Ankita Prakash & Manish Rastogi

INTRODUCTION

The Indirect Tax regime existing in India underwent a landmark reform with the introduction of Goods & Services Tax (“GST”) w.e.f. 01.07.2017. GST is recognised internationally as a destination-based consumption tax. One of the main reasons behind implementation of GST in India was to replace multiple indirect taxes levied at different points of the value chain with one single tax on ‘supply’ of goods and services and to provide seamless flow of taxes paid on inputs in order to prevent cascading effect of taxes. Consequently, introduction of GST replaced several indirect taxes which were being levied and collected by the Union and the States viz., Sales Tax, Excise Duty, Entry Tax, Service Tax etc.

It is relevant that the First ‘Discussion Paper on Goods and Services Tax in India’ was released by the Empowered Committee of State Finance Ministers wherein, it was emphasized that seamless flow of input tax credit is a key mechanism to avoid cascading effect of taxes. Further, the Seventy-Third Report of the Standing Committee on Finance on the Constitution (115th Amendment) Bill, 2011 also emphasized that a consistent and essential objective of the introduction of GST is to eliminate cascading effect of taxes and tax only the portion of value addition in the supply chain.

The statement of objects and reasons of the Central Goods and Service Tax Bill, 2017 proposed that “the proposed legislation will simplify and harmonise the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of goods and services tax that would incentivise tax compliance by taxpayers. The proposed goods and services tax will broaden the tax base, and result in better tax compliance due to a robust information technology infrastructure.¹” Thus, it was clarified that the Bill aimed to broad base the Input Tax Credit (“ITC”) by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used “in the course or furtherance of business”.

LEGAL FRAMEWORK AND AMENDMENTS:

Value added tax regimes have existed in India

in the past in different forms both as part of the Central as well as State taxation and have had similar features as the present GST. Both statutory as well as judicial precedents of the past would, therefore, have a bearing in interpreting the GST statutes.

Position prior to 09.10.2019

The scheme of ITC in the GST regime is provided under Chapter V of the Central Goods and Services Tax Act, 2017 (“CGST Act”). However, it is subject to certain conditions which are prescribed under Section 16 of the CGST Act which needs to be complied by a registered person to become eligible for ITC. One of the conditions is that the GST charged in respect of such supply has been actually paid to the Government by a supplier. The said Section reads as follows: –

“INPUT TAX CREDIT²

Eligibility and conditions for taking input tax credit.

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

2. Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

   1. he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

   2. he has received the goods or services or both.

      Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––

      1. where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

      2. where the services are provided by the supplier to any person on the direction of and on account of such registered person.

   3. subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

   4. he has furnished the return under section 39:

      Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

      Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

      Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

3. Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.

4. A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or 4[****] debit note pertains or furnishing of the relevant annual return, whichever is earlier.

   Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub- section (1) of said section for the month of March, 2019.”

   A perusal of the above discloses that Section 16 of the CGST Act entitles every registered person to take ‘credit of input tax charged on any supply’ of goods or services or both to him which are ‘used or intended to be used in the course or furtherance of business’ and the amount of ITC claimed shall be credited to the electronic credit ledger of such person. However, the claim is to be made in the manner specified in Section 49 of the CGST Act and is subject to conditions and restrictions as may be prescribed. It is relevant for the present purpose that Section 16 (2) mandates, inter alia, that no ITC can be claimed by a registered person unless: –

   1. The recipient is in possession of a tax invoice, debit note or any other prescribed tax paying document issued by the supplier;

   2. The recipient has received the goods or services or both;

   3. Subject to the provisions of Section 41 or Section 43A, the tax charged by the supplier in respect of the supply has been ‘actually paid’ to the Government. In other words, the amount claimed as ITC by the recipient should have been deposited by the supplier with the exchequer in accordance with law; and

   4. The recipient has furnished a return under Section 39 of the said Act.

   Therefore, in terms of aforementioned Section 16, the two essential substantive conditions which enable the eligibility of the recipient to avail ITC are that the recipient should be in possession of tax invoice/debit note or any other tax paying document issued by the supplier and he should have received the goods or services. Section 16 (2) (c) of the CGST Act further provides that no ITC can be claimed by a registered person unless tax charged by a supplier in respect of the supply has been actually paid to the Government by the supplier.

   Further, as per the second proviso to Section 16 (2), the recipient is required to reverse the ITC availed along with interest thereon in case of non-payment of the value and tax to the supplier within 180 days from the date of issue of invoice. Thus, it is significant to note that even as per the said proviso, the statutory mandate is that if payment is made by the recipient to the supplier within 180 days, ITC can be availed by the recipient.

   Section 155 of the CGST Act further imposes burden of proof to establish eligibility to avail ITC on the person claiming the ITC. Therefore, where recipient is claiming ITC, the statutory burden is on the recipient who will be required to establish the satisfaction of all the statutory conditions specified above.

   Section 37 of the CGST Act provides that every registered person should furnish details of outward supplies effected during the tax period on or before 10th of the succeeding month and such details such details shall be communicated to the recipient in a prescribed manner. Further, as per Rule 59 of the Central Goods And Service Tax Rules, 2017 (“CGST Rules”), these details are required to be furnished in Form GSTR-1 and once filed, these details will be auto-populated for the recipient in Form GSTR-2A on his GST web portal.

   Section 38 of the CGST Act provides that every registered person should either verify, validate, modify or delete, if required, the details relating to outward supplies or credit or debit notes communicated under Section 37 (1) of the CGST Act through GSTR-1 by the supplier of taxable goods and services. It is also pertinent that the recipient can also include the details of inward taxable supplies received by him to claim ITC where the said details have not been declared by the supplier for any reason. Further, Rule 60 of the CGST Rules provides that the registered person should report details for inward supplies in Form GSTR-2 including for invoices and debit notes not reflecting in Form GSTR-2A. However, it is relevant to state at this stage that the GSTR- 2 utility has not been implemented till date on account of GSTN limitations and therefore, no compliance is warranted for the same.

   Section 39 of the CGST Act provides that every registered person shall furnish monthly return of inward supplies and outward supplies, input tax credit availed, tax payable and tax paid in prescribed manner. As per Rule 61 of the CGST Rules, every registered person is required to furnish return in Form GSTR-3 on monthly basis as required under Section 39. However, it is pertinent that the Form GSTR-3 utility has not been implemented till date because of GSTN limitation and therefore, Form GSTR-3B has been prescribed as an alternate measure to operationalize the payment of taxes, which tax- payers are required to file on monthly basis.

   Section 41 of the CGST Act provides for claim of ITC and provisional acceptance thereof. a registered person, on self-assessment, can take eligible ITC on a provisional basis subject to conditions and restrictions as may be prescribed.

   Further, such provisional ITC can be utilized only for payment of self-assessed output tax as per return furnished by the registered person. Thus, the aforesaid Section merely enables a provisional claim of ITC and its finalization after matching the details of inward supplies (purchases) furnished by the recipients with the details of outward supplies (sales) furnished by the suppliers.

   Section 42 of the CGST Act relates to the matching, reversal and re-claim of ITC. It provides that the details of every inward supplies furnished by a registered person (recipient) shall be matched with the corresponding details of outward supply furnished by the corresponding registered person (supplier) and in this regard detailed procedure for compliance with the provision have been prescribed in the CGST Rules.

   Thereafter, on 01.09.2017, the CBEC Circular No. 07/07/2017-GST was issued in respect of System based reconciliation of information to be furnished in FORM GSTR-1 and FORM GSTR-2 with FORM GSTR-3B. The re-

   conciliation procedure set out in the Circular No. 07/07/2017-GST dated 01.09.2017 was kept in abeyance vide C.B.E. & C. Circular No. 26/26/2017-GST, dated 29.12.2017. Thus, it can be seen from the above that the matching mechanism including Form GSTR-2, Form GSTR-1A and Form GSTR 3 set out under the Act and Rules framed thereunder as explained in the Circular No. 07/07/2017-GST dated 01.09.2017 could not be operationalized because of technical limitations and due to this reason, the matching of ITC in the system itself was not enabled. Accordingly, only Form GSTR-1 and Form GSTR-3B were being furnished and considering the minutes of 39th GST Council Meeting held on 14.03.2020, it appears that the existing system of furnishing Form GSTR-1 and Form GSTR-3B continued till September, 2020. Thus, the statutory framework which provided for a system-based reconciliation of the invoices issued and reported by the vendors in their

   returns with the ITC claimed by the recipients based on these invoices was not enabled during the period up to September, 2020.

   There was thus no fool proof mechanism available with the recipient who had already paid the GST to its vendor to categorically determine whether the vendor had reported all its invoices in its returns or had correctly paid the GST, which it had already collected from the recipient to the GST department.

   By way of Section 183 dated 29.08.2018, a new provision Section 43A was introduced in the CGST Act which provides the procedure for furnishing return and availing ITC. Section 43A (4) specifically provides for the procedure to be followed to avail ITC for unreported transactions on the GSTN portal. Further, Section 43A (6) empowers to make recipient of goods and services jointly and severally liable for payment of ITC claimed for unreported transactions by the suppliers. The procedure to recover such ITC is to be prescribed in accordance with sub-section (7) of this Section. Further, Section 43A (4) enables restricting the ITC available to the recipients on the basis of details furnished by the suppliers. In other words, it seeks to put a limitation on the ITC that can be availed by the recipients solely on the basis of details furnished by the suppliers. It is important to note that vide Notification No. 2/2019-C.T. dated 29.01.2019, various Sections of the Central Goods and Service Tax (Amendment) Act, 2018 were operationalized from 01.02.2019. However, Section 18 by virtue of which Section 43A was inserted has not been operationalized/notified till date.

   It appears that on account of certain issues regarding purported wrongful availment of ITC, the GST Council in its 37th Meeting held on 20.09.2019, decided to impose certain restrictions on availment of ITC by the recipients. In exercise of power conferred under Section 164 of the CGST Act, the CGST Rules including Rule 36 were notified which provided for documentary requirements and conditions for claiming ITC. Rule 36 (1) and Rule 36 (2) provides for the list of eligible documents and particulars to be mentioned in these documents subject to which ITC can be claimed.

   Position w.e.f 09.10.2019

   Rule 36 (4) vide Para 3 of the Notification No. 49/2019-CT dated 09.10.2019 was introduced without implementing/notifying the enabling Section 43A of the CGST Act, in exercise of power under Section 164 of the CGST Act imposing a restriction on the ITC that can be availed by a tax-payer. Therefore, with the insertion of sub clause (4), Rule 36 has imposed a restriction that a taxpayer can avail ITC pertaining to outward supplies not declared by his supplier in Form GSTR-1 only up-to the extent of 20% of the eligible ITC available in respect of invoices declared by his supplier in Form GSTR-1. The limitation of 20% has been further reduced to 10% of the eligible ITC available in respect of invoices or debit notes reflected in Form GSTR-2A w.e.f. 01.01.2020 vide Notification No. 75/2019-CT dated 26.12.2019. Further, recently by Notification No. 94/2020 dated 22.12.2020, w.e.f. 01.01.2021, the limitation of 10% has further been reduced to 5%. Therefore, with the insertion of Rule 36 (4), the eligibility of the recipients to claim ITC has been made dependent on the timely filing of GSTR-1 by the suppliers. As per Circular No. 123/42/2019-GST dated 11.11.2019 it was clarified that the restriction under Rule 36 (4) is to be applied by the taxpayers on a self- assessment basis. However, the restrictions under Rule 36 (4) are only applicable on invoices on which ITC is availed after 09.10.2019 and is not applicable to invoices on which ITC was availed prior to 09.10.2019. Thereafter, another clarification was issued vide Circular No. 142/12/2020-GST, dated 09.10.2020, wherein application of Rule 36 (4) for the months of February, 2020 to August, 2020 was explained inter alia Rule 36 (4) is being implemented February, 2020 onwards and ITC is being restricted to 110% (105% w.e.f. 01.01.2021) of the cumulative value of the eligible ITC available in respect of invoices or debit notes, the details of which have been furnished by the supplier in Form GSTR-1. It also transpires that the Rule is sought to be implemented even though Section 43A of the CGST Act containing the substantive provision for such restriction has not been notified.

At this juncture, it is imperative to point out that Rule 36 (4) was introduced only from 09.10.2019 and thus, cannot be applied for the period July, 2017 to September, 2019 and even if the said Rule has been made effective from October, 2019, it cannot be applied to past period and will only be operative prospectively. On a combined reading of the aforesaid provisions of Section 43A and Rule 36 (4), it is evident that prior to 09.10.2019, there was no provision under the CGST Act or CGST Rules which restricted the registered person from claiming ITC even for the transactions not reflecting in GSTR-2A.

This amendment appears to be contradictory to the clarification provided by the Press Release dated 18.10.2018 wherein, it was categorically accepted that entitlement of ITC was not dependent on reconciliation of Form GSTR-2A and actual claim made in GSTR-3B.

Position introduced by the Finance Act, 2021

The Finance Act, 2021 was enacted on 28.03.2021

for the Financial Year 2021-2022 and vide Section 109 of the said Act, clause (aa) has been inserted after clause (a) of Section 16 (2) of the CGST Act i.e., “(aa) the details of the invoice or debit note

referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;” A reading of the above clause (aa) inserted in Section 16 (2) discloses that ITC will not be available to the recipient if the supplier fails to furnish the required details in its statement of outward supplies and if the said details are not communicated to the recipient in the specified manner.

Accordingly, availment of legitimate ITC by a recipient has been made dependent on furnishing of required details by a supplier despite possessing tax-invoice and paying applicable GST charged on the same to the supplier. Section 16(2) (aa) has been made effective w.e.f. 01.01.2022.

ANALYSIS

Section 16 (2) (c) is contrary to the objective behind the introduction of the GST regime and is ex-facie unconstitutional

It appears that Section 16 (2)(c) imposes an unreasonable and onerous condition where the said provision gives an unequal treatment to bona fide recipients of goods and services and thereby violating Article 14 of the Constitution of India. By way of Section 16 (2) (c), burden of ensuring actual payment of tax by the supplier of inputs and input services to the Government has been placed on the recipient and by denying the bona fide recipients the credit of the input taxes paid to registered suppliers, Section 16(2)

(c) of the CGST Act violates Article 14 of the Constitution of India where the principles of Article 14 requires that the Section 16 (2) (c) ought to have adequately protected bonafide purchasers and their substantive rights of claiming ITC.

In our view, Section 16 (2) (c) imposes a disproportionate burden on those recipients who have availed the ITC in accordance with the provisions of Section 16 by making the entire payment towards the inputs/input services within the time frame prescribed under Section

16. The said provisions have the effect that a bona fide recipient who has already made the entire payment to the supplier of inputs/input services will be denied with the ITC merely because of the supplier not having ‘actually paid’ the tax collected from the recipient to the Government. Therefore, ensuring such actual payment by the supplier is an onerous burden on the recipient.

The Hon’ble Supreme Court 4has held that bona fide taxpayers stand on a different footing as compared to willful defaulters and these two unequal categories cannot be equated and by denying credit to the recipient, in case of default on the part of the supplier in payment of tax collected from the recipient, treats a bona fide recipient and mala fide recipient in a similar manner which is completely illegal and unconstitutional. As per Section 16(2)(c) although the bona fide recipient and mala fide recipient represent two different classes, the formers stands to lose out on credit despite being diligent and otherwise, compliant with the provisions of the CGST Act and the Rules. Whereas a guilty recipient in collusion with a guilty supplier enters into a tacit agreement or understanding or arrangement to falsely claim ITC and cause loss of revenue to the Government, an innocent recipient pays his taxes and adheres to all the requirement of the laws yet is penalized in the form of loss of ITC and resultantly, suffer higher tax costs. Thus, the same treatment afforded to both categories of recipients does not have any reasonable basis and results in hostile discrimination against the bonafide recipients.

Denial of ITC to a recipient of goods and services would tantamount to treating both the “guilty recipients” and the “innocent recipients” at par whereas they constitute two different classes. A “guilty recipient” entering into a tacit agreement or understanding or arrangement in collusion with the “guilty supplier” to falsely claim ITC and cause loss of revenue cannot be treated at par with a bona fide recipient.

One can understand the denial of ITC in those cases where the recipient dealer has not acted with caution or without obtaining the documents prescribed under the provisions of Act for availing credit. However, denying the ITC to a recipient who has acted in a bona fide manner and has taken reasonable steps for verifying the credentials of suppliers and received the inputs/input services under competent invoices is clearly violative of Article 14 of the Constitution of India. However, in those cases where the vendors from whom the inputs and input services are received are paid the entire amounts as per the tax invoices which includes both the value of the inputs/ input services as well as the tax and in such circumstances, denying the ITC solely by relying on Section 16 (2) (c) is completely unwarranted and any such interpretation would render the said section as unconstitutional.

It is relevant that even under the erstwhile law, it has been held in various judgments by the Hon’ble Courts that in cases where the purchasing dealer establishes the genuineness of the invoices issued by the selling dealer, ITC cannot be denied5. Even while the said decisions were rendered in the context of the Karnataka VAT Act, 2003, principle that bona fide recipients cannot be subjected to onerous and unwarranted liabilities for the fault of the vendors, will still be applicable to GST regime.

Significantly, Hon’ble Delhi High Court has held that such a provision which fails to make a distinction with regard to purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions, is vulnerable to invalidation on the touchstone of Article 14 of the Constitution of India and had accordingly, struck down the said provisions6. The said judgment of the High Court has since been upheld by the Supreme Court by way of Order dated 10.01.20187. It is imperative to point out that Section 16 (2) (c) is also similar to the provisions of the Delhi Value Added Tax Act which were dealt with by the Hon’ble Delhi High Court and fails to distinguish between case where the recipient has acted bona fide and has made the payment of tax to the supplier and the supplier has failed to make the payment to the Government and other cases where there is a collusion between the defaulting supplier and the recipient. Clubbing both these categories together amounts to clubbing two unequals together and is not a reasonable classification.

Similar provisions under the Haryana Value Added Tax Act, 2003 were under challenge8 and it was held by the Hon’ble Punjab & Haryana High Court that “In legal jurisprudence, the liability can be fastened on a person who either acts fraudulently or has been a party to the collusion or connivance with the offender. However, law nowhere envisages to impose any penalty either directly or vicariously where a person is not connected with any such event or an act. Law cannot envisage an almost impossible eventuality. The onus upon the assessee gets discharged on production of Form VAT C-4 which is required to be genuine and not thereafter to substantiate its truthfulness by running from pillar to post to collect the material for its authenticity. In the absence of any malafide intention, connivance or wrongful association of the assessee with the selling dealer or any dealer earlier thereto, no liability can be imposed on the principle of vicarious liability. Law cannot put such onerous responsibility on the assessee otherwise, it would be difficult to hold the law to be valid on the touchstone of Articles 14 and 19 of the Constitution of India. The rule of interpretation requires that such meaning should be assigned to the provision which would make the provision of the Act effective and advance the purpose of the Act. This should be done wherever possible without doing any violence to the language of the provision. A statute has to be read in such a manner so as to do justice to the parties. If it is held that the person who does not deposit or is required to deposit the tax would be put in an advantageous position and whereas the person who has paid the tax would be worse, the interpretation would give result to an absurdity. Such a construction has to be avoided”

Thus, Section 8(3) of the Haryana Value Added Tax Act, 2003 was read down and it was held that no liability could be fastened on the purchasing dealer on account of any non- payment by the selling dealer except in cases of fraud, collusion etc. The Hon’ble Court read down the provision in order to carve out a distinction between genuine cases as opposed to cases of fraud, collusion etc. Accordingly, it is submitted that Section 16 (2) (c) fails the principle of reasonableness in order to carve out distinction between bona fide recipients and mala fide recipients.

Identical view was taken by the Hon’ble Jharkhand High Court9 wherein it was held that no punitive steps could be taken where the recipient had discharged its VAT liability by paying the supplier and timely filing its return claiming the applicable ITC. It was further held that the fault on the part of the supplier could not be held against the recipient especially when there was no mechanism available with the recipient to compel the supplier to furnish its return within the stipulated time frame and deposit tax from the recipient with the government.

The cases of forgery and collusion stand on a different footing and a taxpayer/dealer cannot be expected to establish what is beyond his control10. Section 16 (2) (c) treats bona fide and mala fide recipients with the same yardstick and further, requires the recipients to ensure payment of tax by the supplier which is beyond the control of the recipient and almost impossible to comply with. Section 16(2)(c) of the CGST Act creates a further classification between (1) a bona fide recipient whose supplier pays the tax to the Government and (2) a bona fide recipient whose supplier, despite such bona fide recipient exercising due caution, defaults in making payment of tax. Thus, in such a case, where there are two recipients both of whom have paid the tax to their respective suppliers on the strength of valid GST invoices, yet one stands to lose out on ITC while the other is allowed to claim the same. Thus, Section 16 (2) (c) creates invidious discrimination between similarly situated assesses which is completely contrary to the principle that equal protection under Article 14 means right to equal treatment in similar circumstances, both in privileges conferred and liabilities conferred and therefore, if the two persons or two sets of persons are similarly situated/placed, they have to be treated equally11.

The Hon’ble Madras High Court12 has quashed Orders demanding entire liability from recipients in similar cases where consideration along with applicable GST had been duly paid by the recipients to the suppliers through banking channels. Thus, it is clear that coercive action should not be taken against bona-fide recipients who have duly paid the invoice amount along with the GST charged therein.

Although the constitutional validity of the Impugned Section 16 (2) (c) was not in question in the said case, the said Section is liable to be read down in view of the well settled legal position which has been reiterated by the Hon’ble Madras High Court.

The test of manifest arbitrariness can be applied to in respect of delegated legislations as well as parliamentary legislations and further, any legislation which is excessive, disproportionate, irrational, capricious and without adequate determining principles is liable to be struck down as being manifestly arbitrary and contrary to Article 14 of the Constitution of India. Section 16(2)(c) imposes onerous condition on the recipients but fails to lay any guidelines to comply with the same. While the mandate of the said Section is to ensure that the tax collected is deposited by the supplier with the Government, it fails to provide any procedure or methodology for the recipient to ensure the same. Therefore, prescription of onerous condition on the recipient and complete absence of determining principles renders Section 16(2)(c) of the CGST as manifestly arbitrary and violative of Article 14 of the Constitution of India.

The Hon’ble Supreme Court13 has laid down legal principles to be applied for striking down taxation statutes which suffer from the vice of manifest arbitrariness. In Author’s view the restriction contained under Section 16(2)(c) is manifestly arbitrary as it is impossible for a recipient to ensure that its suppliers comply with the provisions of the statute. Although as per the condition laid down under Section 16(2)(c), a recipient is not entitled to avail ITC if the tax has not been paid to the Government by the supplier, yet the mechanism stipulated is beyond its control and is an unnecessary hardship for the recipients. Further, the matching provisions have undisputedly not been implemented due to GSTN limitations. In view of the same, Section 16(2)(c) of the CGST Act fails to meet the requirement of reasonableness contained under Articles 14 and 19(1)(g) of the Constitution of India.

It is a settled cannon of interpretation, namely “lex non cogit ad impossibilia”, meaning that the law does not compel a man to do that which he cannot possibly perform meaning thereby that ‘where the law creates a duty or charge, and the party is disabled to perform it without any default in him, and has no remedy over, there the law will in general excuse him; and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract, yet when the obligation is one implied by law, impossibility of performance is a good excuse14. Further, “Under certain circumstances compliance with the provisions of statutes which prescribed how something is to be done will be excused. Thus, in accordance with the maxim of Law, Lex non cogit ad impossibilia, if it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the persons interested had no control, like the act of God or the King’s enemies, these circumstances will be taken as a valid excuse.15” The GST law requires that the Supplier shall upload its outward suppliers in GSTR-1 and the same shall be reflected in GSTR-2A of the recipient. Furthermore, in case the Supplier does not submit the sales data, the recipient is provided with an option under the GST law to upload the purchase data and then Supplier was required to take action on the same. Thus, the above procedure designed and crafted under the law is a two-way process which ensures that purchaser has complete visibility on the tax payable by the supplier on supply effected to him. However, due to

incomplete implementation of various forms prescribed under the CGST Act, the Government realized fallacy in their claim and changed the procedure to their advantage for collection of taxes without giving a single thought, as to how a taxpayer will meet his compliance obligations and will come to know the fact as to whether his suppliers have really paid the taxes or not. Section 16(2)(c) of the CGST Act provides for a condition wherein the recipient is not entitled to avail ITC if the tax has not been paid to the Government by the supplier. It is the responsibility of Government to develop and implement a machinery for collection of taxes and take action against erring non tax-payers in cases of default, and such responsibility cannot be shifted on the recipient by way of Section 16(2)(c) of the Act, so as to make the recipient liable for enforcing payment of taxes by the supplier. However, the provisions of CGST Act do not equip or empower the recipient for ensuring payment of taxes by the suppliers. In the absence of any machinery provision, it is impossible to prevent the loss of credit on account of default on the part of its supplier in payment of tax.

Once a recipient has paid the entire invoice value along with the tax charged on the said invoices to the vendors, it cannot be subjected to further onerous and irrational obligations in the form of Section 16(2)(c) to further ensure actual payment to the Government. It is relevant to point out in this regard that as originally contemplated, the provisions of Section 16(2)(c) were subjected to Section 43A, which provided for the procedure for furnishing of returns and availment of ITC. Thus, as originally enacted, Section 16(2)(c) provided safeguards for the recipient to check whether the supplier has actually paid tax or not. However, the said provisions were not brought into force and despite the absence of any mechanism, Section 16(2)(c) alone was brought into effect. The absence of mechanism to verify payment of tax by the supplier, makes it practically impossible for the recipient to even cross-check compliance. In these circumstances, initiation of actions against bona fide recipient is completely unwarranted, onerous and manifestly arbitrary. The legislative intent has not been given full effect and instead, based on incomplete mechanism, illegal actions are being initiated.

Section 16 (2) (c) is also violative of Article 19 (1) (g) and Article 300A of the Constitution of India

As evident from the above, Section 16(2)(c) of the CGST Act casts an impossible burden on the recipient of the supply to either ensure payment of tax by the suppliers or stand to lose out on ITC in case the supplier defaults. In fact, Section 16(2)(c) indirectly requires a recipient to assume the role of a parallel collection agency. Despite being diligent and transacting with registered suppliers against the strength of valid invoices, recipient will have to incur loss of ITC for the defaults of others, thereby increasing the tax cost of running business.

It is a settled principles of law that credit which stood accrued to a tax-payer is a vested right and is protected under Article 300A of the Constitution of India and cannot be taken away without authority of law where Article 300A provides that no person shall be deprived of property saved by authority of law and further, while right to the property is no longer a fundamental right but it is still a constitutional right16.

Under the scheme of Section 16, it is evident that the ITC can only be availed of the tax paid

by the recipient to the supplier. Further, the charging provisions require that the supplier of goods and services will be liable to discharge the tax liability and also take registration under section 22 of the CGST Act. Thus, in the mechanism provided under the CGST Act, the tax liability and statutory obligations to pay the tax casts on the supplier of goods. Further, the specific provisions of Chapter XVI of the CGST Act also empowers to recover tax, impose penalty etc. from the person liable to pay the tax. Thus, sufficient machinery has been provided under the CGST Act for the Department to ensure payment. In such circumstances, by relying on the impugned Section 16(2)(c) cannot bypass the entire statutory machinery for recovery, etc. and demand the same amounts from the recipient who has already borne the burden of tax on the inputs and input services received from such suppliers. Even though under the CGST Act, the supplier has been made responsible for collection and payment of tax since the levy of GST is on the supplier, Section 16(2)(c) practically shifts the responsibility on to the recipient, to ensure that the tax payments have been made by the supplier to the Government in order to make recipient avail ITC, which is certainly against the scheme of the CGST Act besides being onerous, impractical and impossible of compliance.

GST Department has been vested with all the powers to initiate recovery proceedings against the erring suppliers and therefore, depriving the bona fide recipients of the credit of input taxes paid by them on account of any failure on the part of the suppliers falls foul of Article 19

(1) (g) and Article 300A of the Constitution of India. Under the various provisions of CGST Act particularly in Chapter XV, the Department has been vested with the powers to not only recover tax but also to issue notices, impose penalties and collect interest in case of default in payment of taxes. Furthermore, the CGST Act under Section 132 provides for punishment, which are in the nature of imprisonment and fine, for offences where tax was collected but not paid to the Government under certain circumstances Further, the officers have been given the power under Section 69(1) of the CGST Act to arrest a person committing offence under Section 132 of the CGST Act. Therefore, there are adequate machinery provisions under the GST Act empowering the department to initiate appropriate proceedings against the registered dealers/suppliers defaulting in payment of taxes and therefore, there are no cogent reasons to deprive the bona fide recipients of the credit of input taxes paid by them in the face of such machinery provisions. On the other hand, it would be unreasonable to expect from the recipients who do not possess any power to compel the defaulting suppliers to make the payment of taxes under the CGST Act. On the contrary, upon the culmination of recovery proceedings against the erring suppliers, there is no mechanism that has been prescribed under the CGST Act to remit the reversed ITC back to the recipient is grossly unjust and arbitrary.

Section 16 (2) (c) can lead to double recovery from the recipients apart from arbitrary levy of interest under Section 50 of the CGST Act

Despite payment of applicable tax to the supplier against a valid tax-invoice, a recipient will be required to reverse the ITC claimed along with interest under Section 50 of the CGST Act in the event its supplier is unable to deposit the tax due by filing its GSTR-3B. Thus, merely on account of a non-payment by the supplier, the recipient will fail to satisfy the mandate of ‘tax charged in respect of such supply has been actually paid to the Government’ prescribed under Section 16 (2) (c) and resultantly, the

recipient will be obligated to reverse the ITC claimed along with interest under Section 50 of the CGST Act. This would lead to a situation where a recipient will be liable to pay GST twice on the supplies procured viz., once to the supplier and subsequently, to the Government by making appropriate reversal along with the interest due. Therefore, in absence of any redressal available under Impugned Section 16 (2) (c) of the CGST Act, a recipient of goods or services or both will get taxed twice for no fault on his part merely on account of any non- payment of tax by its supplier. Therefore, due to the provision contained under Section 16 (2) (c), levy of interest on the recipient under

Section 50 of the CGST Act despite payment of applicable tax by the recipient to the supplier merely on account of any default on the part of the supplier appears to be arbitrary and bad in law. Where the obligation of the recipient can only be limited to payment of applicable tax to the supplier, interest cannot be imposed on the recipient merely on account of any non-payment or delayed payment of tax to the Government by the supplier.

Section 16 (2) (c) is contrary to the Scheme of availment and utilization of ITC under the GST Regime

Section 16 (2)(c) imposing an unreasonable and arbitrary onus on the recipients runs contrary to the scheme of the CGST Act and the Rules wherein, on satisfaction of the substantive eligibility conditions, the recipient is entitled to the ITC and such ITC is not merely in the nature of a concession but instead, is a substantive right under the CGST Act. A perusal of Section 16 discloses that registered person becomes eligible for availing ITC on fulfilment of conditions and restrictions provided in the said section which, inter alia, requires:

1. Possession of tax invoice or any other tax paying document, and

2. Receipt of goods or services or both.

   Further, in terms of the second proviso to Section 16, if the payment is not made within 180 days, they ITC is added back to the output liability of the registered person. The intention of the legislature of providing seamless credit mechanism has completely been defeated on account of lack of reasonable classification between bona fide and non bona fide recipient in the impugned Section 16(2)(c). In this regard, it is relevant to note that:-

   1. The reason behind the introduction of the GST laws, which subsumed multiple levies, by way of replacement of the multiple indirect taxation levies such as state VAT, Central Excise, Service Tax, Central Sales Tax, Entry Tax etc., was to reduce the complexities that existed in the indirect taxation regime and to reduce the tax costs incurred by the businesses as the cross credit of such levies was not available. Thus, the GST law was introduced to remove the blockage of credit of duty paid on supplies to minimize the cascading effect of the taxes;

   2. The aforesaid objective resounded in numerous reports and papers issued by the Government prior to the introduction of the GST. In the ‘First Discussion Paper on Goods and Services Tax in India’ issued by the Empowered Committee of the State Finance Ministers on 10.11.2009, wherein at Para 3.3 (iii), it was echoed that subsummation of taxes should result in free flow of tax credit in intra and inter- state levels;

   3. The ‘seamless flow of credit’ was clearly stated to be in the ‘Statement of object and reason’ of CGST Act, relevant except of which has been reproduced hereinabove. Accordingly, the provisions dealing with ITC were provided under Section 16 (1) of the CGST Act;

   4. Unlike erstwhile regime, ITC was therefore, not a concession which

      was extended to the taxpayers but a substantive right forming the core of the GST legislation and Section 16(1) entitled every registered person to take credit of the input taxes ‘charged’ on any supply to him;

   5. As per the scheme of the GST law, the supplier is made liable for payment of GST to the credit of the Government under Section 9(1) read with Section 2(107) and Section 22 of the CGST Act. It is very clear from the said provisions that the liability to pay tax has been cast upon the supplier irrespective of whether the price of the goods and services has been paid to the supplier or not.

Thus, Section 16 (2) (c) appears to impose a manifestly arbitrary condition of ensuring actual payment of tax to the Government by the vendors/input service providers and denying the ITC on this sole basis, defeats the very purpose of the object with which the CGST Act and the provisions of Section 16 were brought in force. The entire purpose of the CGST Act and Section 16 gets defeated on account of the erroneous, irrational and manifestly arbitrary conditions of ensuring ‘actual payment’ on the recipient of inputs/input services.

Rule 36 (4) introduced w.e.f. 09.10.2019 is ultra vires the CGST Act and ex- facie unconstitutional

It seems that in absence of any substantive

provision in the CGST Act enabling restriction on ITC, Rule 36 (4) introduced w.e..f. 09.10.2019 restricts the ITC of the recipients in cases where details of invoices or debit notes have not been furnished by the suppliers under Section 37 (1) of the CGST Act in Form GSTR-1. Thus, purely by way of a delegated legislation, ITC which is otherwise enabled under the CGST Act, has been sought to be restricted merely on account of a mismatch between Form GSTR-3B and Form-GSTR2A. Rule 36 (4) of the CGST Rules is

in the nature of delegated legislation which has been enacted in exercise of the powers conferred under Section 164 of the CGST Act. It is a well- settled principle in law that a subordinate / delegated legislation can be challenged on (1) any ground on which a plenary legislation can be questioned; (2) the ground that it does not conform to the statute or is inconsistent with the statute under which it is made; and (3) the ground that it manifestly arbitrary and unjust.

Thus, instead of enforcing the already existing provisions in place, Rule 36(4) seeks to penalise the recipients for any default by the suppliers which is excessive, unreasonable and also does not serve the object behind its purported introduction viz., possibility of fraud, adverse impact on the revenue and encouragement to suppliers to file FORM GSTR-1. It appears that Rule 36(4) also goes against the very spirit of ensuring seamless availability of ITC to the recipient.

One of the major legislative intents behind introduction of GST was to reduce multiplicity of taxes and ensuring that a seamless flow of credit is available to the recipients to remove cascading of taxes to reduce cost. However, by imposing restriction on ITC that can be availed by the recipients, Rule 36 (4) goes against the very spirit of ensuring seamless availability of ITC to the recipient inasmuch as blocking of ITC would lead to increase in cost of doing business and would ultimately lead to inflation due to cascading of taxes.

CONCLUSION

In the light of the aforesaid discussion, it can be fairly concluded that Section 16 (2)(c) of the CGST Act imposes an unreasonable and onerous condition and provides an unequal treatment to bona fide recipients of goods and services. In Author’s view, any such condition which

imposes onerous condition on the recipients but fails to lay down any guidelines to comply with the same is completely illegal, arbitrary and falls foul of the constitutional mandate.

ITC is a vested right and the same cannot be taken away without the authority of law and the burden to pay tax cannot be shifted upon the recipient who has already paid the value of goods and services as well as the tax amount to the supplier.

In Author’s view, restriction upon right to claim ITC as provided under Section 16(2)(c) fails on the touchstone of Article 14, 19 as well as Article 300 of the Constitution of India. As far as the author can understand, furnishing of outward details in FORM GSTR-1 by the corresponding suppliers and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and cannot bear any impact upon the ability of a recipient to avail ITC on self-assessment basis in consonance with the provisions of section 16 of the Act. Further, any procedural requirement cannot deny the substantive right to claim ITC which is otherwise available to a recipient. Furthermore, it is impossible for a recipient to verify that a supplier has paid tax or not. In fact, when it is sufficiently established that the recipient has paid tax and the default is on the part of the supplier, the liability for the same cannot be fastened on the recipient at all.

Thus, it can be concluded that the restrictive condition provided under Section 16 (2)(c) is completely arbitrary, illegal and stands unconstitutional in view of the forgoing discussion.

(Source: Third Prize winner of Padma Vibhushan Nani A. Palkhivala Memorial National Research Paper Competition 2022)

---

1. Central Goods and Service Tax Bill, 2017

2. Goods And Services Tax Act, 2017 (Act 12 of 2017)

3. Central Goods and Service Tax (Amendment) Act, 2018 (31 of 2018)

4. Shree Bhagwati Steel Rolling Mills v. CCE, 2016 (3) SCC 643

5. Onyx Designs v. ACC (Audit, Bangalore), 2019-VIL-285-KAR; State of Karnataka v. Rajesh Jain, 2016-VIL-701-KAR; Mukand Ltd. v. State of Karnataka, 2018-VIL-82-KAR

6. On Quest Merchandising India Pvt. Ltd. v. UOI, 2017-TIOL-2251-HC-DEL-VAT

7. CTE v. Arise India Ltd., 2018-TIOL-SC-VAT

8. Gheru Lal Bal Chand v. State of Haryana, [2013] 29 Taxmann.com 484 (P&H),

9. M/s Tarapore & Co. v. State of Jharkhand, 2020-TIOL-93-HC-JHARKHAND-VAT

10. Chunni Lal Parshadi Lal v. Commissioner of Sales Tax, UP, (1986) 2 (SCC) 501

11. UOI & Ors. v. N.S. Rathnam & Sons, (2015) 10 SCC 681

12. M/S. D.Y. Beathel Enterprises v. The State Tax Officer, 2021 (3) TMI 1020

13. Shayara Bano v. UOI & Ors., (2017) 9 SCC 1, Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, DCIT v. Pepsi Foods Ltd., 2021 SCC Online SC 283

14. Broom’s Legal Maxims, 10th ed. (1939) pp. 162-163

15. Craies on Statute Law (6th ed, p. 268)

16. SKH Sheet Metal Component v. UOI, 2020 (38) G.S.T.L. 592 (Del.), Siddharth Enterprises v. Nodal Officer, 2019 (29) GSTL 664

    (Guj.), CCE, Pune v. DaiIchi Karkaria Ltd., 1999 (112) ELT 353 (SC), Eicher Motors Ltd. v. UOI, 1999 (106) ELT 3

Priyanshi Desai, Advocate

Introduction

The objective behind interpreting laws is to clarify the ambiguous words and their meaning according to the intention of the legislation.

There are certain principles of interpretation which are exercised by the Courts for interpretation of statutes.

In this Article, a detailed discussion will be on the “Principle of Ejusdem Generis”, which is one of the principles of interpretation.

Meaning and definition of “Ejusdem Generis” “Ejusdem generis” is a Latin term and the meaning of it is “of the same kind and nature”.

Practical Application of Rule of Ejusdem Generis

The Rule of Ejusdem Generis comes into picture whenever any legal provision comprises of general words which follows words of specific class or category and is to be applied to interpret the general words.

For instance, Explanation (baa) to Section 80HHC(3) of Income-tax Act, 1961 defines “profits of business” for the purpose of availing profit-linked deduction in respect of export business from gross total income under the aforesaid section.

This Explanation emphasizes that certain receipts of income should be excluded from the profits of business. One of such exclusion enshrined in Explanation (baa) is receipts by way of “brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits”.

So here general word is “charges” which is following specific words i.e. “brokerage, commission, interest, rent”. Now, how should the word “charges” be interpreted. The word “charges” is to be interpreted by applying the Rule of Ejusdem Generis.

In-depth analysis and practical applicability of the rule is discussed as follows:

What does Rule of Ejusdem Generis envisage?

The Rule of Ejusdem Generis provides that when a list of specific words are being followed by the general words in a section, sub-section, proviso or a clause of a statute then the general words are interpreted in a way so as to restrict them to include the items or things which will be of same type as those of the specific words.

Applicability of Rule of Ejusdem Generis

The Rule of Ejusdem Generis would apply as a canon for interpretation of statutes only if following conditions are satisfied cumulatively:

Condition No.1: The provision must consist of specific words and general words

And

Condition No.2: The specific words should be followed by general words

And

Condition No.3: The specific words should constitute a distinct genus/class/category

And

Condition No.4: There must be an intention of the statute to restrict the meaning of the general words to the genus/class of the specific words it follows.

If all these conditions are satisfied cumulatively then the meaning of the general words will be restricted to same class/category of the specific words.

Example

Let us understand this rule with an example.

For instance, a provision of a particular legislation makes a reference to words like “car, trucks, tractors, bikes and other motor-powered vehicles”. So here specific words are “car, trucks, tractors and bikes” which are constituting a distinct genus or class of land transport vehicles and general words are “other motor-powered vehicles”.

Therefore, the conditions for applying the Rule of Ejusdem Generis are fulfilled.

So, by applying this rule, the meaning of “other motor-powered vehicles” will be restricted to the same class or category of land transport vehicles constituted by the specific words i.e. car, trucks, tractors and bikes.

In other words, “other-motor-powered vehicles” will not include any air plane or ship because the specific words preceding the aforesaid general words are constituting distinct class of land transport vehicles.

CIT v. Divya Jewellers (P.) Ltd. [2014] 368 ITR 671 (Allahabad High Court)

Allahabad High Court has defined the Rule of Ejusdem Generis in the case of CIT v. Divya Jewellers (P.) Ltd. The High Court have envisaged that:

“Ejusdem generis rule is the rule of generic words following more specific ones. The rule is that when general words follow specific words of the same nature, the general words must be confined to the things of the same kind as those specified. The specified words must form a distinct genus or category. The rule reflects an attempt to reconcile incompatibility between specific and general words.” [Para No.13]

Specific words must constitute distinct genus/class

In order to invoke the application of this rule there must exist a distinct genus, class or category of the specific words.

In the recent case of B. Rudragouda v. ACIT [IT Appeal Nos. 314 & 315 of 2020] dated 15.04.2021,

Bangalore Bench of ITAT held that

“Ejusdem Generis rule being one of the rules of interpretation, only serves, like all such rules, as an aid to discover the legislative intent; it is neither final nor conclusive and is attracted only when the specific words enumerated, constitute a class, which is not exhausted and are followed by general words and when there is no manifestation of intent to give broader meaning to the general words.” [Para No. 16]

Intention of the statute to restrict the meaning of the general words

Another condition to be fulfilled for applying the Rule of Ejusdem Generis is that there must be an intention of the statute to restrict the meaning of the general words to the genus/class of the specific words it follows.

This intention can be found out when the statute deliberately uses the words of specific class/ category which are followed by the general words. And if the Court will go in contrary to that intention and gives wider meaning to the general words then the purpose of the legislation will be defeated.

In the case of Lilawati Bai v. Bombay State, the Supreme Court observed that

“Where the context and the object and mischief of enactment do not require restricted meaning to be attached to words of general import, the Court must give those words their plain and ordinary meaning.”

CIT v. Divya Jewellers (P.) Ltd. [2014] 368 ITR 671 (Allahabad High Court)

Facts of the case

Assessee was manufacturer and exporter of gold jewellery and was also manufacturing jewellery Rule of Ejusdem Generis from the perspective of interpretation of Income-tax Laws for others on job work basis. Assessee claimed profit-linked deduction in respect of export business under section 80HHC of the Income-tax Act, 1961. The formula for computing profit- linked deduction is derived in Section 80HHC(3) which is as follows:

Export Profit (Profit Linked Deduction) =	Profits of business * Export Turnover ____________________________________________
	Total Turnover

 

The assessee included job work charges in the profits of the business which is the numerator of the above formula.

Legal Provisions Involved

Explanation (baa) to section 80HHC(3) defines “profits of business” and emphasizes that certain receipts of income should be excluded from the profits of business. Explanation (baa) is reproduced as follows:

“Explanation. – For the purpose of this section,— . . .

(baa) ‘profits of the business’ means the profits of the business as computed under the head ‘Profits and gains of business or profession’ as reduced by—

1. ninety per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and

2. the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India ;”

Assessing Officer’s action

The Department by invoking clause (1) of Explanation (baa) excluded job work charges from the profits of business on the context that receipts by way of charges are required to be specifically excluded from the profits of business for the purpose of computation of profit-linked deduction.

Findings and Observations of the High Court

• It was found that receipt by way of job work charges were integral part of core business activity.

• The High Court observed that the word “charges” used in sub-clause (1) of Explanation (baa) is found in the company of expressions like “brokerage”, “commission”, “interest”, “rent”.

• By applying the rule of ejusdem generis, it was concluded that in sub-clause (1) of clause (baa), the word “charges” are preceded by the words of specific nature, such as brokerage, commission, interest, rent, etc. These specific words formed a distinct genus or category inasmuch as all those items relate to receipts earned by an assessee from non-core business activity. In such circumstances, the meaning of the word “charges” should be restricted to the distinct category formed by the specific words i.e. brokerage, commission, interest, rent, etc. If so, the word “charges’ should be confined to those charges which do not form integral part of the core business activity of the assessee.

• In the present case, the job work charges included by the assessee in the profit of business for the purpose of computing profit-linked deduction were forming an integral part of its principal business.

  Decision

• Therefore, it was held that the job work charges received by the assessee-company for the job works undertaken as in the nature understood in this case could not be held as similar to the word “charges” provided in sub-clause (1) of clause (baa) of the Explanation given under section 80HHC.

• Accordingly, it was held that job work charges would form part of operational income and had to be included in profits of business for computation of deduction under section 80HHC.

(Source : Article published in Souvenir released at National Tax Conference held at Dwarka on 2nd & 3rd October, 2022)

CA R.V. Shah

Preliminary:

Title of Chapter XX-C comprises of 16 sections, Section 269U to Section 269 UP. The title of Chapter XX-C is indicative of the nature of power and proceedings. The nature of power is penal and the proceedings are quasi criminal. The satisfaction of the component authority is exclusively a subjective satisfaction based on objective facts. Sections 269U to 269V were inserted by Finance Act, 1986 with effect from 1st October, 1986 vide Notification No. SO480(E), dated 7th August, 1988, i.e., assessment year 1986-87.

Section 269UA contains various definitions such as:

1. Apparent consideration
2. Appropriate authority
3. Immoveable Property
4. Person interested, and
5. Transfer

1. Agreement for transfer means an agreement for the transfer of any immovable property, whether registered under Registration Act, 1908 or not?
2. Apparent consideration:

In relation to any immovable property in respect of which an agreement for transfer is made for immovable property means:

1. If it is to be transferred by of sale, the consideration for such transfer as specified in the agreement of transfer would be an apparent consideration.

   The ordinary meaning of the word “sale” is a transaction entered into voluntarily between two persons known as buyer and the seller by which the buyer acquires the property of the Seller for an agreed consideration known as price – Calcutta Electric Supply Corporation Ltd. 19 ITR 406 (Cal.). The term “Sale” means the transfer of property for a price CIT v. Devas Cine Corporation 68 ITR 240 (SC). Thus, the money consideration is an essential ingredients of a transaction of sale. Hon’ble Supreme Court in Jagdish Sugar Mills Ltd. v. CIT 161 ITR 209 (SC) has held that the sale would include an auction sale.

2. If the immovable property is to be transferred by way of exchange:
   1. In a case where the consideration for transfer consists exchange of one property for another, the price that such property would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made and such sum.

The meaning of the word “Exchange” necessarily presupposes existence of two different properties owned by different persons. As a result, the ownership of one property is transferred to the owner of the other property and vice versa CIT v. Rasiklal Maneklal (HUF) 95 ITR 656 (Bom.)

The immoveable property is to be transferred by way of lease:

1. In a case where the consideration for the transfer consists of premium only, the amount of premium as specified in the agreement for transfer would be an apparent consideration.
2. In a case where the consideration for the transfer consists of rent only, the aggregate of moneys, if any, payable by way of rent and the amounts for the service of things forming part of or constituting the rent as specified in the agreement for transfer would constitute apparent consideration.
3. In a case where the consideration for transfer consists of premium, the moneys (if any) payable by way of rent and the amount for the service or things forming part of or constituting the rent, as specified in the instrument of transfer would constitute apparent consideration.

A lease is a division of bundle of rights. The full “bundle of rights” inherent in property with freehold tenure may further be divided by a lease or leases so as to create two or more interest in the property like lessor’s interest, lessee’s interest, sub-lessee’s interest etc.

Discounted value of consideration: Where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be “discounted value” of such consideration, as on the date of

such agreement for transfer, determined by adopting such rate of interest, i.e., 8% per annum vide Rule 48I.

Section 269UA(2): Any immoveable property in respect of which an agreement for transfer is made of immovable property means:

1. Where the consideration for transfer consists of a sum of money only, then such sum (i.e., case of sale);
2. Where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made, and such sum (i.e., case of exchange);
3. Where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date on which agreement for transfer is made and such sum (i.e., in case of lease).

   Where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the “discounted value” of such consideration, as on the date of such agreement for transfer determined by adopting discounted rate of 8% under rule 48-I.

4. “Immoveable Property”: The term “immoveable property” has been defined in sub-section (2)(d) of Section 269UA. It means (i) any land or any building or a part of the building and includes, where any land or any building or part of the building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. (ii) Any right in or with respect to any land or any building or part of the building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in a cooperative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building.

The definition of immoveable property is exhaustive.

It means (i) any land or building or any part of a building to be transferred together with any machinery, plant, furniture, fittings or other things. (ii) Any right in respect of or with respect to land, building or part of the building which has been constructed or which is to be constructed or by becoming a member of or acquiring shares in a cooperative societies or association of persons or by way of any agreement or any arrangement of whatsoever nature.

“Person Interested”: Section 269UA(2)(e) defines the term persons interested in relation to any immoveable property and includes all persons claiming or entitled to claim and an interest in the consideration payable on account of the vesting of the property in the Central Government.

“Transfer”: (i) Transfer in relation to immovable property is by way of sale or exchange or lease for a term of not less than twelve years; and (ii) includes allowing the possession of such property to be taken or retained in part performance of a contract referred to in Section 53A of the Transfer of Property Act, 1882. (iii) Transfer in relation to immovable property

means doing of anything by way of admitting a member, or of by way of transfer of shares in a co-operative society or company or other association of persons by way of agreement or arrangement or in any other manner which has the effect of transferring or enabling the enjoyment of such property.

Nature of powers:

The nature of power is penal and proceedings are quasi criminal. CIT v. Vimlaben Bhagwandas Patel & CIT v. Kamlaben Kanjibhai Patel [1979] 1 Taxmann 183 (Guj.). The satisfaction of the competent authority is absolutely a subjective satisfaction based on objective facts. Conditions precedent required is to be satisfied before the Competent Authority can exercise his satisfaction of initiating proceedings. For initiation of proceedings, two conditions have to be satisfied by the Competent Authority. Appropriate notice has to be published in the gazette must be observed and the principles of natural justice has to be observed by the Competent Authority in the course of inquiry for acquisition. Competent Authority in the context of acquisition proceedings under Chapter XXC has to follow the best method of valuation to arrive at fair market value. It is desirable that Competent Authority must resort to checks and counter checks by applying two or all the methods, namely, opinion of experts, principles of natural justice, price paid within a reasonable time in bonafide transactions of purchase of land acquired or of adjacent lands and number of years purchase of actual or immediately prospective profits of land acquired.

Restriction on transfer of immovable property:

There cannot be any transfer of immovable property in such area and value exceeding five lakh rupees provided in Rule 48K of the Income-tax rule, 1962 shall be effected except after an agreement for transfer is entered into between persons who intends transferring the immovable property atleast four months (prior to 1-6-1993, it was three months) before the intended date of transfer. The agreement shall be reduced to writing in the form of a statement by each of the parties to such transfer or by any of the parties to such transfer acting on behalf of himself and on behalf of the other parties.

The agreement shall be recorded in writing in the form a statement by each of the parties to such transfer or by any of the parties to such transfer.

Section 269UC(3) provides that every statement shall contain the following:

1. It shall be in the prescribed form 37-I under Rule 48 Lacs.
2. It shall set forth such particulars as may be prescribed; and
3. It shall be verified in the prescribed manner.

The said statement shall be furnished to the appropriate authority in such manner and within such time as may be prescribed by each of the parties to such transactions acting on behalf of the other parties.

Section 269UC(4) provides that above referred statement furnished to the appropriate authority is found to be defective, then the said authority shall intimate the defect to the parties concerned and give them the opportunity to rectify the defect within a period of fifteen days (15) from the date of intimation or within such further period the appropriate authority on an application made may extend further period as may be allowed and the defect is not rectified within the period fifteen days (15) or the further period so allowed, then such statement shall be deemed never to have been furnished.

Purchase of Immoveable Property by Central Government:

Section 269UD provides that the appropriate

authority may make an order for the purchase by the Central Government of such immovable property at an amount equal to the amount of apparent consideration.

It further provides that no such order shall be made in respect of any immovable property after the expiration of two months from the end of the month in which the statement in respect of such property is received by the appropriate authority under Section 269UC.

Second Proviso to Section 269UD provides that statement referred in Section 269UC is received on or after 1st June, 1993, no order shall be made for purchase of such immovable property after expiration of three months.

Section 269UD(1A) provides that the appropriate authority shall give a reasonable opportunity of being heard to the transferor, the person in occupation of the property, the transferee and to every other person in occupation of the immovable property and every other person whom the appropriate knows to be interested in the purpose.

Vesting of Property in the Central Government:

Section 269UE provides that where an order is made under Section 269UD(1), by the appropriate authority under Section 269UA(d) (i), such property shall on the date of such order, vest in the Central Government in terms of the agreement for transfer.

It further provides that where the appropriate authority, after giving reasonable opportunity of being heard to the Transferor, transferee or other interested persons in the said property, is of the opinion that any encumberance on the property, or the leasehold interest specified in the above agreement for transfer with a view to defeat the provisions of Chapter XX-C the appropriate authority may declare by an order that such encumbrance or leasehold interest is void and thereupon the said property shall vest in the Central Government.

Section 269UE(7) provides that where any rights in any immovable property, being rights in or with respect to, any land or building or a part of the building which has been constructed or which is to be constructed have been vested in the Central Government shall have the effect as if the reference to immovable property therein with reference to such land or building or part thereof as the case may be.

Payment of consideration for purchase of immoveable property by the Central Government:

Where an order for purchase of any immovable property is made, the Central Government shall pay by way of consideration for such purchase an amount equal to the amount of such apparent consideration.

Payment or deposit of consideration: Section 269UG provides that the amount of consideration shall be tendered to the person or persons entitled thereto, within a period of one month from the end of the month in which the immoveable property vests in the Central Government under Section 269UE.

Immunity to Transferor against claims of Transferee for transfer:

Section 269UM provides that when order for the purchase of immovable property by the Central Government is made no claim by the Transferee shall lie against the Transferor by reason of such transfer being not in accordance with the agreement for the transfer of immovable property entered into between the Transferor and the Transferee.

Order of an appropriate authority to be final and conclusive:

Section 269UN provides that any order made under Section 269UD or 269UF shall be final and conclusive and shall not be called in question in any proceedings under the Act or under any other law for the time being in force.

Chapter XX-C shall not apply to certain transfers:

Section 269UO provides that at this Chapter shall not apply to or in relation to any immovable property where the Agreement for such transfer is made to his relative on account of natural love and affection.

CA Anilkumar Shah

The need of the Charitable Trusts carrying out various activities of public charitable purposes do not need any elaboration, especially in the country of culture of giving is known for more than 5000 years.

The rising economic disparity in the society necessitates the need as never before. The need is further aggravated by the inability of the Govt. to input the resources in the basic infrastructure in the fields like relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. That is the reason these objects are inserted in the definition of Charitable Purpose as defined in Sec.2(15) of the Income Tax Act, 1961 (the Act).

The country is still struggling to build infrastructure and basic amenities in the fields especially of education and medical facilities.

The provisions regarding exemptions to charitable trusts have undergone many changes especially during the last decade.

Since 2015 the provisions in the Act have undergone major changes and amendments. The misuse of the exemption provisions by some errant trusts have made the Govt. to make the changes in the Act. But, more than that the revenue has been haunting the trusts to tax its receipts and curb the exemptions day by day.

In majority of the cases lack of understanding of the exemption provisions has raised many

avoidable litigations and in the process, the settled positions are unsettled even by Hon. Apex Court changing its own interpretations.

Three recent judgments of far reaching nature, two of Hon. the Supreme Court and one by Hon. Madras High court, which I wish to draw attentions of the readers to: –

• ACIT (Exemptions) v. Ahmedabad Urban Development Authority, [2022] 143 taxmann.com 278 (SC), dt. 19-10-2022.

• New Noble Educational Society v. CCIT, [2022] 143 taxmann.com 276 (SC), dt. 19-10-2022.

• CIT v. M/s. MAC Public Charitable Trust & others (T.C.A. No. 303, 309 & 310 of 2021; T.C.A. No. 62 & 63 of 2022), dt. 31-10-2022.

All the three judgments require a separate article each to discuss the issues and far reaching impacts of each of them.

We will discuss them in a series of articles starting from this article.

Let us first take up the case of –

CIT v. MAC Public Charitable Trust & others, [2022] 144 taxmann.com 54 (Madras)

Facts in brief

It may kindly be noted that the facts in this case played a vital role and hence have to be understood properly.

1. Brief facts of the lead case were as under-

   The assessee, Sri Venkateswara Educational and Health Trust registered as Charitable Trust under Section 12A (a) of the Act and filed the return of income with ‘nil’ income for the AY 2011-12.

   On verification of ITR and other details during scrutiny, it unfolded that Rs.9,90,50,000/- was received by the Assessee as corpus donation from M/s. MAC Charities, M/s. MAC Public Charitable Trust and M/s. Spic Educational Foundation etc. This amount was received by the Assessee as donations from number of persons. To verify the same, elaborate exercise was undertaken by the Assessing Officer (AO) by issuing summons to various persons and their sworn statements were recorded.

   The enquiry revealed that the said amount was paid to M/s. United Educational Foundation, in lieu of procuring seats in Sri Venkateswara College of Engineering which is a unit of the Assessee.

   Further analysis concluded that there was a nexus between M/s. United Educational Foundation, M/s. MAC Charities, M/s. MAC Public Charitable Trust and Sri Venkateswara College of Engineering.

   The AO also concluded that the Assessee utilised M/s. United Educational Foundation, M/s. MAC Charities, M/s.MAC Public Charitable Trust as a tool for transfer of capitation fees received from the students and thereby virtually sold education for a price.

   Such practice of receiving donation and/or capitation fee as a condition precedent for admitting a student is opposed to the provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992.

   The enquiry also unfolded that the Assessee demanded and insisted the parents of the

   students, who wish to get admission for their children, to pay capitation fee to the other trust in the name of their relatives or friends of the parents, but not in their name. The parents also, in the interest of admitting their children in the said College, were forced to pay capitation fee in the name of their relatives or friends.

   According to the AO, the analysis of the fund transactions confirms that the Assessee made to appear that the contributors voluntarily paid the capitation fee, which was channelised through other trusts.

   The donations received in the other trusts as Corpus donation and also paid as Corpus donations to the college trust.

   Thus, the Assessee had purposefully and intentionally channelised the capitation fee in the name of donations back to themselves, thereby exempting the receipt of amount at both ends and confirmed the same through sworn statements from some of the parents and donors.

   The AO also noticed that as per the Trust Deed dated 01.08.1984, the founder of the Trust was Mr. L.V. Ramaiah, but on examination of the supplementary deed dated 13.06.1995, it was executed by Dr. A.C. Muthiah. An amendment deed dated 17.12.2011 was also perused which indicated that it was executed by Mr. M.H. Avadhani. Therefore, the Assessee was called upon to submit evidence for change in trustees and to explain, whether it was intimated to the Director of Income Tax (Exemptions), but the Assessee failed to respond to the same.

   The assessment for all the trusts were completed on the same lines. The exemption u/s 11 was denied and donations were treated as income and tax levied for the years AY 2011-12, 2013-14 and 2014-15 for all the trusts.

   Appeal before Hon. CIT(A)

2. The assessee trusts filed appeal and the Hon. CIT(A) allowed the appeals with the following conclusions-

   1. There is no prohibition in law for a charitable institution to receive donation from another charitable institution.

   2. There is also no prohibition in law for a charitable institution to give donation to another charitable donation

   3. The donation given by the Assessee trust is application of income and hence exempt u/s.11 of the Act.

   4. The donation received and given by the Assessee trust are voluntary in nature.

   5. The Assessee trust is not connected with receipt of donation/capitation fee by any trust from anyone.

   6. The Assessee trust is not connected with the admission of students to any Engineering College.

   7. In result, the appeal of the appellant trust is fully allowed.

(Note: It may be noted that now the donation to other trusts is not allowed as application of income in the hands of the donating trust.)

Appeal before Hon. ITAT

3. Aggrieved by the orders so passed by the Appellate Authority dated 01.08.2014 relating to the AY 2011-12, the Revenue preferred the appeals before the Income Tax Appellate Tribunal. It was contended on behalf of the Revenue before the Tribunal that the funds were mostly diverted to their connected/related charitable Trusts in order to secure admission for the relatives/wards of the donors in the educational institution run by M/s. Sri Venkateswara Educational & Health Trust. The Revenue placed reliance on the sworn statements recorded from various persons.

   The Tribunal, by a common order dated 12.04.2017, rejected the contentions so made on

   the side of the Revenue by observing that the statements recorded from the donors revealed that they made the donations voluntarily.

   Further observations of the Hon. ITAT were as under-

   • The AO did not examine the source of investment made by the donors. While so, it could be inferred that the AO might have coerced the individual donors and obtained the statements as the donors have changed their stand before the AO.

   • None of the donors or the parents/ students studying in the educational institutions did make any complaint to any of the authorities complaining the so-called extortion of money in the form of donation for securing admission in the educational institutions run by M/s. Sri Venkateswara Educational & Health Trust.

   • There is no bar for the Assessee Trusts to receive and/or accept voluntary donations from the donors or from the relatives/ parents of the students studying in the educational institutions connected with the charitable trusts.

   • There may be quit-pro-quo arrangement for receipt of donation, but unless it is established by cogent evidence drastic decision cannot be arrived at by withdrawing the benefit of Section 11 of the Act to all the charitable trusts which will jeopardize the functioning and the very existence of the charitable educational institutions.

   • The trusts have issued valid receipts for the donations received and had maintained the names, address of the donors as per the provisions of the Act.

   • There is no finding with respect to any violation of Section 13 of the Act, because the donations received by the respective charitable trusts are spent according to the objects of the trusts.

     In effect, the Tribunal opined that the AO had not brought out credible materials to show that the Assessee Trusts had received donations as a condition precedent for allotment of seats to the student in M/s. Sri Venkateswara College of Engineering. Accordingly, the Tribunal dismissed the appeals preferred by the Revenue.

   Appeal before Hon. High Court

   of Madras The reported order of Hon. High Court runs in 124 pages and the issues involved are discussed in depth.

   There were total 20 cases decided together, and as the issues involved in all these appeals were common, they were taken up for hearing together and were disposed of by this common judgment.

   Submissions by the Revenue

4. In appeal before Hon. High Court the learned Senior Standing Counsel appearing for the revenue submitted following issues:

   • The respondents /Assessees are part of a group trust. The modus operandi is that students of the educational institution of Trust – A are asked to give donations to Trust – C. Thereafter, Trust – C transfers the donation amount received to Trust – B and from Trust – B to Trust – A. Such is the arrangement within the group trusts and they have common trustees. In order to prove the modus operandi resorted to by the Assessee-Trust, the Assessing Officer recorded statements from 1500 persons out of which around 50 percent of those who have given statement, conceded that the donation was a quid pro quo transaction for admission. However, certain parents retracted their statements, which was mainly relied on by the Appellate Authority as well as the Tribunal to set aside the orders of assessment. Stating so, the learned

     Senior Standing Counsel submitted that the channelisation of the donations in such a way cannot be treated as voluntary donations.

   • Assessees’ admittance of re-donation by one trust to the other Trust, amply fortifies the stand of the Revenue that the transaction is not genuine.

   • The capitation fee received was for allotment of seats by the Trust and hence, it cannot be said to be a voluntary contribution/donation to the trust.

   • That apart, the fact that no action has been initiated by the State cannot be a reason to allow the exemption under the provisions of the Act or absolve the liability of the assessees, that too after the device to route the capitation fee was discovered. Further, it is also settled law that illegality cannot be perpetuated.

   • As per the provisions of the Act, the Assessing Officer is a statutory authority who can independently make his own decision upon scrutiny of the records and pass orders for disallowing the income. Hence, the Assessing Officer need not depend upon the State Government authorities to initiate action under the Tamil Nadu Educational Institutions (Prohibition and Capitation Fee) Act 1992.

   • When the contributions cannot be treated as voluntary, the further question of their application to charitable purposes or otherwise, need not be gone into, meaning thereby that the assesses are not entitled to the benefits of Sections 11 and 12 of the Act.

   Submissions by the assessee

5. The learned senior counsel for the assessee trusts submitted that –

   • The object of the trust is to run educational institutions and other activities; and is to support other institutions by donating the donated money.

   • There was no quid pro quo as contended by the learned counsel for the department. The trustees in the trusts do not get benefitted in any way at all. Thus, section 13 is not attracted in this case. Continuing further, the learned senior counsel submitted that the respondents / trusts have registration under sections 12A as well as 80G of the Act and hence, the power to divert funds under section 12 exists.

   • The application of the donated money is towards the object of the trust, more particularly, charitable purposes only. Therefore, the same becomes relevant in view of section 13(1)(c) r/w section 13(3).

   • No opportunity for cross examination of the witnesses was provided to the respondents / assessees.

Judgment by Hon. High Court

6. The judgment has discussed in depth the
   following important issues –

   1. Education – meaning

   2. Education – Rights and duties under the Constitution

   3. Exemption provisions u/s 10(23C), 11, 12 and Sec.13

   4. Education- not a trade, business or commerce

   5. Provisions of Tamil Nadu Educational Institutions (Prohibition Collection of Capitation Fee) Act, 1992

   6. Menace of Capitation fee and its illegality

   7. Retraction of the sworn statement recorded and the issues in rejecting the same.

   8. Lifting of Corporate veil for Trusts

   9. Meaning of Voluntary Contributions.

7. Conclusions of the Hon. High Court-

   • In view of our findings that the amounts
     collected by the assessees are capitation fee in quid pro quo for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose, the orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside. Accordingly, all the substantial questions of law are answered in favour of the Revenue and against the Assessees. – Para 68.

   • Our country, though has developed considerably, after independence and made several strides marching forward in different fields including in education, we are yet to reach the stage we aspired to, as a nation with specific reference to education.

   • The States are unable to comply with the directions enshrined in the Constitution to thrive for education for all, which would encompass within it the access to all sections of the society by providing equal opportunity.

   • Parents are reluctant to make their ward attend Public Schools unlike in other countries.

   • As per the report of the All India Survey on Higher Education for the year 2019- 20, by the Ministry of Education, Higher Secondary Department, 78.6% of colleges are privately managed. In the Union Budget for the year 2022-2023, a sum of Rs.1,04,277 crores has been allocated for school education, literacy and higher education.

   • Despite the fact that there are State laws making it penal to collect capitation fee and the repeated dictum of various Courts

     including the Apex Court, the menace of capitation fee could not be curtailed, forget eradication.

   • Education is a means to achieve equality. It not only instils confidence in the mind of the student, but also is a tool to eradicate exploitation. It offers employment opportunity, besides helping in churning oneself into a better person.

   • The development of a country is to be weighed in terms of the educated. Privatization of education aids in collection of Capitation Fee.

   • We hope that the Central and State government will thrive to ensure that all those who deserve, but are unable to get admission in educational institutions for want of funds, are accommodated to pursue education and take appropriate steps to eradicate the collection of capitation fee by creating policies and awareness and for that purpose, on the lines of the web-portal under the aegis of the Supreme Court, a web-portal of a similar nature must be set-up, wherein any information about the private colleges charging capitation fees can be furnished by the students or their parents or anyone having first-hand information in this regard.

   • The web-portal has to be maintained and regulated by the National Informatics Centre (NIC) and the Information Technology and Digital Services Department, Government of Tamil Nadu; and the State Government is directed to publish the details about the web-portal in the English as well as vernacular newspapers at the time of admission.

   • In addition, a pamphlet should be compulsorily given to the students and their parents at the time of counselling informing them about the availability of the web-portal stated above. – Para 69

8. Hon. High Court ordered the Dept. as under-

   In view of the fact that the present appeals filed by the Revenue are allowed, it is natural that –

   1. The Assessing Authority shall proceed further on the basis of the orders of assessment of tax, which are the subject matter of these appeals.

   2. The Assessing Authority shall also proceed further for cancellation of registration certificate issued to the Assessees/trusts under Section 12A of the Act thereby not to treat the respondents as charitable institutions any longer.

   3. The Assessing Officer shall also proceed to reopen the previous assessments, if permissible by law, based on tangible materials relating to collection of capitation fee, since it is illegal and is punishable.

9. Regarding lifting of corporate veil in case of trusts –

   1. There is no bar to apply the doctrine of lifting of corporate veil in the case of trusts.

   2. What is to be seen, is the existence of the systemised mechanism to collect the capitation fee as donation through other entities.

   3. The principles laid down in various decided cases while expounding the concept of lifting the corporate veil, especially in cases relating to tax evasion, and in cases where public interest and policy are sought to be defeated by fraud, are squarely applicable to the present appeals where while the Assessee Trusts are controlled by common trustees and are in indeed sister Trusts, this Court may be constrained to lift the veil to see the real beneficiaries and the object of the donations by relatives/friends of parents as quid pro quo for admissions into the Assessee educational institutions as well s the other Assessees who are not educational institutions.

   4. On lifting the veil, it is clear as daylight that the modus operandi adopted by the Assessee Institutions and Trusts are with the twin objectives of circumventing/ violating the provisions of the Capitation Fee Act of Tamil Nadu as well as evading tax while seeking tax exemption under the corporate veil of being different and distinct entities receiving funds from each other for purely charitable purposes.

   5. Suffice it to say, nothing can be farther from the naked truth that cannot hide itself sufficiently behind the fig leaf of the legal cover sought to be taken by the Assessees under the guise of being charitable trusts and seeking exemption thereof.

10. It may be seen that the menace of Capitation fee like in the Medical and Engineering colleges can never be justified and have to be removed. The scenario of admissions in medical and engineering colleges is going to change upon taking all the steps as per the directions of the Hon. High Court.

11. But, at the same time, it must be noted that apart from best efforts of the Central as well as State Governments, the infrastructure for the education which is a fundamental right of every citizen, is very poor and have to still go a long way. That is the reason that the private educational institutions are allowed to work in the field. Otherwise there is no reason why should they be permitted to operate in the education field at all. The menace of capitation fee cannot be justified on any ground. But, at the same time the environment to build good education infrastructure is not conducive especially when it comes to land, building and costly equipments and heavy running expenses. On one hand the Act provides exemptions for incomes of the charitable trusts, but at the same

    time puts the restrictions in such a way that the exemptions practically cannot be availed. The surplus is many times confronted by tax officials as taxable and unwarranted litigation is raised. The courts are full of such cases. Any tax digest will generate huge number of cases where the surplus was treated as profit and taxed. The tax officials, raising unwarranted issues and demands especially in the trust cases apart from settled principles, are never punished nor even asked any questions. The revenue including its audit dept. seem at least apparently to be biased against the trusts, for the reasons best known to them.

12. The amount received by the trusts in this case is expended on the objects of the trust and this fact is nowhere denied by any authority at any level including the Hon. High Court. This underlines the need of huge funds required to meet the expenses of carrying the educational activity only. Who will give a thought to this? The nature of the current generation as well as the parents is to look for the posh and good infrastructure of the educational institution. If the laws do not permit to collect fees properly, where from will the money come to build the same?

13. The exemption u/s 10(23C)(iiiad) the limit as correctly interpreted by various Hon. Courts was receipt of Rs.1 crore to be calculated institution-wise and not per trust as such. The limit was set as long as 1998. Did not that need to be increased commensurate with the inflation? Instead the law is amended to make it for the entire trust at Rs.5 crores only. By this attitude India cannot have any Nalanda again in this country nor any Oxford, Stanford, or Cambridge or the like. The present brain drain will never reduce, if the attitude is not changed. Just for comparison the

    The salary was increased to Rs.500 in 1964, Rs.750 in 1983, Rs. 1,000 in 1985, Rs. 1,500 in
    1988, Rs. 4,000 in 1998, Rs. 12,000 in 2001 and to
    Rs. 16,000 in 2006.
    The daily allowance was increased to Rs.31 in 1964, Rs.51 in 1969, Rs.75 in 1983, Rs.150 in 1988, Rs.200 in 1993 (subject to the members signing the Attendance Register), Rs.400 in 1998, Rs.500 in 2001 and to Rs. 1,000 in 2006.

    A comparative chart of 1998 and latest salaries shows that it is increased from Rs.4000 to Rs.1,00,000, a whopping 2500% increase since 1998.

    What parameters are followed in deciding various exemption limits is known only to the concerned bureaucrats and the members of the house.

    An interesting provision from Section 8A of The Salary, Allowances and Pension of Members of Parliament Act, 1954, which reads as under-

    (1A) The pension and additional pension to every person shall be increased after every five years commencing from 1st April, 2023 on the basis of Cost Inflation Index provided under clause (v) of Explanation to section 48 of the Income-tax Act, 1961.]

    [Inserted by Act 13 of 2018 (The Finance Act, 2018) – effective from 01-04-2018.]

    Is the same not required to be inserted in exemption limits including the basic amount not chargeable to tax?

14. I am finding it irresistible to quote an interview with an American whom I met in New Jersey USA in June 2014. I asked what are the careers brilliant students wish to pursue in USA? His answer was: every brilliant student wishes to become a Professor, a Teacher or a Police! What this indicates? Can we dare to imagine or compare this answer in our country?

15. The judgment has referred the allocation of Rs. 1,04,277 crores Budget 2022 for school education, literacy and higher education. But if we look into the details of this figure the picture is not very encouraging.

    Expenditure Profile 2022-2023, February 2022 was tabled by Ministry of Finance Budget Division. The above figure appears under Sr. No.5 Expenditure of Ministries and Departments in Part I at pages 6-18 and the details of the same in following pages.

    The details reveal that major portion is going to be on salaries. It may be noted that the pay-scales have risen to meet the 7th pay commission norms. Thus, the major portion of the budgeted allocation is on the salaries and the infrastructure development is allocated a meagre amount.

    The details appear as under –

    Details of Expenditure allocation		Rs. Crores
    25. Department of School Education and Literacy		63,449.37
    1. Central Sector Schemes/Projects	358.26
    2. Centrally Sponsored Schemes	50,694.11
    3. Establishment Expenditure of the Centre	38.00
    4. Other Central Sector Expenditure	12,359.00
    26. Department of Higher Education		40,828.35
    1. Central Sector Schemes/Projects	5,412.01
    2. Centrally Sponsored Schemes	2,042.95
    3. Establishment Expenditure of the Centre	273.38
    4. Other Central Sector Expenditure	33,100.00
    Total Budget allocation		1,04,277.72

    One can keep the track of the actual expenditure details of the budgeted figures which I am sure will reveal interesting scenario.

    Hon. High court itself has observed that 78.6% colleges are privately managed. Why this situation? Certainly the education sector is yet to achieve the expected level of infrastructure by the Govt. The exemption norms under the Income Tax Act, 1961 have to be re-visited and requires a holistic view to be taken by all the concerned authorities.

    We will look into the two important judgments of Hon. Supreme Court in the next two articles.

Piyush Baid, B.Com (Hons) (Cal), FCCA (London), MCSI (London), ACIArb (London), ADIT (London), CertBV (Paris)

Having dealt in substance the basic legal principles governing what could be a basic minimum of taxpayer’s rights, herein with this article we deal the guiding principles and also jurisdictional application of the same.

When considering taxpayers rights, it is an interesting aspect, that unlike the others in the scope of international law, this one is derived not from within nations, but rather maybe from an individual to a jurisdiction. This is a peculiar feature of International Taxation.

For the purpose of furtherance of taxpayer’s rights in an international context, the International Law Association from the study group concerning Taxpayer’s rights (Kyoto, 2020) has recommended the creation of a draft model Charter of Taxpayer rights1, and the International Fiscal Association on its part had in the 2015 congress at Basel2, identified about 90 items of best practices for furtherance of the agenda of protection of taxpayer rights, the International Bureau of Fiscal Documentation and its project “Observatory on the Protection of Taxpayers’ Rights”3, have been proactive in their quest for establishing a best practice draft for protection of taxpayer’s rights. Notable contributions have been received from the International Association of Tax Judges as well.

Keeping this in mind we would be dwelling on some of the jurisdictions and their adopted standards in the matters concerning taxpayer’s rights;

Brazil: Brazil is principally a civil law jurisdiction, with the constitution being the fundamental binding document and spirit. As with civil law jurisdictions, the rule of law is the primary driving force, and citizens are subject to the law and legal procedures. Correspondingly, it also holds that state officials, and by extension, the revenue is also bound for action only as mandated by law. Major constitutional reforms were carried out in the year 1988 and a separation of federal and municipal power was done, by extension of the reforms, taxes take effect with competence granted by the Constitution. Taxes are attributed to and from the federal government, state, and municipal levels, as envisioned by the reforms, which shall be made effective after proper deliberation mechanisms by the National Congress, State Assemblies, or Municipalities as and when required. Economic and juridical double taxation is unconstitutional and prohibited. As with India, the division of powers has led to a complexity in tax rules. As to whether, a simplified system like GST would be effective, this is an unchartered territory.

National complimentary Acts are implemented in a harmonized manner, by either of the Federal, State or Municipal Authorities. They also prescribe modes on tax related issues like taxpayers’ rights and obligations, tax bases and rates, procedures and manners tax assessments, availing of tax credits, other complementary statutes including those of limitations for tax notices and collection. Ordinary acts can change taxes that are within the competence of the federal government, including individual income tax, corporate income taxes, excise tax and social contributions. All definitions under tax laws are delegated to the legislature. Rates, tax liability and rights, tax bases, penalties all come under the domain of definition by legislature. All taxing benefits, suspensions, preferential treatments, enforcements are also subject to enactments by legislature. The Brazilian Supreme Court has limited the powers of tax administration and tax legislation4. Principle of initial onus on the taxpayer is clear and principles of natural justice apply.5 There are no general discretionary powers to the tax administration, and any such power is granted by specific statute only.

Brazil doesn’t have any place for retroactive/ retrospective law in taxation, and there is a time lag of 90 days for application of taxing statutes/ rules and rates. Protection against retrospective/ retroactive application of law is subject to fundamental rights and rule of law, and is not specifically mentioned in the constitution. Fundamental rights are more often decided by deliberation amongst judges without according any reason for their decision as such. However, generally, the judicial process takes care that fundamental rights are not overridden6.

In matters of GAAR, Brazilian tax code has no specific provisions for GAAR or SAAR, however, it is mentionable that there are many other alternative measures of tax abuse. Although Article 116 of the Tax Code enacts a similar proposition, there has been no significant achievement in this aspect since its enactment in 2001. Alternative measures to combat tax evasion incorporated in the tax code are worldwide taxation, formulatory transfer pricing rules, thin capitalization rules, rules on distribution arrangements which conceal the true nature of transactions, differentiated tax treatment for tax heavens and low taxed jurisdictions, high administrative penalties and criminal sanctions.

Russia: Article 57 of the Russian constitution inter alia mandates that all Russian residents are subject to taxing obligations, which shall be determined singularly by the legislature. Taxes are a sovereign right as such. Residents are obligated to pay taxes under the tax code; however, this is subject to the fundamental principles that only whatever is mandated legally should be paid. This mandate applies both to any levy or tax by whatever nomenclature referenced7, and integrally introduces non-discrimination, non-arbitrariness, allowing free movement of goods within the Russian confederation, fairness, and bias in favor of the taxpayer in case of any doubt or uncertainty8. Also defined is that tax or levy of whatsoever nature may only be levied in accordance with the parameters defined in the Russian Tax Code. Thereby ensuring that taxpayers rights are protected at least on the code level. In particular it is to be noted the bias in favor of the taxpayer in case of any ambiguity. Retrospective taxation, wherein the tax payer is left worse of is prohibited by the Russian Tax Code explicitly9. However, the converse10, i.e. reduction/abolition altogether of obligations, and measures regarding protection of taxpayer’s rights might be applicable with retrospective effect. Furthermore, any measure for new taxes takes place only from January 1 of the subsequent calendar year. Any measure for reduction however, comes into force from the day of the official publication thereof.11

Russia in terms of GAAR, was more or less a judicially determined jurisdiction12, till about 2017, when on 18th July, GAAR was formally introduced in the Russian Tax Code the Federal Law No. 163-FZ “On Amending Part One of the Tax Code of the Russian Federation” (Law 163- FZ), which supplemented the Tax Code with Article 54.1 “Limits on the exercise of rights to calculate the tax base and (or) the amount of tax, fee, and insurance premiums” (Russian GAAR article)13. Further clarification on this was issued by way of a guidance letter. Interestingly, as a matter of taxpayer protection and ease, the initial onus on proving tax abuse is on the authorities.

Japan: Japanese residents are subject to taxing obligation under Article 30 of the Japanese Tax Code. However, the rights of taxpayers are protected whereby no new taxes or measures

of revenue might be imposed on the taxpayer unless permitted by rule of law14. In addition to this Supreme Court of Japan has held in a catena of cases15 that rule of law in fairness mandates that provisions regarding rules, rates, assessment procedures, collection procedures, should be clearly laid down in the piece of taxing legislation. The two cardinal principles of “no taxation without representation” and certainty in taxation are followed consistently. Arbitrariness in taxation is there in practice, but the courts have regularly intervened and upheld the word of tax law in Japan.16

Section 17 of the Japanese Tax Code17, had an element of GAAR in that, transactions which concealed tax liability, within family members, could be overridden by the National Tax Authority of Japan. In 2001, Japan went ahead and introduced GAAR for corporates, and since then there have been a significant number of rulings in matters of GAAR18.

China: As expected, information on taxpayer’s rights is notoriously difficult to obtain and interpret. So much so, that even when the International Fiscal Association in 2015 at the Basel Congress released The Practical Protection of Taxpayer’s rights, information from China was notably absent from the regional Cahiers19. The National People’s Congress in China has been assigned the task of defining tax legislations and its rights and obligations, including that of tax assessment, recovery, collection, non-discrimination, rates et al. Article 820 of the Legislation Law of the People’s Republic of China deals inter alia of taxation, and it states that taxes and other economic measures are to be governed by law alone. Judgements of Tax Tribunals are regularly published21 and used by the tax fraternity. But taxpayer anonymity is not followed in China. Chinese tax laws, have criminal penalties for tax misdemeanor, in addition to civil penalties that might be imposed. The principle of “Non bis in idem (no legal action can be instituted twice for the same cause of action)”, is not in vogue in China as part of tax administration. However, a tax court and a criminal court cannot try for the same set of facts. Like India, the tax administration can attach a bank account without necessarily approaching the judiciary. Tax payments can be deferred subject to meeting certain obligations. Interestingly, in matters of Information exchange, it’s the right of the taxpayer to be informed prior to such exchange. Taxpayer can request a hearing before assessments, which are generally completed within 3-4 months of initial notice. Specially privileged people like old age, special needs have access to special means within the tax administration for their convenience. Rectification procedures post assessment are available in case of incorrect levy and/or collection of improper tax. However, notably, the “naming and shaming” regime exists in China. Subject to limitations, information exchanged between advisers and taxpayers is privileged information. Taxpayers are entitled

to know detailed outcome of the assessment process. Taxpayers have the right to avoid self- incrimination in tax assessment processes.

China had incorporated GAAR in its tax legislation way back as 200822. China is also a member of the Inclusive framework of the MLI. Operationally, China also introduced SAAR’s as an anti-avoidance measure in 2013 viz (1) a trans- fer pricing rule, (2) a cost-sharing arrangement rule, (3) a CFC rule and (4) a thin capitalisation rule.

ISRAEL : The Israeli tax code23 follows the rule of law of the Israeli legal system. Article 124 of the said code inter alia mandates :

“1. Taxes, compulsory loans, and fees

1. Taxes, compulsory loans and other compulsory payment shall not be imposed, and their amounts shall not be varied, save by or under Law; the same shall apply with regard to fees.
2. Where the amounts of any taxes, compulsory loans or other compulsory payments, or fees, payable to the Treasury are not prescribed in the Law itself and the Law does not provide that the amounts prescribed therefor by regulations shall require approval by the Knesset or by a committee of the Knesset.”

The principle of no taxation without representation is a fundamental character of the Israeli Tax Code. Tax legislations as well as orders are subject to judicial review, mainly on two accounts :

1. Basic Law Human Dignity & Liberty
2. Basic Law Freedom of Occupation

The judicial process, is the ultimate interpreter of laws in Israel. However, as a measure to enhance tax certainty25, the Tax Administration can apply for an advance ruling in certain matters. Purposive interpretation is generally followed by the Israeli Judiciary.

In matters of GAAR, judicial principles are the guiding light. Section 86 of the Income Tax Ordinance specifically incorporates GAAR into

the Israeli Tax Code. However, in applying this artificial arrangements for tax avoidance principle the courts26 have generally struck a fine balance between taxpayers substantive rights and right to collect revenue on part of the authorities. In one notable judgement27

Admittedly, this article misses some important jurisdictions viz Netherlands, USA, United Kingdom, Australia etc, but then material for those countries are more generally available for study, over various resources.

---

1. https://www.ila-hq.org/en/documents/study-group-international-tax-law-final-report-kyoto-2020
2. Page 74 of the General Report by Philip Baker KC, Field Court Tax Chambers, Gray’s Inn, and Pasquale Pistone, Former Academic Chairman, IBFD.
3. https://www.ibfd.org/sites/default/files/2021-09/2020 IBFD Yearbook on Taxpayers’ Rights(1).pdf
4. Supreme Federal Court of Brazil, extraordinary appeal of 20 May 1997, no 182971/SP [1997]. Superior Court of Justice of Brazil, special appeal of 12 September 2006, no 724779/RJ [2006]. Supreme Federal Court of Brazil, extraordinary appeal of 20 March 2003, no 343446/SC [2003]
5. Supreme Federal Court of Brazil, interlocutory appeal of 27 November 2012, no 782205/RJ [2012]; and Superior Court of Justice of Brazil, special appeal of 23 May 2012, no 1298407/DF [2012].
6. Supreme Federal Court of Brazil, in extraordinary appeal of 15 March 2017, no 574706/PR [2017]
7. Article 3 of the Russian Tax Code
8. Article 3(7) of the Russian Tax Code
9. Article 5(2) the Russian Tax Code
10. Article 5(3) and 5(4) of the Russian Tax Code
11. Article 5(1) of the Russian Tax Code
12. For Ex : Ruling No. 53 of the Plenum of the Supreme Arbitration Court of 12 October 2006 “Concerning the Evaluation by Arbitration Courts of the Legitimacy of the Receipt of a Tax Benefit by a Taxpayer”
13. https://www.consultant.ru/document/cons_doc_LAW_220282/
14. Article 84 of the Japanese Constitution
15. Supreme Court of Japan, judgments of 23 March 1965 [1965], Supreme Court Civil Cases Reporter (9)3, 336, and of 27

    March 1985 [1985], Supreme Court Civil Cases Reporter, 39(2), 247.

16. https://www.internationaltaxreview.com/article/2a69gcrpxpksk5a59v9q8/japan-supreme-court-affirms-rule-of-law-in- japanese-taxation
17. Enacted in 1923
18. IBM v NTA Supreme Court of Japan, judgment of 18 February 2016, H27 Gyou-Hi [2016], no 304, Tokyo High Court, judgment of 25 March 2015, H26 Gyou-Ko [2015], no 208, Tokyo District Court, judgment of 9 May 2014, H23 Gyou-U [2014], no 407, Yahoo/IDCF v NTA upreme Court of Japan, judgment of 29 February 2016, H27 Gyou-Hi [2016], no 75; Tokyo High Court, decision of 5 November 2014, H26 Gyou-Ko [2014], no 157; Tokyo District Court, judgment of 18 March 2014, H23 Gyou-U, [2014], no 228.
19. https://www.ifa.nl/cahiers/2015/100b/general-report
20. http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/11/content_1383554.htm
21. https://www.ibfd.org/sites/default/files/2021-09/2020 IBFD Yearbook on Taxpayers’ Rights(1).pdf
22. Ch 6 of the Enterprise Income Tax Law of the People’s Republic of China, promulgated by the National People’s Congress on 16 March 2007 with effect from 1 January 2008.
23. Israel: Basic Law of 1975, The State Economy, 31 July 1975, https://www.refworld.org/docid/3ae6b5284.html
24. Ibid above
25. Art 158D of the Israeli Income Tax Ordinance, as of amendment 147 from 2006.
26. Israeli Supreme Court, judgment of 31 July 2003, Tax Assessment officer for large enterprises v. Yoav Rubenstein Ltd, CA 3415/97 [2003].
27. Israeli Supreme Court, judgment of 7 September 2000, Horowitz v. the State of Israel, CA 1182/99 [2000]

CA. Kiran Chandarana

At the outset first of all I congratulate All India Federation of Tax Practitioners (West Zone) & National Association of Tax Professionals ( West Zone) for organizing National Tax Conference at Devbhoomi Dwarka, Gujarat. This platform will aid all the participants to get an opportunity to hear from Subject Matter Expert Professionals and will also act as a medium to exchange knowledge. It is also a proud moment for all of us since this Conference is organized in the holy and pious place of Devbhoomi Dwarka the Karma Bhoomi of Lord Krishna and all the participants will also get an opportunity to take benefit of visiting Dwarkadhish temple one of the Chardham place and take blessings of Dwarkadhish.

In today’s VUCA world full of Globalization and economic development all over the world, there are a lot of cross border transactions being undertaken. For economic development of any country including India it is essential to promote foreign institutional investors towards India and also give an opportunity to Indian Resident for spreading business across Globe so that we can increase forex inflow in our country. Since the country has powers not only to tax on profits earned in its land by anyone but also to tax global income of its residence, it often leads to dual taxation of same income in country where it is generated and also in the country where its investors are residing.

For stimulating economic progress and world trade, it is essential that we have policies and procedures which are assessee

friendly to avoid any double taxation in such global transactions thereby encouraging the participants for global business without double taxation burden on them at the same time ensuring no revenue loss to the country by escaping such transactions from both treaty and also without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.

In this article, we shall focus on some of the key concepts involved in international taxation. There is no separate law for International Taxation, however our existing Income Tax Act, 1961 covers specific provisions related to taxation of such international transactions. The major sections related to International taxable income are section 90, 90A and 91 of Indian Income Tax Act, 1961.

In order to avoid double taxation many countries have entered into double taxation avoidance Agreement (DTAA). Before we proceed for DTAA let us discuss on unilateral, bi-lateral and multilateral tax reliefs. Relief, in accordance with the agreement between two countries, where the tax may be payable is a Bilateral relief provided under section 90 of the Indian Income tax Act, 1961. There are also multilateral reliefs whereby treaties are agreed by more than two countries. In case there is no such agreement, taxpayer may be given tax relief by the country where he is resident this is unilateral relief. In India such unilateral relief is provided under Section 91 of the Income Tax Act.

India has entered into Double Taxation Avoidance Agreement with several countries including USA, UK, Russia, China, Ukraine, South Africa, UAE, Sri Lanka, Japan,Turke y,Thailand,Singapore, Uganda, Mauritius, Myanmar, etc. These tax treaties are formally concluded and ratified agreement between two independents nations bilateral treaty or multilateral treaty in case of more than two nations on matters concerning taxation.

Such Relief may be given by exemption method or tax credit method. Under exemption method one of the two countries where tax is payable exempts such income from tax and the other country has right to tax such income. On the other hand, under tax credit method, income is taxed under both the countries. Tax would have been paid in the country of income source as per the domestic law of that country or DTAA whichever is more beneficial to the taxpayer. Additionally, the country of residence of taxpayer also computes the tax payable under this foreign sourced income as per its domestic laws. Subsequently credit is given for taxes paid by the assessee on such foreign sourced income in respective foreign country.

After such reduction balance tax payable if any will be net tax liability of the resident taxpayer in the country of his resident. Under the Indian laws, depending on the nature of payment, both exemption method and the credit method are used to provide double taxation relief.

DTAA are further categorized into two kinds i.e., Comprehensive DTAA which covers all types of income and Limited DTAA which covers only certain specific incomes viz. Income from Operations of Aircrafts & Ships, Estates, and Inheritance & Gifts. So far, we have almost 96 Comprehensive and 14 Limited Agreements in India.

Now let’s understand one more aspect of double taxation i.e., jurisdictional taxation & economic taxation. Jurisdictional Taxation means that same person is taxed twice on the same income

by more than one territory or country whereas economical taxation means more than one person is taxed on same income.

Section 90 of Income tax Act, 1961 empowers Government of India to enter DTAA for avoidance of double taxation. Further under section 90A Government of India can adopt agreement entered between specified association in India and specified association in specified territory outside India to provide relief from double taxation on income on which income tax is chargeable under Indian Income tax Act, 1961 as well as and under the corresponding law in force in that specified territory outside India to promote mutual economic relations, trade and investment, or for avoidance of double taxation of income.

The major statutory objectives of section 90 & 90A are avoidance of double taxation, promotion of mutual economic relations, trade & investment with the objective of economic growth, relief to taxpayers from doubly taxed income, exchange of information between mutually agreed countries to take measures for tax avoidance and tax evasions and recovery of tax.

The major aspects covered in a DTAA are methodology for avoidance of double taxation of income in India or foreign country, nature of income covered under DTAA and any specific provision w.r.t. to specific income, definitions of person covered in DTAA, procedure for recovery of tax under Indian Income tax and under corresponding law in force in respective foreign country, procedure for tax deduction and providing tax reliefs, process for exchange of essential information between concerned countries as is foreseeably relevant for carrying out the provisions of DTAA or to the administration or enforcement of the domestic laws of the contracting countries along with its use and terms of confidentiality, procedure for investigation of cases of tax evasion or avoidance, clause on termination, mutual agreement procedure and so on & so forth.

Now let’s converse some of the key concepts and clauses with respect to certain income covered under Articles of DTAA (reference DTAA with UK):

• The Income from immovable property may be taxed in the Contracting State (Country) in which such property is situated.
• For the purpose of Business Income, the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment (PE). Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated as being the profits directly attributable to that permanent establishment.
• The term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on and shall include a place of management, branch, an office, factory, workshop, etc. There are certain exclusions also like PE does not include facilities solely kept for the purpose of display or storage of goods, fixed place solely for advertising, etc. For detailed explanation of PE corresponding DTAA may be referred.
• Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State.
• Income of an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that State. However, these provisions shall not apply to income from journeys between places which are situated in a Contracting State.
• Directors’ fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.
• Income derived by entertainers or athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.
• Remuneration, other than a pension, paid by the Government of a Contracting State to any individual who is a national of that State in respect of services rendered in the discharge of governmental functions in the other Contracting State shall be exempt from tax in that other Contracting State.
• Article on Non-discrimination specifies that the nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation, or any requirement connected therewith which is other or more burdensome than the taxation or any requirement connected therewith to which nationals of that other State in the same circumstances are or may be subjected.

It is noteworthy that section 90(2) of Income tax, 1961, the provisions of Domestic Law will apply to the extent it is more beneficial than DTAA to the assessee. The provisions of DTAA shall override domestic tax law.

DTAA model is generally drafted on the basis of two major models i.e. OECD based model and UN based model. OECD model focuses on residency-based taxation, which means that tax should be levied by country where the assessee is resident and credit or exemption to be given by other country involved. On the other hand, UN based model focuses on source-based taxation which gives more relevance to region of source of Income rather than residency of the assessee. Usually developing countries prefer UN based model. Based on specific agreement which each countries the final DTAA is Signed and Ratified.

Another aspect considered in DTAA is whether income is active or passive. Income derived from investment in any asset is passive income, while income derived from active cross border operation of business, profession or service is active income. For taxation of business income concept of Permanent establishment needs to be considered as earlier.

Commercial transactions between the different parts of the multinational groups may not be subject to the same market forces shaping relations between the two independent firms. Transfer price in such cases may be arbitrary and dictated, with no relation to cost and added value, diverge from the market forces. The effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction. For instance, profits accruing to the parent can be increased by setting high transfer prices to siphon profits from subsidiaries domiciled in high tax countries, and low transfer prices to move profits to subsidiaries located in low tax jurisdiction. The result is revenue loss and a drain on foreign exchange reserves. To address this issue section 92C provides methods of calculation of arm’s length transaction in international transaction

viz. comparable uncontrolled price method, resale price method, cost plus method, profit split method, transactional net margin method and such other method as may be prescribed. This will aid in ensuring that transfer prices are not arbitrary.

As per Section 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (other than interest referred to in section 194LB/194LC/194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. In addition, section 195(6) read with rule 37BB prescribes furnishing of Form no. 15CA/CB/CC.

The Government of India has made it mandatory for assessee to obtain Tax Residency Certificate (TRC) from the country of residence to avail the benefits of the Double Taxation Treaty in India.

With the increasing cross border transactions in the current global economy, tax evasion including tax avoidance both need to be tracked to ensure each transaction is covered in the ambit of revenue and not missed out completely from both the contracting states. Different approaches may be used by countries to address the improper use of tax treaties. Some of these approaches are found in domestic law while others involve tax treaties. Chapter X-A of the Income Tax Act, 1961 of India deals with the concept of General anti-abuse rules (GAAR) which is one such measure to address this issue in India. GAAR specifically differentiates between Tax evasion & avoidance v/s. Tax mitigation. Tax mitigation is a fair approach for reduction in tax by using legitimate fiscal incentives provided under

law. While tax evasion & avoidance both are considered as wilful suppression of facts and misrepresentation to avoid or evade tax. GAAR focuses on substance over form whereby a transaction will be considered as impermissible avoidance agreement (IAA) explained as follows:

1. An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it—
   1. creates rights, or obligations, which are not ordinarily created bet-ween persons dealing at arm’s length.
   2. results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
   3. lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or
   4. is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.
2. An arrangement shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit.

As per GAAR provisions, it is the responsibility of the revenue to declare an arrangement as IAA. If the revenue considers that the arrangement is an IAA, the assessee will be given an opportunity to be heard and subsequently on response of assessee further action will be taken.

The CBDT has issued a guidance on Mutual Agreement Procedures (MAP) procedure and matters connected thereto for the benefit of taxpayers, tax practitioners, tax authorities, and Competent Authorities (CAs) of India and of treaty partners. A taxpayer resident in India can make an application to the CA of India having jurisdiction over the case if it considers that the actions of the tax authorities of the treaty partner resulted or will result in taxation not in accordance with the relevant tax treaty. Such an application has to be made in Form No. 34F in accordance with rule 44G.

There currently exists no single entity with the global legitimacy, resources and expertise to serve as a single coordinating body for international tax cooperation. In the absence of such an entity, organizations active in this area must work together with a view to meeting common tax and development goals in the most efficient, responsive and participatory ways. While each country is responsible for its own tax system, the United Nations universal membership and legitimacy act as a catalyst for increased international cooperation in tax matters to the benefit of developed and developing countries alike.The most important changes included in the 2021 version of the UN Model address concerns expressed by developing countries regarding tax treaty obstacles to the taxation of foreign enterprises on income from automated digital services and on gains on so-called “offshore indirect transfers”. The 2021 UN Model also features new guidance on the application and interpretation of the definition of permanent establishment, the concept of beneficial owner, and the application of the Model’s provisions to collective investment vehicles, pensions funds and real estate investment trusts. The fifth edition of the UN Model Tax Convention, culminates four years of work by the UN Tax Committee and its Subcommittees, supported by the Secretariat in the UN Department of Economic and Social Affairs (ESOSOC).

The ECOSOC Special Meeting on International Cooperation in Tax Matters was held in April 2022 in conjunction with the 24th session of the United Nations Committee of Experts on International Cooperation in Tax Matters. This year’s Special Meeting was presented critical topics in the current international tax landscape, which was analysed and debated in the context of the COVID-19 pandemic recovery and beyond.

Another important aspect considered in 2021 UN Model was increasingly digitalized and globalized economy which continues to pose great challenges to the fairness and workability of tax systems as usual bilateral treaty framework for taxing cross-border business income, which requires a physical presence which often leads to the tax loss of market countries, usually capital importing developing countries. The new Article 12B of the UN Model Double Taxation Convention is developed by the UN Tax Committee to address the taxation of income from automated digital services in bilateral situations.

Article 12B, in the 2021 UN Model, preserves, in the treaty relationship, market country domestic law taxing rights on digital services, including online advertising services, supply of user data, online search engines, online intermediation platform services, social media platforms, digital content services, online gaming, cloud computing services, and standardized online teaching services. The Committee is currently working on a possible mechanism for wide adoption of the UN Model provisions relevant to taxing the digitalized and globalized economy, as well as other recent provisions, through a multilateralized form of implementation (a multilateral instrument). Such a mechanism would allow many existing bilateral treaties to be amended at once, sparing countries the onerous and time-consuming process of amending individual treaties.

The Committee is also examining the physical presence-based tax treaty thresholds or tests that currently apply before a country where

profits are made can tax such profits of other countries’ residents. Such tests include “permanent establishment” and “fixed base” tests. The Committee is considering the function and relevance or otherwise of such tests to trigger taxing rights in an increasingly digitalized and globalized economy. The work is supported by the UN Tax Committee’s Subcommittee on Taxation of the Digitalized and Globalized Economy and by the Committee Secretariat in UNDESA.

Thus, it is in the interests of both taxpayers and governments that tax barriers to cross-border trade and investment such as double taxation be removed while ensuring that domestic tax systems can be properly applied and administered. Tax treaties aids in eliminating tax barriers in cross-border transactions which may be caused due to excessive source taxation, tax discrimination, uncertainty and complexity which may result in significant deterrence to foreign investment. At the same countries should take measures to minimize cross-border tax evasion and avoidance as all countries are vulnerable to capital flight and erosion of their tax base.

With this note I, conclude here and convey my best wishes to All India Federation of Tax Practitioners (West Zone) & National Association of Tax Professionals (West Zone) along with The Gujarat States Tax Bar Association, Tax advocates Association of Gujarat, Jamnagar Branch of WIRC of ICAI, The commercial Tax Practitioners Association-Jamnagar, Jamnagar Tax Consultants Association and the entire team of organizers and managing committee for conducting such National Tax conference and looking forward to such more initiatives in future as well which will aid in exchanging thoughts and different perspectives of all the tax professional spread across our Nation.

Jai Hind..

(Source : Article published in Souvenir released at National Tax Conference held at Dwarka on 2nd & 3rd October, 2022)

Dear Friends,

I wish a very Happy, Healthy and very Prosperous New Year 2023 to all my brothers and sisters of AIFTP.

I would like to convey my thanks to the members of collegium for deposing confidence in me and allowing me an opportunity to serve the fraternity.

Start of My Journey on 24th of December 2021 at Lucknow Convention with theme of “VIDYA DADATI VINAYAM” to closing on 17th December 2022 at Jaipur with the theme “CONNECT EDUCATE LEARN” have grand success.

As I look back I see that the year 2022 was an eventful year carried with it sweet and sour remembrances. We enjoyed each and every moment of the year. We learnt a lot from the Conferences, Seminars, Executive Meetings and Residential Learning Programme that gave us the sense of satisfaction, pride, brotherhood and above all, the sense of unity and integrity.

Friends at the last, I must confess that we have tried to continue our strong intellectual heritage and the tradition of ethics and excellence. Challenges in this year were much bigger AFTER COVID PENDAMIC but with your love and affection, we proved ourselves to the best of our abilities.

Further, we have made many representations to the Government from time to time in the year 2022 and a number of our representations have been accepted by the Government. This year has been a very memorable year for me.

This year we had a special achievement in shape of Social Responsibility Committee having support of Dr. Ashok Saraf, Past President whose immense guidance has been source of inspiration. Another Major achievement is celebration of 46th Foundation Day Fortnight a Memorable one having full support of all Members of A.I.F.T.P. making it a grand success.

I express my gratitude to the entire executive body i.e. Vice Presidents, Chairmen of all the zones and members of NEC, Chairmen and Members of various committees who have discharged their assignments sincerely and for extending their full co-operation in functioning of the organization.

I have great satisfaction of serving the A.I.F.T.P., for one year as National President. For the educational activities of the A.I.F.T.P., I am always available to the members of the Federation whenever my services are desired.

Mr. PANKAJ GHIYA has taken oath to serve as National President for the year 2023. I wish him a successful Tenure.

Once again I wish Long Live AIFTP and I wish as Ethical professionals, every moment of our life is for Noble Cause of imparting education and to bring excellence in our profession.

Wish you success in life. December 19, 2022

D. K. Gandhi

National President, A.I.F.T.P.

Dear Friends,

At the outset I congratulate my very good friend Mr. Pankaj Ghiya, Advocate for being elected as the National President of a prestigious organization like All India Federation of Tax Practitioners. Pankaj Bhai you have been working for AIFTP from last two decades at all levels. I am sure that with your zeal and selfless devotion towards the AIFTP, you are going to take it higher levels. I extend my congratulation to new team Mr. Narayan P. Jain, C.A. Deputy President, Mr. Rajesh Mehta, CA Secretary General and Mr. Vinay Kumar Jolly, Advocate. Treasurer. All the best to the new team.

We are about to bid farewell to year 2022. This year began with the spread of “Omicron” a variant of COVID-19 which was much less dangerous. As the year progressed, we as a nation achieved several milestones, be it vaccination against COVID-19, bouncing back of the economic activity, heading G-20 groups of Countries etc. We expect that the year 2023 is going to brighter than year 2022. We all saw devastating years 2020 and 2021. But the zeal to live ad overcome the handles paved the way for a brighter year 2022. I am reminded of the words of Marcus Aurelius in The Spiritual Teachings – “When your inner spirit is in harmony with Nature it can adapt easily to all events and possibilities. For this Spirit does not need any special matter or substance to function, but works on whatever obstacles are put in its way. We can compare it to a bonfire that consumes whatever is thrown in it; if the fire is feeble it can be extinguished, but a strong blaze feeds on everything, and its flames grow ever higher.”

Our Federation along with ITAT Bar Association, Mumbai, Goods and Services Tax Practitioners Association, Maharashtra (GSTPAM) and Maharashtra National Law University -Mumbai (MNLU-Mumbai) organized Nani Palkhivala Memorial Research Paper competition. Research papers were invited in two categories (i) Professionals who are below the age of 35 years and (ii) Students. Many young professionals and students enthusiastically participated in this competition. The Journal Committee has decided to publish the Research papers which have been ranked in the top three slots. In the professional’s category the following are winners.

First Prize Mr. Sukhsagar Syal, Advocate

Second Prize Mr. Istiyak Ahmad, C. A.

Third Prize was shared among two teams.

1. Ankita Prakash and Manish Pandey And
2. Krishna K and K.V. Padmanabham

In this issue we are publishing research papers which won third prize. The other two research papers, which one first and second prize will be published in future issues. I congratulate the winners of the competition and wish them best of luck for their future endeavors.

In this issue of the AIFTP Journal esteemed professionals have contributed their articles on topics which are relevant and important for we professionals. I thank all the professionals who have contributed to this issue of the AIFTP Journal and I am grateful to them for sparing their valuable time for the journal.

K. Gopal,

Editor

Proposed List
Sr. No.	Name of Members	Profession	Zone
1	Maddi Manmohan Rao	Adv.	East
2	Simarpreet Singh Jaggi	CA.	North
3	Ashwini Kumar Lakhotia	Adv.	Central
4	Sandeep Kumar Miglani	Adv.	North
5	Pranay Disawal	Adv.	Central
6	Arjun Gupta	Adv.	West
7	Rajeev Kumar	Adv.	East
8	Ramesh V. Shah	CA.	West
9	Priyanshi Desai	Adv.	West
10	Shyam Sunder Jaluka	Adv.	Central
11	Raman Ramesh Somani	CA.	West
12	Kanchan Singha	Adv.	East
13	Sudhir Halakhandi	CA.	Central
14	Prasanna Shenoy	CA.	South
15	Amit Gopalprasad Bhatiya	CA.	West
16	T. Ramesh	Adv.	South
17	Satish Sareen	CA.	Central
18	Prashant Gupta	CA.	North
19	Tushar Hemani	Sr. Adv.	West
20	Annamalai Krishnamurthi	GSTP	South
21	Pankaj Sharma	CA.	Central
22	Lalitha Krishnamurthy	GSTP	North
23	Ankit Tripathi	Adv.	North
24	Rahil Dhawan	CS.	North
25	Bhumit Kantilal Rathod	ITP	West
26	Pawan Agarwal	CA.	East
27	Shilvi Khandelwal	CA.	Central
28	Gagan Agarwal	CA.	East
29	C. A. Sanjeevirajan	CA.	South
30	Dinesh Chandra Gupta	Adv.	Central
31	Pushpendra Kumar Srivastava	Adv.	North
32	Shishir Shukla	CA.	North
33	Onkar Nath Tandon	CA.	North
34	N. Muralikumaran	Adv.	South
35	Siddharth Agarwal	Adv.	East
36	Soma Gana	CA.	East

 

Central	8
South	5
East	7
North	9
West	7
Total	36

1. Issuance of look out circular – Restriction on traveling abroad – Validity – communication of an order adverse only then it would come into effect:

   LOC issued at instant of Bank against petitioner guarantor for default in payment of loan availed by company run by her husband and others. Copy of LOC never furnished to petitioner till same was filed in court . Petitioner not an accused in any criminal case

   . Action of Bank in seeking issuance of LOC to prevent petitioner from leaving country on ground that she was a guarantor and that loan was more than Rs. 100 cores,

   The Court observed that it is not in dispute that the copy of the LOC was never furnished to the petitioner till it was filed for the first time by respondent No.2 along with its written response in Court. It is not in dispute that the Office Memoranda providing the issuance of LOC do not contain any provision for supply of copy of the LOC to the subject of the LOC or supply of reasons for issuing of the LOC.

   In State of West Bengal v. AB.K. Ltd (2015) 10 SCC 369 the Supreme Court held that there should be communication of an order adverse to a citizen and only then it would come into effect.

   Without communicating the LOC to the petitioner, the respondents cannot seek to en- force it as it would not have any effect in law.

   How the petitioner can be termed as an ‘accused’ as is mentioned in the LOC when admittedly no criminal case has been initiated in any court in the country against her. Merely looking at the quantum of loss caused to a banker, it cannot be presumed that there was a fraud committed by the borrower/ guarantor, moreso when no criminal case allegging fraud has even been filed against the borrower/ guarantor. Suspicion cannot take the place of proof.

   Action of respondent authority in issuing LOC against petitioner in a mechanical way also arbitrary and violative of Art. 14. LOC set aside.

   Poonam Paul vs Union Of India And Others, AIR 2022 PUNJAB AND HARYANA 131

2. Succession female Hindu dying intestate-Right of inheritance Property – Cannot be waived on basis of statements made in previous suit or any sort of statements or admission made by co-owner especially when such relinquishment or disclaimer is not in writing. Hindu Succession Act 1956 S. 15(1)(2) – Transfer of Property Act 1882, S. 5

   A disclaimer means any writing which disclaims, refuses, renounces, or disclaims any interest that would otherwise be taken by a beneficiary. Therefore, the statements made in the previous suit or any sort of statements or admission in the present suit as well, by no stretch of imagination be said to be a waiver/ relinquishment of the defendant’s right of inheritance or his co-ownership over the suit property left behind by his late mother of both the plaintiffs and defendant.

   Surajit Majumder and others v. Majumder Manojit : AIR 2022 TRIPURA 28

3. Torts Medical negligence – Claim for – compensation Claimant-

   Mother seeking compensation for physical

   pain and mental agony underwent by her for period of nine months after delivering child due to alleged negligence by respondent doctor . Claimant had to undergo a three stage surgery to ad dress tear of rectum . First stage surgery was colostomy, second stage surgery was CPT-repair and third stage surgery was co lostomy closure. This situation could have been averted by hospital by immediately shifting Petitioner to Coimbatore Medical College Hospital . Claimant was forced to spend towards surgery expenses, medicine expenses, travel expenses and also rental expenses . She also faced untold hardship in not being able to take care of her new born baby effectively for nine months Negligence on part of hospital for not taking proper care of claimant and for having failed to shift her. Claimant held entitled to compensation of Rs. 5 Lakhs.

   S. Bhanupriya v. State of Tamilnadu and ORS. : AIR 2022 (NOC) 646 (MAD.)

4. Insurance coverage for mental illnesses – Mental illnesses cannot be treated differently from physical illnesses – Insurance policies also cannot discriminate between these two type of illnesses

   United Nations Convention on Rights of

   People with Disabilities prohibited any form of discrimination in respect of mental illnesses or any other disabilities. The Convention recognises mental disabilities as a form of disability and enshrines the principle of non-discrimination towards such disabilities. The Convention not only recognises the need for non-discrimination qua disabilities in general, but also specifically refers to medical insurance, under Art.25. Insurance Regulatory and Development Authority of India (IRDAI) has a duty to ‘control’ and ‘regulate the terms and conditions of insurance policies. It also has the duty to protect the interest of policy holders and ensure that they are not disadvantaged in any manner. Thus, it is the IRDAI’s function to ensure that laws that are enacted for the benefit of policy holders are fully given effect to by the insurance companies. It is also the IRDAI’s admitted position that the provisions of Section 21(4) of the MHA, 2017 are liable to be given effect to. This is also confirmed th by IRDAI in its circular. Thus, the IRDAI’s stand is that insurance is liable to be provided for mental illnesses upon the enactment of the MHA, 2017. Insurance companies had to make provision for mediclaim insurance for treatment of mental illnesses on the same basis as treatment available for physical illnesses. The NICL and IRDAI have filed affidavits from which it is clear that the in sured amount has now been paid to the Petitioner. The crux of the above provisions, circulars and affidavits clearly is that mental illnesses cannot be treated differently from

   physical illnesses. Insurance policies also cannot discriminate between these two types of illnesses. The reasons for the non- discriminatory provisions between mental and physical illnesses are not far to seek. While physical illnesses are manifested in the human body in some form, mental illnesses do not always have visible physical manifestations. However, mental illnesses can also be debilitating and destructive. The recent pandemic also highlights this beyond any doubt. Circumstances leading to patients requiring isolation, healthy persons being subjected to lock-downs, work from home conditions, loss of employment leading to lack of confidence for long durations have led to several mental problems. Such mental conditions need to be dealt with immediately. Availability of insurance for mental disabilities or conditions is, therefore, not only important but is an essential need. It is also made clear by Court that National Insurance Company Limited (NICL) and all insurance companies are liable to give effect to S.21(4) of the MHA, 2017 with effect from the date when it has come into force i.e., 29 May, 2018. Mental illnesses ought to be covered without any discrimination.

   Shiksha Nischal V. National Insurance Company Limited and another: AIR 2022 (NOC) 692 (Del.)

5. Corporate Guarantor – Liability

   – Initiation of corporate insolvency resolution process – Insolvency and Bankruptcy Code 2016 sections 5(5A) & 7 :

   Liability of guarantor is co-extensive with

   that of principal borrower . Under Sec.7 of IBC, CIRP can be initiated against Corporate entity who has given guarantee to secure dues of non-corporate entity as financial debt accrues to corporate person, in respect of guarantee given by it, once borrower commits default. Since company extended corporate

   guarantee for loans availed by borrowers, on failure of borrowers to repay loans, company became liable to repay loan . The court relied on decision in case of Laxmi Pat Surana v. Union Bank of India & anr (2021) 8 SC 481. It was open to the Financial Creditor to proceed against the guarantor without first suing the Principal Borrower. Initiation of CIRP against company held proper.

   K. Paramasivam v. Karur Vysya Bank Ltd. and another : AIR 2022 SUPREME COURT 4127

6. Consumer Protection – Unfair trade practice – Non delivery of new Car despite payment of full consideration and delivering a defective or used Car instead, is ‘unfair trade practice’ – Consumer Protection Act 1986 , S.2(1)(r) :

   The appellant herein original complaint

   booked a new car and as such paid the entire sale consideration. Therefore, when the complainant customer booked a new car and paid the sale consideration of a new car, the dealer was supposed to and/or bound to deliver the new car. Instead, the dealer delivered the used car which was used as “Demo Test Drive Vehicle”. Even as per the findings recorded by the National Commission the car which was delivered was a defective car. Even to deliver the defective car against the new car was also not permissible. Not to deliver the new car despite the full sale consideration paid and/or to deliver the defective car can be said to be unfair trade practice. It can even be dishonesty on part of dealer . It is against morality and ethics Dealer directed to deliver new car against previously deposited amount with costs of Rs.1,00,000/-.

   Rajiv Shukla v. Gold Rush Sales and Services Ltd. and another. AIR 2022 SUPREME COURT 4184

7. Recovery of dues – Small and Medium Enterprises Development Act (27 of 2006), Ss. 17, 18 :

   Certain amount was payable on account of sale of plant and machinery As the respondent failed to make payment a reference to Facilitation Council for conciliation was made.

   A conjoint reading of the provision make it amply clear that a reference to Facilitation Council for conciliation and subsequent arbitration if required, is not barred on account of the presence of an arbitration agreement providing for a different method of constituting Arbitral Tribunal. An dispute can be referred to Facilitation Council, mere provision for reference to arbitration in C1.38 of Agreement would not bar reference of such dispute to Facilitation Council. Once registered, status of petitioner would be that of registered enterprise and all provisions of the Act would apply with full force. Facilitation Council directed to consider claim of the petitioner and adjudicate same.

   M/s. Dalapathi Constructions, A.P. v. State of Andhra Pradesh and others. : AIR 2022 ANDHRA PRADESH 150

8. Marking of evidence – Admissibility of document Unstamped and unregistered document – Registration Act 1908 S.17.

   Defendant relied on an unstamped and

   unregistered release deed. The Trial Court impounded document and levied penalty and did not mark it as evidence. Even if a document is not registered, said document can be marked in evidence and admissibility is left open for consideration at appropriate stage, the Order rejecting marking of unregistered document as evidence was quashed. The Trial Court directed to mark said document subject to relevancy and admissibility.

   Veerasangayya Gadigayya Mulimath and others v. Veerupakshayya Irayya Ganachari and others. AIR 2022 KARNATAKA 222

Sr. No.	Name of Publication		Rate (Rs.)
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1.	75 Landmark Judgements of Honorable Supreme Court and High Courts under GST Laws	Aug., 2022	280.00	315.00	100.00
2.	Handbook on Taxation of Partnership Firms & Limited Liability Partnerships: Frequently Asked Questions	Dec., 2021	725.00	945.00	–
3.	Reassessment Law, Procedure & Practice (Practical Guide)	Dec., 2020	Free	Available on website	100.00
4.	151 Landmark Judgment of the Honorable Supreme Court	Oct., 2020	Available on website	Available on website	–
5.	GAAR General Anti-Avoidance Rules	Dec., 2019	640.00	720.00	100.00