to presumptive business:

– Opening balance

– Receipts during the previous year

– Payments / Withdrawals during the previous year

– Closing Balance


To quote Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789, which was re-printed in The Works of Benjamin Franklin, 1817:

“‘In this world nothing can be said to be certain, except death and taxes.”

Every year, we see a lot of amendments in the Income Tax Act and all the professionals need to keep themselves updated about the same in order ro discharge their professional duties with diligence. Hope, this article will be helpful to the readers to comprehend the recent amendments as applicable for filing the returns of income for A.Y. 2020-21.

Posted in May.
  1. All laws of India should pass the test of constitutional validity, that is, they are to be strictly within the constitutional framework. Now, there are many Articles/ provisions embodied in Constitution that every legislation has to conform with and violation of any of such provision will render such legislation as ultra vires to the Constitution and, consequently, bad and illegal. Further, not only a legislation passed by the State but every subordinate laws, rules, procedure and action taken thereunder also have to obey such constitutional mandate.

  2. One of the important mandates in the Constitution is grant of certain fundamental rights to the citizens of the country and every law passed by the legislature has to pass this acid test.

  3. Now, The Direct Tax Vivad se Vishwas Act, 2020 [“the VSV Scheme”] is, basically, an incentive scheme given to an assessee, to give him reprieve from the time, money and energy to be further consumed with respect to his pending appeal, etc. It is purely optional. As such, so far as the present scheme is concerned, the main Article under which constitutionality of the present scheme, or any provision thereunder, can be challenged, if at all, is Article 14 of the Constitution of India, which reads as under:

    “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”

    Of course, there may be other grounds that can be invoked to challenge constitutional validity of such legislation. Besides, the rules, notifications, circulars, instructions, forms, etc. issued under such legislation can also be challenged; either on the ground of excessive delegation or ultra vires to the main section / legislation.

  4. An important aspect to be kept in mind is that challenging constitutional validity of a law is very serious matter and it is not a quick-fix tool or a magic wand, which a citizen can rush to invoke for smallest pretext. The burden is very heavy on the person who alleges breach of a constitutional mandate and the presumption, to start with, is always in favour of constitutionality of the legislation under challenge. Especially in the matters of the legislations like the VSV Scheme, which are purely optional and are promulgated to achieve specific purposes, the challenge has to be on a very strong foundation.

  5. Now, this topic of constitutionality, even in the context of the IT Act, is very wide, which involves various nuances and complexities. Therefore, the limited purpose of this article will be served by referring to few judgments in the context of similar schemes of the past. The judgments are not only illuminating but self- explanatory.


    1. Special Bearer Bonds (Immunities and Exemptions) Act, 1981

      With a view to canalise the black money, the Central Government came up with the Scheme in which it gave option to invest unaccounted (black) money in the bonds issued under the said Act. The bond had face value of ten thousand rupees and redemption value, after ten years, was of twelve thousand rupees. A person investing in such bond was given immunity from adverse consequences under the tax laws.

(i) R. K. Garg v/s. UOI – [(1982) 133 ITR 239 (SC)]

On 12-1-1981, while both Houses of Parliament not being in session, the President of India issued the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 [‘the Ordinance’], in exercise of the power conferred upon him under Article 123 of the Constitution. The Ordinance was later replaced by the Act, namely, Special Bearer Bonds (Immunities and Exemptions) Act, 1981 on 27-3-1981 [‘the Act’], which received the assent of the President on 27-3-1981, but which was brought into force with retrospective effect from 12-1-1981, being the date of promulgation of the Ordinance. Before the Supreme Court,

– the said Ordinance was challenged on the ground that it was violative of Articles 14 and 123 of the Constitution

– the said Act was assailed on the ground that it was violative of Article 14.


– First ground had two limbs, one is that the Ordinance had the effect of amending the tax laws, it was outside the competence of the President under article 123 and other was that the Ordinance had the effect of amending the tax laws, it was outside the competence of the President under article 123 to issue the Ordinance by-passing the special procedure provided in articles 109 and 110 for the passing of a Money Bill.

– The Act passed is unconstitutional as it offends against morality by according to dishonest assessees who have evaded payment of tax, immunities and exemptions which are denied to honest taxpayers. Those who have broken the law and deprived the State of its legitimate dues are given benefits and concessions placing them at an advantage over those who have observed the law and paid the taxes due from them and this is clearly immoral and unwarranted by the Constitution.


{The arguments and the decision regarding Article 123 are not reproduced, as the issues not relevant for this article.}

– Article 14 does not forbid reasonable classification of persons, objects and transactions by the Legislature for the purpose of attaining specific ends. What is necessary in order to pass the test of permissible classification under Article 14 is that the classification must not be “arbitrary, artificial or evasive” but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature.

– While considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule that, there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the Legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation.

– It is true that certain immunities and exemptions are granted to the persons investing their unaccounted money in purchase of special bearer bonds but that is an inducement which has to be offered for unearthing black money. Those who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exemptions and it must necessarily be left to the Legislature to decide what immunities and exemptions would be sufficient for the purpose. It would be outside the province of the court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the court would be least fitted to pronounce.

– Moreover, as already pointed out above, the trial and error method is inherent in every legislative effort to deal with an obstinate social or economic issue and if it is found that any immunity or exemption granted under the Act is being utilised for tax evasion or avoidance not intended by the Legislature, the Act can always be amended and the abuse terminated.

– We are accordingly of the view that none of provisions of the Act is violative of Article 14 and its constitutional validity must be upheld.


    The VDIS was introduced to enable the assessees to declare the undisclosed income or assets or investments and after paying the prescribed taxes on such disclosure.

    (i) All India Federation of Tax Practitioners v/s. UOI – [(1997) 228 ITR 68 (Bom)]


    The All India Federation of Tax Practitioners and a practising advocate filed this petition for a declaration that sections 64 to 78 of the Finance Act, 1997 {Voluntary Disclosure of Income Scheme, 1997} are non est, void, unconstitutional and ultra vires in entirety, with a further prayer that the Respondents [Union of India and others] be directed not to implement the same.


– The honest tax-payers, who had paid the tax all throughout, were at a discount and the dishonest taxpayers were given undue benefits and much more immunities by the present enactment. The honest taxpayer has paid tax as per the prevailing rate during previous years from 90 per cent to 40 per cent. As against this, a dishonest taxpayer is given full immunity and would be required to pay only 30 per cent.

– In the alternative, it was prayed that the Respondents be directed to treat all the normal and honest taxpayers on par with the declarants under the scheme in respect of the tax charged or chargeable to them and the amount of interest pertaining thereto and evolve a mechanism whereby the Respondents are compelled to refund the excess amount collected from the normal taxpayers during earlier years.


– It is true that various Expert Committees have suggested other measures for unearthing unaccounted money, viz., imposing deterrent punishment, establishing special Courts for dealing with tax-evaders by enacting special tax rules and suitable moral atmosphere in the society but, at present, it is an impossibility or in any case a long-term measure. This would not mean that the Parliament cannot take short-term measures to unearth unaccounted black money. It is a known fact that, at present, the atmosphere is not so healthy wherein dishonest tax-evaders would feel ashamed or would be reluctant to avoid legitimate payment of tax. In such an atmosphere, if the Parliament decides to enact law giving certain immunities as inducement for declaration of income to such tax-evaders, it cannot be said that it is palpably arbitrary.

– Other reasonable view also could be, stringent or deterrent laws alone may not be sufficient to deter such tax-evaders.


“4. In our view, there is much force in the contention of the learned counsel for the petitioners that, by such type of Schemes dishonest taxpayers get advantage. It is also true that the honest taxpayers suffer, but, at the same time, we have to consider well-established limitations under the Constitution to interfere in such matters. We have also to take into consideration the fact that, when the Parliament adopts a particular mode or method for unearthing unaccounted or black money and considers it to be efficacious, it would not be permissible for the Court while exercising jurisdiction under article 226 of the Constitution to substitute its own decision in place of the policy decision taken by the Parliament by enacting the Scheme. In our view, this course is not permissible. It is well-established law that, with regard to taxation matters and economic affairs, it is for the Executive and the Parliament to decide a suitable method and take policy decisions for the purpose of taxation. It is also established law that, with regard to policy matters, it is for the Parliament to enact appropriate law after taking into consideration various aspects.

  1. Some parties in person intervened and submitted that they are honest taxpayers; they are paying tax since years. If dishonest taxpayers, who have not paid tax since years, are given this advantage, the tax which they have paid be refunded or such benefit should not be given to dishonest tax-evaders. In our view, these are all arguments against such type of Voluntary Disclosure Scheme. In our view, all these contentions are known to the Legislature and, after knowing them, it has decided to introduce the Scheme. Apart from this aspect, in our view, the Court’s platform cannot be used for having a debate whether such Scheme would yield results. In no set of circumstances, this Court has jurisdiction to legislate and direct the refund of taxes paid by the honest taxpayers. It is true that honest tax payers have to pay some premium, but that cannot be helped. As against this, Mr. Daga, the learned counsel, who appeared on behalf of the interveners, submitted that such type of schemes are required to be introduced so as to unearth unaccounted or black money. As discussed above, in our view, it is for the Parliament to enact laws pertaining to tax law, giving benefits or immunity to tax- evaders or taxpayers, but it is not for the Court to evolve a scheme and direct the Parliament to enact such schemes on the basis of the view expressed by persons affected and to evolve any such Scheme.

  2. Keeping the aforesaid well-settled law in mind, it will be difficult for us to arrive at a conclusion that, as more benefits are given to tax-evaders, the provisions of the Scheme are arbitrary and violative of article 14. It is adopted by the Parliament after taking into consideration the economic and social conditions prevailing in the society.”

Affirmed by Supreme Court: All India Federation of Tax Practitioners vs. UOI – [1998] 231 ITR 24 (SC)]. Interestingly, the Court also took due note of the following assurance tendered by the Government, which is reproduced verbatim as under:

  1. “In this special leave petition filed against the judgment of the Bombay High Court in All India Federation of Tax Practitioners v. Union of India [1997] 228 ITR 68/ 93 Taxman 737 , the petitioners are seeking to challenge the validity of the Voluntary Disclosure of Income Scheme, 1997 (VDIS). The High Court in an elaborate judgment has dealt with the various submissions made assailing the constitutional validity of the Scheme. We are in agreement with the said view of the High Court.

  2. We have heard Shri Dinesh Vyas, the learned senior counsel appearing for the petitioners, in support of the special leave petition and the learned Attorney General of India for the Union of India. The learned Attorney-General has placed the following statement indicating the policy the Government is following and will be following in checking tax evasion and the said statement is reproduced as follows:

“1. After December 31, 1997, the Income-tax Department will considerably step up survey operations under section 133A of the Income-tax Act, 1961, and search operations under section 132 of the Income-tax Act, 1961.

2. According to Chapter XIV-B of the Income-tax Act as amended with effect from 1-1-1997, if in the course of a search undisclosed income is detected, then the assessee is liable to the following:

(i) tax at the rate of 60 per cent;

(ii) penalty which can be up to 300 per cent on the tax evaded;

(iii) interest under section 158BFA.

3. In addition, the Finance Minister has announced that in every case of detection of undisclosed income, prosecution will be launched. The relevant provisions are in Chapter XXII of the Income-tax Act.

4. Besides tightening up of legal provisions, the following steps have also been taken:

(i) Acceleration of the process of issuing Permanent Account Number (PAN);

(ii) Acceleration of the computerisation of the Income-tax Department;

(iii) Installation of software to detect the assessees who satisfy the criteria laid down under the proviso to section 139(1) of the Income-tax Act.

5. The Government is committed to making a success of the VDIS, 97 for fulfilling the objectives set by the Government in the Finance Minister’s Budget Speech. We also wish to emphasise that section 72 of the VDIS, 97 guarantees complete confidentiality in respect of declarations.”

  1. Taking into consideration the aforesaid statement made by the learned Attorney General, we are not inclined to interfere with the impugned judgment of the High Court. The special leave petition is, therefore, dismissed.”


    The Scheme was introduced with the intention to reduce the litigation in direct and indirect taxes. The assessees, whose appeals were pending before any appellate authority and had ‘tax arrear’ due, were eligible for filing the declaration under the Scheme. The declarant was liable to pay the disputed tax computed according to the Scheme and on acceptance of such declaration by the Department such case was settled and, consequently, immunity was provided from other consequential proceedings like penalty or prosecution, etc.

    (i) All India Federation of Tax Practitioners v/s. UOI – [(1998) 236 ITR 1 (Del)]


The Petitioner challenged the Constitutional validity of Kar Vivad Samadhan Scheme, 1998 on following two aspects:

(a) The benefit being given only to the person who had some pending ‘tax arrear’ that is, the amount of tax, penalty or interest (direct tax) or duty (indirect tax) which is determined as on the 31.03.1998, as modified in consequence of giving effect to an appellate order, but remaining unpaid as on the date of declaration- thereby denying benefits of the scheme to diligent taxpayers who had honestly paid the full tax arrear / demand. (Section 87 (m) of KVSS)

(b) The scheme covered only assessee’s appeal and did not cover Departmental appeal. (Proviso to section 92 of the KVSS)


(a) Challenge to section 87 (m) of the Scheme

– The disputes pending before the appellate authorities or court may be resolved either in favour of the assessee or in favour of the revenue. This would result either in enforcing the recovery of balance outstanding tax demands or in refunds where taxes have been recovered more than what is determined on the final settlement of disputes. To accelerate the process of arriving at such outcome, the scheme has been brought into force but the denial to the person who has paid the entire tax to arrive at such an outcome is discriminatory under the Scheme.

(b) Challenge to Proviso of section 92 of the Scheme

– The inequality is glaring and obvious between two assessees having identical matter but situated at two different places. While the first assessee, who succeeded before any of the appellate authority that is CIT(A), ITAT or High Court and the Department carried forward the case to the higher appellate forum, is denied the benefit of the Scheme as per the proviso to section 92 of the Scheme, the other assessee, who did not succeed before any of the appellate authority and has carried the case to higher appellate forum, can file the declaration under the Scheme and is allowed to enjoy the immunities provided in the Scheme. This is unequal imposition of tax on the two assessees falling into same class.


– The classification between the persons who are having unaccounted money and honest taxpayers was held to be not unreasonable in All India Federation of Tax Practitioners vs. UOI (referred above) by the High Court of Bombay as the object sought to be achieved was unearthing unaccounted money by giving some inducement and immunities to such persons. The Bombay High Court decision has been upheld by the Supreme Court in All India Federation of Tax Practitioners vs. Union of India (referred above).

– In R. K. Garg vs. Union of India [1981] 4 SCC 675, their Lordships held that economic matters legislation cannot be struck down on account of crudities, inequities and even possibility of abuse. Immorality by itself cannot also be a ground of constitutional challenge unless the immorality be so seeking as to condemn the legislation as arbitrary or irrational and hence violative of Article 14.

– On challenge to section 87 (m), the Court held that the validity of classification has to be decided and judged in the light of the object sought to be achieved. The objective is two-fold. While judging the validity of the classification, both the limbs of the object are required to be kept in view. Allowing the benefit of the scheme to such litigating assessees from whom the revenue had succeeded in effecting recovery even by adopting coercive methods or by making adjustments would have been destructive of the very objective sought to be achieved. It is immaterial whether the tax was paid voluntarily by the assessee or realised involuntarily by the Department resorting to coercive means of recovery or by making adjustment; the fact remains that the assessee ceases to be in arrears. By giving benefit of the scheme to such class of assessees the revenue not stand to gain anything rather it stand to lose inasmuch as what had been realised would have to be refunded. Therefore, the basis of classification adopted by the scheme to this extent is guided by the objective sought to be achieved by the legislation and therefore could not be held to be arbitrary or unreasonable.

– On challenge to proviso to section 92, it was held that, no sub-classification can be made in the class of litigating assessees in arrears merely by reference to the fact whether they are prosecuting the litigation or defending themselves. Once a liability to pay the tax was incurred and determined on or before 31-3-1998, the assessee would be treated to be in arrears in spite of his having succeeded at one stage of litigation, if the revenue had chosen to continue with litigation and there is no reason why the benefit of the Scheme should be denied to him. To this extent, the scheme is discriminatory and violative of article 14. All the assessees litigating and in arrears belong to one class. Any attempt at carrying out further classes by reference to who is the prosecutor/appellant/applicant in the pending litigation is void as based on no intelligible differentia. It would be arbitrary irrational and evasive. It would have no rational relation to the object sought to be achieved by the Act. Keeping them in one class would enable the twin objective of legislation being achieved (i) the reduction of litigation, and (ii) the realisation of revenue.

– To sum up:

(1) The proviso to section 92 is ultra vires article 14 as it results into creating two artificial classes between the same class of assessees, i.e., the litigating assessees in arrears.

(2) the definition of ‘tax arrears’ was read down, and it was held that the clause (m) of section 87 should be so read as to mean the amount of tax, penalty or interest determined by any competent authority on or before 31-3-1998 though such determination might have been set aside at a later stage if such setting aside has not been accepted by the department and continues to remain under challenge before a Court or Tribunal.

(3) The rest of the Scheme is intra vires the Constitution.

(ii) UOI v/s. Nitdip Textile Processors (P.) Ltd. – [(2011) 245 CTR 241 (SC)]


The High Court, vide its impugned judgment and order dated 25-7-2005, had declared that section 87 (m) (ii) (b) of the Finance (No. 2) Act, 1998 was violative of Article 14 of the Constitution of India insofar as it sought to deny the benefit of the ‘Kar Vivad Samadhana Scheme, 1998 to those who were in arrears of duties, etc., as on 31-3-1998 but to whom the notices were issued after 31-3-1998. The High Court further had struck down the expression ‘on or before the 31st day of March 1998’ under section 87 (m) (ii) (b) as ultra vires of the Constitution of India and, in particular, Article 14, on the ground that the said expression prescribes a cut-off date which arbitrarily excludes certain category of persons from availing the benefits under the Scheme.


An assessee can claim benefits under the Scheme only when his tax arrears are determined and outstanding, or a show-cause notice has been issued to him, prior to or on 31.3.1998 in terms of Section 87 (m) (ii) (a) and (b) of the Act. The determination of the arrears can be arrived at by way of adjudication or by issuance of the show-cause notice to the assessee. The present Scheme is statutory in character and its provision should be interpreted strictly and those who do not fulfil the conditions of eligibility contained in the Scheme are not allowed to avail the benefit under the Scheme.


The classification of assessees on the basis of date of issuance of show-cause notice or Demand Notice is unreasonable and has no nexus with the purpose of the legislation. All the assessees who are in arrears of tax on or before 31.3.1998 formed one class but further classification among them just on the basis of issuance of show-cause notice is arbitrary and unreasonable.


– The object and purpose of the Scheme is to minimize the litigation and to realize the arrears of tax by way of settlement in an expeditious manner.

– Further, the object of the Scheme and its application to Customs and Central Excise cases involving arrears of taxes has been explained in detail by the Trade Notice No. 74/98 dated 17-8-1998 issued by the Commissioner of Central Excise and Customs. In view of the aforementioned Trade Notice, it is clear that the object of the Scheme with reference to indirect tax arrears is to bring down the litigation and to realize the arrears which are considered due and locked up in various disputes. This Scheme is mutually beneficial as it benefits the revenue department to realize the duties, cess, fine, penalty or interest assessed but not paid in an expeditious manner and offers assessee to pay disputed liability at discounted rates and also afford immunity from prosecution. It is a settled law that the Trade Notice, even if it is issued by the revenue department of any one State, is binding on all the other departments with equal force all over the country. The Trade Notice guides the traders and business community in relation to their business as how to regulate it in accordance with the applicable laws or schemes.

– The Scheme defines the meaning of the expression ‘tax arrears’, in relation to indirect tax enactments. It would mean the determined amount of duties, as due and payable which would include drawback of duty, credit of duty or any amount representing duty, cesses, interest, fine or penalty determined. The legislation, by using its prerogative power, has restricted the dues of duties quantified and payable as on 31-3-1998 and remaining unpaid till a particular event has taken place, as envisaged under the Scheme. The definition is inclusive definition. It also envisages instances where a demand notice or show-cause notice issued under indirect tax enactment on or before 31-3-1998 but not complied with the demand made to be treated as tax arrears by legal fiction. Thus, legislation has carved out two categories of assesses, viz. where tax arrears are quantified but not paid, and where demand notice or show-cause notice issued but not paid. In both the circumstances, legislature has taken cut off date as on 31-3-1998. It cannot be disputed that the legislation has the power to classify but the only question that is required to be considered is whether such classification is proper. It is now well-settled by catena of decisions of the Supreme Court that a particular classification is proper if it is based on reason and not purely arbitrary, caprice or vindictive. On the other hand, while there must be a reason for the classification, the reason need not be good one, and it is immaterial that the statute is unjust. The test is not wisdom but good faith in the classification. It is too late in the day to contend otherwise. It is time and again observed by the Court that the Legislature has a broad discretion in the matter of classification. In taxation, ‘there is a broader power of classification than in some other exercises of legislation’. When the wisdom of the legislation while making classification is questioned, the role of the Courts is very much limited. It is not reviewable by the Courts unless palpably arbitrary. It is not the concern of the Courts whether the classification is the wisest or the best that could be made. However, a discriminatory tax cannot be sustained if the classification is wholly illusory.

– The Legislature, in its wisdom, has thought it fit to extend the benefit of the scheme to such of those assessees whose tax arrears are outstanding as on 31-3-1998, or who are issued with the demand or show-cause notice on or before 31-3-1998, though the time to file declaration for claiming the benefit is extended till 31-1-1999. The classification made by the Legislature appears to be reasonable for the reason that the Legislature has grouped two categories of assesses, namely, the assessees whose dues are quantified but not paid and the assessees who are issued with the demand notice and show-cause notice on or before a particular date, month and year. The Legislature has not extended this benefit to those persons who do not fall under this category or group. This position is made clear by section 88 of the Scheme which provides for settlement or tax payable under the Scheme by filing declaration after 1-9-1998 but on or before the 31-12-1998 in accordance with section 89 of the Scheme, which date was extended upto 31-1-1999. The distinction so made cannot be said to be arbitrary or illogical which has no nexus with the purpose of legislation. In determining whether classification is reasonable, regard must be had to the purpose for which legislation is designed. The legislation is based on a reasonable basis which is; firstly, the amount of duties, cesses, interest, fine or penalty must have been determined as on 31-3-1998 but not paid as on the date of declaration and, secondly, the date of issuance of demand or show-cause notice on or before 31-3-1998 which is not disputed but the duties remain unpaid on the date of filing of declaration. Therefore, the Scheme 1998 does not violate the equal protection clause where there is an essential difference and a real basis for the classification which is made. The mere fact that the line dividing the classes is placed at one point rather than another will not impair the validity of the classification.

– Article 14 does not prohibit reasonable classification of persons, objects and transactions by the Legislature for the purpose of attaining specific ends. To satisfy the test of permissible classification, it must not be ”arbitrary, artificial or evasive’ but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature. The taxation laws are not exception to the application of this principle of equality enshrined in Article 14.

(iii) Amit Hemendra Jhaveri vs. UOI – [(2016) 380 ITR 60 (Bom)]

In this case, the assessee filed three declarations dated 31-12-1998 under the KVSS to settle his disputes pending before the authorities. The Designated Authority rejected the declaration u/s. 95 (iii) on the ground that prosecution for offence under Chapter XVII of the Indian Penal Code had been launched against the assessee. Section 95 (iii) of the KVSS excluded various classes of persons from the benefit of the scheme. The assessee filed a writ petition challenging the constitutional validity of section 95 (iii).


– A common thread running through the assessee’s challenge to section 95 (iii) was that the classification made therein is not based on intelligible differentia and the differentia does not bear a rational relation to the objective / purpose of the legislation.


– The KVSS 1998 is a part of Finance Act, 1998 by which the Parliament has enacted the same with the object of settling the pending dispute between the assessee and the State. These pending disputes have resulted in large amount being blocked up in the resolution of the dispute. Therefore, KVSS 1998 seeks to settle litigation. In the process, the Parliament in its wisdom has sought to exclude certain categories of assessees as specified in Section 95 of the KVSS 1998 from the benefit of the Scheme of Settlement, including those involved in social-economic crimes. This classification of various classes of assessees not being entitled to the benefit of KVSS 1998 is founded on an intelligent differentia between those excluded from the benefit of KVSS 1998 and to those the benefit has been offered having a rational nexus to its object. Therefore Section 95 (iii) of KVSS 1998 does not fall foul of Article 14 of the Constitution of India.


– The Apex Court in the case of Sashi Laxman Kale v. Union of India [1990] 4 SCC 366 has held that the purpose or the object of the legislation can be found out by looking at the circumstances which prevail when the law was passed including the necessity of the law. It is, therefore, permissible to look at the statement of objects/ reasons while introducing the KVSS and also the historical facts and surrounding circumstances to ascertain the mischief sought to be remedied. In the instant case, the objective/purpose of the KVSS can be discerned from the speech of the Finance Minister while introducing the Finance Act, 1998 as set out by the Apex Court in the case of Union of India v. Nitdip Textiles Processors (P.) Ltd. [2011] 203 Taxman 1/15 59, the objective of the KVSS was to settle tax arrears in litigation at a substantial discount. This is so, because it was noticed that a large number of cases were pending at recovery stage. The scheme, therefore, was in substance a recovery scheme to put an end to all pending disputes between the revenue and the assessee, whether before the authority or before the Court.

– As regards the contention of the assessee that the ousting a person from the KVSS merely on the ground of the complaint filed in the Criminal Court alleging offence under IPC is arbitrary, it was held that, the Parliament in its wisdom did not desire to make the offer of settlement available to those under a shadow of culpability in respect of socio-economic offences. This wisdom of Parliament of excluding pending prosecution from the benefit of KVSS is not for the Court to question so long it does have a nexus to the object of the KVSS.

– As regards the contention of the assessee that the various categories listed out in section 95 (iii) are persons prosecuted under IPC, TADA, FERA, Prevention of Corruption Act, 1995, Narcotic Drugs and Psychotropic Substance Act, 1985 that has no nexus to the objective of collection of more revenue, it is to beheld that the object of the KVSS is to collect the revenue which is otherwise stuck up in disputes in respect of the persons who are not being prosecuted for the offences which are likely to be illegal/illicit income at the cost of the society. To extend the benefit of KVSS and to grant immunity to such persons from penalty and prosecution, in the view of the Parliament, is not justified / warranted. Further one must not lose sight of the fact that the benefit under the KVSS is a deviation from the strict application of tax laws.

– In any case, at the very highest, the grievance of the assessee appears to be that the classification is not proper and there is room for more classification by including into those categories listed in section 95 (iii), those who have been left out.

– The issue of under inclusion in tax litigation arose before the Supreme Court in the case of Murthy Match Works v. Asstt. Collector of Central Excise [1974] 4 SCC 428 for consideration. The challenge was that while issuing an exemption notification issued under the Central Excise Rule there was a failure to make further classification between larger and smaller manufacturers of match boxes. The Court held that it is a settled position that merely because there is a room for more classification, the provisions cannot be declared unconstitutional.

– In view of the above decision of the Supreme Court, it is not possible to declare section 95 (iii) void on the ground of under inclusion. The non-inclusion of others in the exclusionary section 95 (iii) will not render the classification done by the Parliament as arbitrary or violative of article 14 of the Constitution.

(iv) Micro Labs Ltd. vs. DCIT – [(1998) 231 ITR 934 (Karn)]

{Single Bench}


– There was a search in respect of the assessee and four others u/s. 132 on 10-9-1997 and in the course of search, some records pertaining to the assessee were seized and prohibitory orders were issued in regard to certain bank accounts and records. On the assessee seeking the benefit of the VDIS, the department took the stand that the same was not available to them on account of notices u/s. 132 and seizure of books of account in the assessee’s case. Feeling aggrieved by the stand of the department, the assessee, along with others, filed writ petitions challenging the constitutional validity of section 64 (2) (ii) of the Finance Act, 1997 and sought a declaration that Board’s Circulars to the extent to which they precluded them from availing of filing declaration under section 64(1) in the year of search or any earlier year were discriminatory, arbitrary and illegal and opposed to the Article 14 of the Constitution of India.

– Clause (ii) of sub-section (2) of section 64 read as hereunder:

“(2) Nothing contained in sub-section (1) shall apply in relation to—

(i) ******

(ii) the income in respect of the previous year in which a search under section 132 of the Income-tax Act was initiated or requisition under section 132A of the Income-tax Act was made, or survey under section 133A of the Income-tax Act was carried out or in respect of any earlier previous year.”

– The clause in the Bill corresponding to section 64(2)(ii) barred the benefit of the scheme to income in respect of the previous year in which a search under section 132 or requisition under section 132A was made, or in respect of any earlier previous years. The phrase ‘or survey under section 133A under the Income-tax Act’ was later inserted before the phrase ‘or in respect of any earlier previous year’. This led to a situation where a reference to the earlier previous years got attached to the survey operation though it could only refer to the current or specific year and not all earlier years. Both sections 132 and 132A refer to the special procedure for assessment of search cases involving a block of 10 previous years. The resulting anomaly was removed by the clarifications given by the CBDT.

– The CBDT clarified the matter while answering question Nos. 6 and 23 in Circular No. 754, dated 10-6-1997 and question Nos. 27, 35 and 36 in its Circular No. 755, dated 25-7-1997. While answering question No. 23 of Circular dated 10-6-1997 and question No. 27 under the Circular dated 25-7-1997, the CBDT clarified that a survey under section 133A or 133A(5) would bar a person from making a disclosure for the previous year in which the survey was carried out. While answering question No. 36 under Circular dated 25-7-1997, it was clarified that if survey operations were carried out on 30-9-1993, i.e., previous year 1993-94, no disclosure could be made for the assessment year 1994-95, but declarations of income could be made for the assessment year 1993-94 and earlier assessment years and declarations could also be made for the assessment year 1995-96 and subsequent assessment years. Referring to a search under section 132 (Question No. 35 of the Circular dated 25-7-1997), it was clarified that if a search was carried out between 30-3-1992 and 5-4-1992, section 64(2)(ii) would bar disclosure of income in respect of any previous year in which the search was initiated or in respect of any earlier previous year, and that disclosure could be made [except for the income/assets discovered or seized during the search referred to] in respect of the assessment year 1993-94 and subsequent years.


The grounds urged by the assessees were as follows:

(i) Section 64 (2) (ii) seeks to differentiate between persons who have been searched and persons who have not been searched. This has no rationale or nexus to the object sought to be achieved. Therefore, the provision is unconstitutional, being arbitrary and discriminatory. There is no fetter or discretion on the part of the Income-tax Department to pick and choose whomsoever it prefers to search. Regardless of the fact whether anything is found or not, such person’s eligibility to take benefit under the scheme is destroyed for ever. The power to search is an unfettered discretion vested in the hands of the officers and there are no constraints on the power. The discretion is absolute and unbridled. As such, such provision is arbitrary, discriminatory and opposed to Article 14 of Constitution of India. The classification of the persons who were searched under section 132 and forbidding them from availing the benefit of filing declarations under the Scheme is not based on any intelligible differentia, which distinguishes such persons from the rest and the differentia brought about has no rational effect on the objectives sought to be achieved and, therefore, the impugned provision is liable to be declared as unconstitutional.

(ii) Alternatively, the words “or in respect of earlier previous year” occurring immediately after the words “survey under section 133A of the Income-tax Act was carried out” in section 64 (2) (ii) of the Act merely qualify and apply to survey under section 133A of the Income-tax Act and not search under section 132 or requisition under section 132A. Consequently, clause (ii) of section 64 (2) should be read as prohibiting any person from availing the benefit of VDIS in respect of any year in which the search took place and not in respect of any earlier previous year or years. On the plain reading of section 64 (2) (ii), in case where search u/s 132 or requisition u/s 132A is carried out, such person is not eligible for the benefit of the Scheme only in respect of the income of the previous year of search but, in cases where survey is made as provided u/s 133A, such persons are not entitled to Scheme not only for the income of the previous year of the survey, but also in respect of any period earlier to previous year. However, the Circular issued by the CBDT, wherein it is clarified that in respect of such a case – that is, where search has taken place in any financial year – the persons cannot make a declaration in respect of income of any year prior to the previous year in which search has taken place runs counter to the plain reading of clause (ii) of subsection (2) of section 64 and, therefore, it must be held that even in cases where search has taken place as provided under section 132, such persons are entitled for the benefit of the Act in respect of the income of all the previous years, except for the year prior to the year of search.

If the provisions contained in clause (ii) of sub-section (2) of section 64 are to be understood as denying the benefit of the Scheme to such of those persons who fall under sections 132 and 132A of the 1961 Act in toto, i.e., in respect of the income of the previous year of the search, the same is the position even in respect of the cases which fall under section 133A and, under these circumstances, by means of the Circulars the persons who fall under section 133A cannot be picked up for preferential treatment while not picking up the cases falling under sections 132 and 132A for hostile discrimination. In other words, if the Circulars in question confine the disability, for the benefit of the Scheme, in respect of cases falling under section 133A only in respect of the income of the previous year of survey held under section 133A, there is absolutely no justification to deny the said benefit to the cases who fall under sections 132 and 132A, and to deprive them of the benefit of the Scheme in respect of the income for any year earlier to the previous year of search or requisition ;there being not much of difference between the object and the consequences provided under sections 132, 132A and 133A. , While such of those persons who fall under section 133A are made eligible for the benefit of the disclosure of income for any period earlier to the previous year of search, the persons, who fall under sections 132 and 132A are deprived of the benefit of the Scheme not only for the year of search, but also for the period earlier to the previous year of search. In view of this, if clause (ii) of sub-section (2) of section 64 is so understood in the light of the interpretation or clarification by the CBDT, the said provision is liable to be declared as unconstitutional as being violative of the rights guaranteed to the petitioners under Article 14.

(iii) There are no instructions that no raid or search be conducted during the period when the scheme is in vogue. The entire manner of conducting a search is left to the caprice of the officers without any fetters and with total discretion and the discretion exercised by them will have the effect of denying the benefit of application of the scheme to the persons who are searched. Merely because by a stroke of an accident, a person is searched after 1-7-1997, it does not make him different from any other person not searched in respect of the undisclosed income; an event that has already occurred in relation to both these persons independent of the search. In denying the persons, who have been searched under section 132 of the Income-tax Act, the application of VDIS provisions, clause (ii) of sub-section (2) to section 64 of the Finance Act, 1997 renders itself discriminatory, unreasonable and arbitrary. When time is given upto 31-12-1997 for income-tax assessees to declare the undisclosed income and in future to adopt the path of rectitude and civic responsibility, to deny the said benefit by conducting a search after 1-7-1997 is unreasonable and arbitrary. The scope and object of the VDI Scheme is to harness the black money for productive purposes. For the said purpose, time is available till 31-12-1997 to file declarations. The scheme came into force on 1-7-1997. It is, therefore, reasonable and logical that anything effected during this period should not take away the rights of the taxpayer to join the main stream along with the remaining assessees by declaring their undisclosed income, paying tax thereon and, therefore, to adopt the path of rectitude and civic responsibility. A person who has been searched after 1-7-1997 is no way different from a person who has not been searched in respect of an act done by them in not filing the return of income declaring their income fully. Any raid conducted after 1-7-1997 does not alter this position. Any search conducted before 1-7-1997 alone will prohibit an assessee from availing the benefit of VDI Scheme and any search done between 1-7-1997 and 31-12-1997 cannot impair the rights of the assessee to take benefit of the VDI Scheme.


– Sections 132, 132A and 133A are provided for three different things, and objects and purposes of the said three provisions are quite distinct and different. The survey carried out is not as stringent, or the consequences are not as serious as a search made under section 132 or the requisition made under section 132A. Therefore, in this background, if the Circulars have been issued, on grievance and on that basis, clause (ii) of sub-section (2) of section 64 cannot be declared as unconstitutional as being violative of the rights guaranteed to the petitioners under Article 14.

– The validity of clause (ii) of sub-section (2) of section 64 cannot be decided on the basis of the Circular issued by the CBDT in exercise of the power under section 119 of the Act and the constitutional validity of the said provision has to be independently understood and appreciated keeping in mind the parameters provided for declaring a statute as unconstitutional. The petitioners have neither place any material before this Court nor have shown on the basis of the well-settled legal principles that the provision under challenge is unconstitutional, except asserting that the provision is discriminatory.


“5. In the light of the rival contentions, the two questions that would arise for consideration are (i) whether clause (i) of sub-section (2) of section 64 requires to be declared as unconstitutional, (ii) whether the benefit of Circulars, dated 10-6-1997 and 25-7-1997 also should be extended to the petitioner as claimed.

  1. It is no doubt true that the benefit of the Scheme is extended to a class of people who undisputedly have evaded payment of tax. But, the persons, who do not suffer any disability as provided under sections 132, 132A and 133A, fall under a different category than those who suffer disability provided thereunder. Human experience shows that it is only in cases where there is huge evasion of tax liability, extreme steps of search and seizure, requisition or survey as provided under sections 132, 132A and 133A are resorted to. Further, in respect of those persons, who are falling under those categories, proceedings are already initiated and pending adjudication; and in that background, if a policy decision is taken and incorporated in clause (ii) of sub-section (2) of section 64, in my view, the said policy decision, which has been made as a law, cannot be struck down on the ground that it is violative of the rights guaranteed under article 14 to the petitioners. The persons, who have violated law with impunity, cannot be permitted to say that the impugned provision is violative of the rights guaranteed to them under Article 14 merely on the ground that there is another set of tax evaders who are given the benefit of the Scheme. In what manner and which type of tax evaders in public interest and in the interest of the state revenue, they should be given relief, is essentially for the State of decide. It is a matter of legislative policy. The Court cannot sit in judgment over such legislative policy.

– Further, it is also necessary to notice that the Scheme will be in operation till 31-12-1997. In that situation, if the object of the Scheme is to compel a large number of tax evaders to take the benefit of the Scheme, thereby to minimise the quantity of unaccounted money in the country and to secure huge money to the revenue, and in that situation, if a tax evader is exposed to the threat of search and seizure, requisition or survey as provided under sections 132, 132A and 133A and also the denial of the benefit of the Scheme, in my view, the provision contained in clause (ii) of sub-section (2) of section 64 is more in furtherance of achieving the object of the Scheme. In other words, such a provision would compel more and more persons to avail of the benefit of the Scheme at the earliest point of time than being exposed to the denial of the relief provided under the Scheme on account of search and seizure or requisition or survey as may be resorted to under sections 132, 132A and 133A

Therefore, in my considered view, the persons, who do not suffer the disability of search and seizure or requisition or survey under sections 132, 132A and 133A, fall under a different category than others and, therefore, the classification made is a reasonable classification. In the circumstances and in the background of the classification made, it must be held that it is reasonable classification and there is nexus and rationale with the object sought to be achieved. In a matter of taxing statutes and more particularly, when it relates to undisputedly conferring benefit on tax evaders, this Court must be very slow to interfere with the policy decision taken by the law makers, who have better information and better knowledge in the matter of collection of tax and impunity in which the tax evaders are trying to violate the taxing statute. Therefore, looked at from any point of view, I do not find any justification to hold clause (ii) of sub-section (2) of section 64 as unconstitutional in law.”

Affirmed in

Micro Labs Ltd. vs. DCIT – [(2001) 247 ITR 333 (Karn)]

{Division Bench}

The Single Judge, who heard the matter, dismissed the writ petitions as having no merit at the stage of admission. Aggrieved by the dismissal of their writ petitions, the aggrieved assessees [the appellants] filed writ appeals contending, that section 64 (2) (ii) discriminates between the persons who have been searched and the persons who have not been searched, that prohibition thereunder applies only to the year in which the search took place and not in respect of any earlier previous years and, that any search done between 1-7-1997 and 31-12-1997 during the period when the scheme remained in force could not impair the rights of the assessee to take the benefit of the scheme.



“9. The grounds on which a statute or a provision in a statute can be challenged are limited. In State of AP v. McDowell & Co. AIR 1996 SC 1627, the Supreme Court held that a law made by the Parliament or the Legislature can be struck down by courts only on two grounds, that is, (i) lack of legislative competence, and (ii) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutional provision. It was further held that no enactment can be struck down by just saying that it is arbitrary or unreasonable, or because the Court thinks it is unjustified. The Parliament and Legislatures, composed as they are, of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them and the Courts will not sit in judgment over their wisdom.

  1. As observed by the Supreme Court in the decisions in R.K. Garg’s case (supra) and P.R. Sriramulu’s case (supra), a large discretion in the Legislature is recognised by Courts in making such laws. It cannot be said that there is no rationale in differentiating between the persons who have been searched on the basis of some information regarding concealment of income and persons who have not been searched. To find out whether the classification has any nexus to the object sought to be achieved, not only the object of framing the VDI Scheme, but also the object of introducing sections 132, 132A and 133A of the Income-tax Act should also be kept in view. It is obvious that section 64(2)(ii) is intended to maintain the deterrent effect of sections 132, 132A and 133A on tax evaders. The intention of the VDI Scheme is not to nullify any provision of the Income-tax Act, but to achieve the stated object to the VDI Scheme within the framework of the Income-tax Act without jeopardising the effect of existing provisions of that Act.

  2. The VDI Scheme is itself an exception to the provisions of the Income-tax Act, granting certain concessions to tax evaders. When framing such a scheme it is possible and permissible for the Parliament to make a reasonable classification, denying the benefit to a particular class of evaders, in regard to whom some action has been initiated to detect evasion. A tax evader in regard to whom some action has been initiated to detect evasion of tax, is different from an evader in regard to whom there is no such action. The classification is neither illogical nor unreasonable. Nor can it be said that the classification has no nexus to the object sought to be achieved by the scheme. In the light of the principles laid down by the Supreme Court, referred to above, it is clear that section 64(2)(ii) is neither arbitrary nor discriminatory nor does it suffer from any unconstitutionality.

  3. On examination of the provisions of sub-section 2(ii) of section 64, we are in agreement with the reasoning of the learned Single Judge in upholding the validity of that provision.”


“21. The complaint of the petitioners that while section 64(2)(iii) treats cases of search under section 132 and survey under section 133A on par, the clarifications under the Circulars dated 10-6-1997 and 25-7-1997 have altered the position and permitted the assessees subjected to survey under section 133A to file declarations in respect of all years other than the year in which survey was done, but has not extended such benefit to the assessees subjected to search under section 132 and, therefore, there is discrimination, or that the benefit of the clarifications should be extended to cases of search also, is, therefore, without merit. It is evident the CBDT has merely relaxed the rigour of law for the purpose of just, proper and efficient management of the scheme and in public interest, in cases of survey, which under the Income-tax Act stands on a different footing when compared to search.

  1. It is not, therefore, possible to read the words ‘or in respect of earlier previous year’ as applicable in regard to cases of ‘survey under section 133A’ and not in regard to ‘search under section 132 or requisition under section 132A’. The words ‘or in respect of earlier previous year’ in section 64(2)(ii) refer to all the three categories, i.e., search under section 132, requisition under section 132A or survey under section 133A. But, in view of the hardship and anomaly which has been referred to above or for reasons of public interest, the CBDT has issued circulars ensuring fair interpretation of the provisions.

  2. The learned counsel for the petitioner lastly submitted that the Andhra Pradesh High Court in Shankarlal vs. ITO [1998] 230 ITR 536 1while upholding the validity of section 64(2)(ii) has clarified that the benefit of the scheme should be denied only to the income which is detected in a search under section 132, or a requisition under section 132A or in a survey under section 133A, whichever be the previous year to which the detected income relates. Having carefully considered the matter, we are of the view that no such exception need be carved out in the absence of express provision to that effect in the scheme. We do not find any need for making such exception to uphold the validity of section 64(2)(ii).”

GROUND NO. (iii)

“23. It is true that the scheme came into effect on 1-7-1997 and was in force till 31-12-1997. But there is no logic in the contention that any search conducted before 1-7-1997 will alone bar a person from availing the benefit of VDIS and any search done after 1-7-1997 cannot impair the rights of the assessee to take benefit of the VDI Scheme. Merely because VDIS was brought into effect during a particular period, it does not follow that the operation of the provisions of the Act, in particular those relating to search and seizure, gets suspended. If the Parliament intended to suspend the operation of provisions of the Act relating to search and seizure, it would have made specific provision to that effect in the VDIS. The petitioners’ contention, if accepted, would amount to holding that VDIS has the effect of implied suspension of specific provisions of the Act. Such suspension is neither permissible nor contemplated. If any assessee or person was interested in avoiding a search or survey, it was always open to him to make use of the benefit under the Scheme immediately after 1-7-1997. Merely because the Scheme was in force till 31-12-1997, no person can contend that between 1-7-1997 and 31-12-1997, no search should be conducted or that if search is conducted, that should not come in the way of availing the benefit under the VDIS.

  1. The learned counsel for the appellants submitted that in pursuance of the interim order dated 18-3-1998, the appellants had made a voluntary disclosure and had paid tax on that basis. The interim direction was made subject to the final decision in the appeals. As we are affirming the decision of the learned Single Judge, upholding section 64(2)(ii), it is for the concerned authority to now consider whether the appellants are entitled to the benefit of sub-section (1) of section 64 or whether they are barred under sub-section 2(ii). If the authorities hold that the appellants are not entitled to the benefit of the scheme having regard to section 64(2)(ii), the amounts paid may be adjusted against any tax liability of the respective appellants.

  2. We, accordingly, dismiss these appeals, subject to the observation in para 26 above.”


(i) Satyaprakash Singh vs. UOI & Anr. – [Supreme Court]

{It is given to understand that this Writ Petition (PIL) is filed on 16.03.2020. This is based on the news items appearing in newspapers and tax knowledge portals. However, it is not showing in the official site of Supreme Court.}

By this Public Interest Petition, the Petitioner is impugning the constitutional validity and the amendment made in Section 9 of Vivad se Vishwas Act, 2020 [“VSV”]. The Section seeks to exclude from the Scheme tax arrears relating to an assessment year in respect of which an assessment has been made pursuant to search u/s. 132 or 132A and such assessment is made u/s. 143 (3), 144, 153A or section 153C, where the disputed tax of an assessment year exceeds rupees five crores. The petitioner has also challenged exclusion of the cases in which prosecution has been instituted on or before the date of filing of declaration.

Posted in May.

Lockdown 4.0 continues with the same vigour in major part of India whereas with MHA guidelines and appropriate guidelines by different States, some parts of India are slowly reviving after almost a 60-day slumber. Lives could not be the same again. Our editor for the present month, the first Lady President of AIFTP, Sr. Advocate Smt. Premlata Bansal has given a precise and quick insight to the days to come as aftermath of Covid-19.

The members who have started attending to office need to be extra cautious, the meetings with the client to be kept to the minimum and maximum benefit be taken of virtual meetings.

Last week we have seen the Hon’ble Finance Minister giving series of announcements on five days like a five-day test match. The policy announcements made, will take its own time to take shape by way of formalities and procedures in black and white. We will see the real text later. It would not be proper to comment upon the ‘atmanirbhar’ series. The motive is good. I sincerely hope the results are better – in long term and short term both.

Need for further relief in certain areas

While I find that MSME sector and the poorest of poor sector are likely to benefit out of the measures promised, it is also clear that the relief to the middle class is hardly to be seen.

As rightly observed in the Editorial,, the tax practise is going to witness a sea change in modalities and the ultimate result of the litigation may also come sooner. E-assessment procedures are already put in place under the Direct Tax regime, similar procedures would be soon made routine under the Indirect Tax too. The Office of the Commissioner of Central Tax GST, Thane, has already issued guidelines for conducting personal hearing in virtual board under the CGST Act on 18th May 2020. The Hon’ble Commissioner of CGST has, citing the observations of the Apex Court, underlined the need for virtual hearing and it is decided that “personal hearing” in respect of demand notice be given through video conferencing on WhatsApp. The standard procedure to be adopted is laid down. The WhatsApp video conferencing is preferred because it has end-to-end encryption.

Although the modalities presently look simple, the basic requirement would be that the litigant would have to send his submissions well in advance so that both sides, i.e. the litigant and the officer are aware of the submission and the officer should be ready to ask counter question, else the purpose of hearing would not be served. The hearing also pre-supposes the detailed show cause notice. While the intention behind the virtual hearing is noble, only time will tell how it is able to replace the personal hearing. The legal representative would also be able to be part of the WhatsApp video conferencing.

The ITAT Tribunal has already started virtual hearing. However, whether the Tribunals and the lower Courts would be able to perform to maximum strength with the help of virtual hearing? Much of the infrastructure needs to be put in place. In Tax practice we have seen the compilation of submissions as also the compilation of judgments cited run into more than 100 pages. A paradigm shift is required in the mindset of all concerned to be comfortable with such proceeding. As per the estimate being made worldwide, the social distance situation would continue for more than a year. Therefore for High Courts and other judicial and quasi judicial Courts to start in full strength, much preparedness is required from Government

Suggestions by Indirect Tax and direct tax Committee accepted ;-

I am happy to state that many of our suggestions made to the Hon’ble Finance Minister are accepted in full or part. For the ‘Vivad se Vishwas’ scheme we had sought extension up to 30th September 2020. The Hon’ble Finance Minister has extended the time up to 31st December 2020. It confirms the last line of my previous month’s message that the Government will have to be extend the time if it is looking forward to sizeable benefit from this scheme.

Some suggestions for the Central and State Government

  1. Moratorium of further six months for repayment of loan of all types.

With the lockdown continuing for more than 60 days, today the financial situation in the major cities of India and the industries is vulnerable. There is no certainty as to when the normalcy would be restored. In my opinion, we will have to wait till 2021 to get back to near normal state of affairs. Just as GDP of India is likely to fall considerably, the expected income of an individual /borrower would reduce sizeably and therefore further six months moratorium for repayment or payment of Instillment , without any conditions is the need of the Hour. I would suggest the borrowers who are able to pay on time before the period of moratorium should be given some monetary incentive. (like some points as given by credit card ) This would ensure that the borrower would be more interested in making the payment of loan in time rather than waiting for moratorium period to be over. Only those who are in actual bad shape would avail the moratorium.

  1. Reduction in the rate of interest on Borrowings.

The banks have already reduced the interest rate on the deposits. However, corresponding suo moto reduction in the interest to be charged on the loan taken by the borrower would give major relief to middle class persons, industries and businessmen. This reduction in the rate of interest on the borrowings should be made at the earliest with retrospective effect from 23rd March 2020 at least up to 31st December 2020. The rates can be reviewed based on the position thereafter.

  1. Making available the fresh capital to small traders and service providers.

On account of complete closure of trade, commerce and industries, biggest sufferers are the small traders and the service providers including professionals who had no possibility of earning during the lockdown. The situation after slow release of lockdown conditions would not result in inflow of cash and liquidity to the small traders and service providers. The administrative cost and the maintenance cost remain unchanged and therefore, in my earnest submission, this is the class which need immediate care and attention. It is this middle class who take services from industry and business houses, and simultaneously provide job opportunity to sizeable population. Almost 20% of the earning class population would fall into this category. The Financial Relief provided to the MSME should also be provided to them.

  1. Waiver of property tax for rental property on account of non-receipt of rent

Recently the Apex Court has held that the lawyers must pay rent for the court chamber for the lock down period , even though their offices remain closed. Having held that, the Apex Court has laid down the law for all the rented property. It is the Government who can now give some relief by way of waiver of property tax. It is also true on humanitarian ground the tenant may not be thrown out for non-payment of rent, none the less the owner of the property and the tenant both would have sigh of relief if property tax is waived for at least six months.

  1. Payment of GST and VAT.

The Hon’ble Finance Minister announced at the very initial stage of lockdown extension of due dates for filing various GST returns up to around 30th June 2020. At the same time, the registered person having turnover about Rs.5 crore was to make the payment up to 5th May 2020 , 5th June etc in a staggered manner and file the returns around 30th June 2020. Similar relief has not come forward from the State Authority for making the payment of Value Added Tax for the goods not covered within the scope of GST. The time ahead are more difficult and therefore the State Government must also allow filing of return without payment of tax and at the same time grant interest free instalment at least up to 30th September 2020. The Government should also give incentive by way of small discount if the payment is made in time. This would ensure that a registered person would try to make the payment in time.

  1. Relief of refund and pending rectification and other applications.

Much of the refund claims under the VAT regime are still pending clearance from the VAT department as also from Income Tax and Sales Tax Appellate authorities, Such application must be scrutinised and refund be released forthwith. The need of the hour is to make available liquid cash in the hands of the persons who are entitled to refund. If the Government, whether State or Central, is not in a position to disburse the refund to the claimant dealer, a mechanism may be provided to permit such person to adjust his rightful claim of refund against future liability, be it under VAT or GST or Income Tax – against the current tax liability.

  1. Allow appeal without mandatory part payment.

Majority of the assessment which were getting time barred in March , the orders are passed exparte, they are now being received on line, at least in Maharashtra. Insisting on mandatory part payment under various laws to file appeal would amount to denial of justice. The litigants may not be in a position to make the part payment and would suffer recovery proceedings although he has valid right of appeal and probably justifiable reason for filing appeal. The State and Central Government must allow filing of appeal without insisting on payment of mandatory part payment and after evaluating the matter the authorities may be permitted to grant stay with lesser part payment or no part payment.

Webinars to continue.

The members of federation has by now got aquatinted with webinar culture. North zone is proposing a series of webinar on direct tax where as West Zone along with GSTPAM is having series of intensive work shops on various intricate aspects of GST.

Keep watching and enriching. Suggestions on the subject and modalities from members are welcome. Visit our website for u tube link of all webinars of federation.

Last but not the least, reminder to update your data in our dictionary available on website

Wish by next month we would be free of complete lockdown. Stay Safe. Wish you and your family members best of health.


With best wishes,

Nikita R. Badheka
National President, AIFTP

Posted in May.

Covid 19 : Impact on Profession & Professionals


Hope this finds you safe & healthy. It is my pleasure to share with you my views to equip you with critical insight into the most defining moment of our existence.

Covid – 19, the pandemic, that began in Wuhan, China in December 2019, spread exponentially, has now infected hundreds of thousands of people & has claimed thousands of lives. It has spread through out the globe, spared none of the countries, either developed or developing or underdeveloped. On 11-3-2020, the World Health Organisation ( WHO ) declared it a “pandemic” but also stated that it can be “contained”. Various measures have been implemented by various Governments across the globe like closed borders, travel bans, states of emergency , restriction of mass gatherings, quarantines, business lock-down etc.

Covid – 19 has created extraordinary situation & therefore it needs an extraordinary response. Govt. of India quickly precipitated a public health emergency. Janta Curfew was imposed on 22nd March as a preventive measure which was followed by locked down for 3 Weeks from 24th March to 13th April & another lock down from 14th April to 3rd May & then 4th May to 17th May. Ministry of Health & Family welfare issued an advisory on “ Social Distancing “ to combat the spread of corona virus. But these Regulations & restrictions banning large public gathering, banning various local national & international events, concerts, conferences etc dented the business & also the economic lines of nation, virtually the world. The Crisis that the nation, rather the World is facing due to this uncontrollable corona virus is not only unprecedented but also damaging on multiple fronts.

It is apprehended that due to “ Corona – Kal lock down “ serious economic crisis will be created, a blast more dangerous than the bomb will affect the economy. India’s GDP will dip from 4% to 0.8% in 2021. Five Sectors of the economy that will be badly hit due to lock down are as under:

(i) MSMEs – Micro Small & medium scale enterprises. They constitute 80% of the Indian enterprises. They are backbone of the Indian economy. They contribute 30% of India’s GDP. They have requested relief package of Rs 20000 Cr. From Government.

(ii) Indian Tourism & Hospitality – It was first to get disrupted but last to see the resumption – KPMG has reported that 3.8 Cr employments will be laid off. This sector will take atleast 2years to be resumed.

(iii) Aviation Sector – It will witness flood of lay off of employment. Workers are forced to unpaid leave. Global Aviation activity has sunk 66%. Aviation sector may loose 5 Lakhs Cr Rs along with 4-5 Cr Jobs.

(iv) Automobile Sector – India has been forced to stop key manufacturing activities. Sh. R.C.Bhargava CEO of Maruti Suzuki stated that Auto Sector is interlinked with many other small scale sectors, when the key sector will be hit then small sector will also be majorly hit.

(v) Real Estate Sector – Housing sector will be hit by 30- 35% Construction activity is stopped. It will loose 7 – 8 Lakh Cr Rs. appx.

Thus pandemic has a wide remification on the economy of developing nation like India. Ministry of Home affairs has issued many advisories, relaxations from time to time but they are still miles away from being normal working of an economy, Covid – 19 has put the whole nation in a troubling state of affairs. Low revenue collection by state, no economic activities, jobs lay-off and retrenchment are showing gloomy state of affairs.

Professionals will also not be spared from the effect of Covid – 19. Therefore we the Professionals have to prepare ourselves. It is better to have umbrella before rain. In order to maintain Social distancing as a major tool for preventing the spread of pandemic, courts have come up with virtual hearing. Working of the Courts through Video Conferencing is a commendable step but it is possible only where the courts have adapted themselves with the changing time. S.C & H.Cs have ample resources to carry virtual functioning but what about district Courts, they are lacking in these facilities, even many of the advocates are not well- equipped with the technology But since the necessity is the mother of invention, the new entrants have to cop-up with the changing situation in order to remain in the profession.

What would be the fate of litigation. It cannot be said that Post Corona – Kal, litigation will come to a grinding halt. But on the contrary, there are chances, that there will be a flurry in litigation. The aftermath of Covid – 19 can not be forecasted as of now but looking at the situation, it appears that advocates may embrace for a number of corporate & contractual or commercial disputes, matrimonial disputes , labour disputes etc.

What would be the fate of taxation practice ? As soon as Income Tax Offices reopened after lock – down, certain IRS officers prepared a report suggesting certain guidelines in tax administration which created panic and tax policy uncertainty. On the contrary now on
8-5-2020 CBDT has issued new interim action plan. After rejecting “ ill – conceived “ suggestions of IRS Officers, CBDT has directed officials not to keep any communication with assesses or issue scrutiny notices without Board’s approval, According to it any such notice would have an “ adverse effect “ on assesses amid the corona virus pandemic. A new system has already been put in

place to make officials accountable for their communication with assesses. Various notifications have been issued by Govt. to ease the Income Tax practice. Re-registration deadline of trust is extended. Tax residency Rules are eased as a relief for NRI, foreign visitors. In any case at ground level, practice would not suffer but there will certainly be an effect on revenue yielding.

There will be a need of organizational restructuring as there will be a sudden fall in revenue generation. it is pertinent to mention that amid this pandemic, the fixed cost need to be paid to associates & staff but recurring cost will have to be adjusted. If it is not adjusted then there will be a shortage in revenue. If such situation continues then at the end of the day, it will lead to laying off of associates and staff working with advocates or Law Firms.

In any case Covid – 19 has acted as boon as well, as it has helped in changing the old mundane way of dispensing justice, introducing Video hearing. A virtual court is a major breakthrough which helped in breaking the monotony. Covid – 19 is a harsh reality but it has impacted the way law education is taught, legal services are given & the justice is rendered. Covid – 19 episode also gives a hope and an opportunity to the junior counsels to embrace the tough times. Seniors shall have to work economically and reap the best of the situation. The budding advocates have to equip themselves with the technology with the legal knowledge & then to grab the opportunities. This is the time of survival of the fittest.

John F. Kennedy once remarked “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger, the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity “.

Friends, The risk and the reward are two sides of the coin. We can’t change the circumstances, the seasons or the wind, but we can change ourselves to protect & take benefit. Motivate & rejuvenate yourself with new zeal & vigour. Wiser change is necessary for sustainable growth.

Prem Lata Bansal
Member, Editorial Board

Posted in May.