In Faaborg-Gelting Linien A/S v. Finanzamt Flensburg, [2012] 22 taxmann.com 177 (ECJ), it was held that the perception of the recipient is relevant as it determines the purpose behind a particular supply. The main purpose for which the recipient is receiving the supply should be met, and without the fulfilment of this purpose, the whole supply is rendered meaningless to him. Hence, the predominant element of the supply is the one which is the most important to the recipient. For instance, the supply of service by a restaurant owner is a composite supply as it is characterised by multiple features and activities. However, the supply of service by a restaurant would be rendered purposeless if the most significant component, i.e. provision of food, is absent, even if all other ancillary services are being supplied. Hence, the provision of food largely pre-dominates the supply and is the principal component of the restaurant services.

Card Protection Plan v. Customs and Excise Commissioners, [2012] 22 taxmann.com 176 (ECJ)(hereinafter the “CPP case”), the European Court of Justice, while explaining the meaning of ancillary services, held that a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied. Similar to this, the Court, in Commissioner of Customs & Excise v. Madgett& Baldwin, C-308/96 & C-94/97(1998), observed that an ancillary service is not an end in itself, it is merely a means to an end for better enjoyment of the principal service.

There may be a situation when more than one component of the supply possesses an essential character and hence, is equally predominant to any other component of that supply. However, both these components are still predominant over other components of the supply. This situation which is known as the table-top model of composite supply, confronted the Court in the case of Commissioner for Excise and Customs v. FDR, Case No: C/1999/0654 (2000). It was held that in such a scenario, “principal supply must be identified with a further re-look at the supplies”. It was further clarified that “unnecessary complexities” must be avoided and principal supply may be determined on the reference on the numerical domination. This case, though it pertains to European jurisprudence, has proved to be very helpful in view of the fact that the expression “composite supply” under the Indian GST regime does not recognise a situation where there may be more than one principal supply.

In CPP case, the ECJ envisioned that in determining, whether a supply constitutes composite or mixed supply, the view of a typical consumer is an important consideration. The ECJ while crystallising it in Everything Everywhere Ltd. v. HMRC, [2012] 28 taxmann.com 138 (ECJ), called this principle “from the point of view of a typical consumer”. The Court said that when a consumer procures a supply, he does it to satisfy a particular aim. This aim may be either a sole aim or manifold. If the consumer has only one aim to receive the supply and the other components of the supply are merely the means to achieve that aim, the supply can be said to be naturally bundled. Accordingly, the supply would be in the nature of a composite supply. It is clear that the aim of the consumer here would be derived out of the principle component of the composite supply i.e. the “principal supply” as defined by the CGST Act under section 2(90). But, a consumer can also have multiple aims while receiving a supply. Where the transaction involves multiple aims sought by the consumer, then it is an indicator that multiple different independent supplies are bundled together, artificially. A mixed supply can be said to be exist in such cases.

#landmark_decisions

2021 (5) TMI 167 – MADRAS HIGH COURT

RAMAKRISHNAN MAHALINGAM VERSUS STATE TAX OFFICER (CIRCLE) , GOODS AND SERVICE TAX OFFICER, KOTAGIRI., DEPUTY COMMISSIONER (ST)

Cancellation of registration of petitioners – fake ITC – TNGST Act – HELD THAT:- The contention of the respondents herein that the revival of registration is conditional upon the petitioner satisfying tax dues and substantiating its claim of ITC, is misconceived. What is sought for by the petitioner is revocation/revival of registration only, and in the guise of considering the application for revocation, the authorities cannot embark upon the process of assessment – An assessment would have to be made by the authority in terms of Section 73 or other applicable provision after following the procedure set out therein, and it is only in the course thereof that the officer may consider and decide questions of leviability of tax and claim of input tax credit.

Thus to state that registration will not be revived since the petitioner has incorrectly availed of ITC would be putting the cart before the horse. In fact, it is seen that the petitioner has filed monthly returns as well as annual returns for the periods January 2017-18 to September 2019-20 and for financial years 2017-18 and 2018-19 and has also remitted late fee for filing of belated returns. Thus, and these being the only conditions that are to be satisfied by the petitioner for grant of revocation of registration, the cancellation of the registration in this case is incorrect and improper.

#landmark_decisions

R. Ramadas v. Joint Commissioner of C.Ex., Puducherry 2021 (44) G.S.T.L. 258 (Mad.)held:

“The very purpose of the show cause notice issued is to enable the recipient to raise objections, if any, to the proposals made and the concerned Authority are (sick) required to address such objections raised. This is the basis of the fundamental Principles of Natural Justice. In cases where the consequential demand traverses beyond the scope of the show cause notice, it would be deemed that no show cause notice has been given for that particular demand for which a proposal has not been made.”

#landmark_decisions

Shiv Kumar Jatia v. Income-tax Officer, Ward-10(2), New Delhi – [2021] 127 taxmann.com 179 (Delhi – Trib.)

INCOME-TAX : As per section 2(14) , any kind of property held by an assessee would come within meaning of ‘capital asset’. And any right which could be property would be capital asset and incidentally interest in an under construction flat is not one of the exclusions and right or interest in property are kinds of property that are transferable assets and hence booking rights or rights to purchase apartment or right to obtain title to apartment are also capital assets that can be transferable and a contract for sale of flat was capable of specific performance and right in an completed building or a flat was clearly a property as contemplated by section 2(14).and the period of holding is to be reckoned from the date of first agreement while computing capital gain on sale of property

has to be determined. The Scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order thereof. Notice is thus a condition precedent to a demand under sub- section (2). In the instant case, compliance with this statutory requirement has not been made, and, therefore, the demand is in contravention of the statutory provision. Certain other authorities have been cited at the hearing by Counsel for both sides. Reference to them, we consider, is not necessary.”

Union of India & Others vs. Madhumilan Syntex Pvt. Ltd. & Anr. – 1988 (35) ELT 349 (SC)

The Hon”ble Court, following the judgement in Gokak Patel’s case (supra), observed and held as under:

“4. A perusal of the aforesaid provisions shows that before any demand is made on any person chargeable in respect of non-levy or short-levy or under payment of duty, a notice requiring him to show cause why he should not pay the amounts specified in the notice must be served on him. It is the admitted position in the present case that no such notice was served. It would thus appear that the aforesaid demand notice, dated 7th February, 1984 was in violation of the provisions of Section 11A and is bad in law.

Gokak Patel Vokkart Ltd. v. Collector of Central Excise, Belgaum – 1987 (28) E.L.T. 53 (S.C.) = A.I.R. 1987 S.C. 1161 = 2002-TIOL-508-SC-CX,

The Court has held that the provisions of Section 11A(1) and (2) of Central Excises and Salt Act, 1944 make it clear that the statutory scheme is that in the situations covered by sub-section (1), a notice of show cause has to be issued and sub- section (2) requires that the cause shown by way of representation has to be considered by the prescribed authority and then only the amount has to be determined. The scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order. Notice is thus a condition precedent to a demand under subsection (2).”

The aforesaid principle of law has been followed, recognised and/or emphasised by the Hon”ble High Courts and the Appellate Tribunals in a catena of judicial pronouncements. [See, J.K. Synthetics vs. UOI – 2009 (234) ELT 417 (Del.); Ennor Steel vs. UOI – 1990 (47) ELT 363 (Mad.); Acme Mfg. Co. vs. CCE – 2000 (124) ELT 1021 (Tribunal); Cipla Ltd. vs. CCE – 2002 (143) ELT 202 (Tribunal); Sidwal Refrigeration vs. CCE – 2002 (145) ELT 682 (Tribunal); United Telecoms Ltd. Vs CST Hyderabad 2011-TIOL- 56-CESTAT-BANG, to cite a few].

#Landmark_decisions

Ghanashym Mishra and Sons Vs. Edelweiss Asset Construction [2021] 126 taxmann.com 132 (SC),

The SC in its recent decision dated 13.04.2021 held that once a resolution plan is duly approved by the Adjudicating Authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan

What are the most important ingredients to be mentioned in an agreement to give legal ownership even if the title is not transferred?

1. There must be a contract to transfer for consideration any immovable property;
2. The contract must be in writing, signed by the transferor, or by someone on his behalf;
3. The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;
4. The transferee must in part performance of the contract, take possession of the property, or of any part thereof;
5. The transferee must have done some act in furtherance of the contract; and
6. The transferee must have performed or be willing to perform his part of the contract.

It means that if the above ingredients are not there, the agreement can not be called having legal support. this there can not be called as transfer.

Detailed discussion:-

Landowners to Breathe Easy – No Tax on JDA until its Registration

By S.R. Patnaik on October 12, 2017

POSTED IN DIRECT TAX

The real estate industry has experienced unprecedented growth in the past couple of decades. This has led both landowners and developers to enter into several innovative business models to optimise their resources and maximise returns. The landowners try to ensure that they participate in the future substantial value accretion of the project being developed while developers try to avoid shelling out the entire consideration for the land before commencing any work, to avoid depletion of their resources.

Thus, entering into a joint development agreement (JDA) has become particularly common. This is where the landowner and developer collaborate on the basis that the landowner contributes his land to the project while the developer brings in his expertise in construction to develop the project and both parties share the income earned from the developed project in a pre-determined ratio. Of course, depending on the facts and circumstances of the case, multiple variations of this structure can be seen in the marketplace, with the broad contours of the arrangement remaining the same.

For a long time, litigation has arisen over the taxability of income accruing or arising from a JDA. Primarily, Indian tax authorities contend that the landowner should be liable to pay tax at the time of entering into the JDA, whereas taxpayers have been contending that the tax should be payable only at the time of registration of the JDA.

This contentious issue has hopefully been resolved with the Hon’ble Supreme Court (SC) delivering its verdict in the case of Balbir Singh Maini [CIT v. Balbir Singh Maini, Civil Appeal No. 15619 of 2017]. In the said case, the SC upheld the contentions of the taxpayers, by confirming the decision of the Hon’ble Punjab & Haryana High Court (HC).

Facts of the Case

The taxpayers were members of a housing society (Society) which owned certain land in a village. The Society entered into a tripartite JDA with certain developers (Developers). Under the JDA, it was agreed that the Developers would undertake the development of 21.2 acres of land owned and registered in the name of the Society and in respect of which it would give development rights in lieu of consideration. It is pertinent to note that although the JDA was executed, it was not registered and as per the terms of the JDA, possession of the property was to be handed over simultaneously with the registration of the JDA.

Further, the Developers made only part payment of consideration and, thus, the taxpayers offered to pay tax on the proportionate amount received. However, the JDA was subsequently abandoned as the necessary permissions for development were not granted.

The tax authorities and the Income Tax Appellate Tribunal (ITAT) held that since physical and vacant possession has been handed over under the JDA, the same would tantamount to “transfer” within the meaning of Section of 2(47)(v) of the Income-Tax Act (IT Act). They also concluded that the taxpayer was liable to pay capital gains tax in the assessment year during which the JDA was executed on the entire amount already received and/or receivable in future.

However, the High Court reversed the decision of the ITAT and held that since no possession of land was given by the transferor to the transferee of the entire land in part performance of the JDA, it did fall within the domain of Section 53A of the Transfer of Property Act, 1882 (TOPA). In the absence of the fulfilment of the ingredients of Section 53A, no ‘transfer’ under Section 2(47)(v) would take place. The High Court also observed that the possession delivered was as a licensee for the development of land and not as a transferee and in the absence of registration of JDA, the agreement would not fall under Section 53A of TOPA and consequently, Section 2(47)(v) of the IT Act would not apply.

Decision of the Supreme Court

Any ‘transfer’ of a capital asset would attract capital gains tax in the year in which the transfer of asset takes place. Further, the term ‘transfer’ has been defined inclusively under Section 2(47) of the IT Act. Traditionally, capital gains in relation to immoveable property were taxable in the year in which registered conveyance deed was executed between the parties. As a result, the purchaser would delay or not get the property registered and enjoy the possession of the property in his own right, without the seller paying the legitimate amount of capital gains tax payable by him. To overcome this, the IT Act was amended and the revised definition of ‘transfer’ now includes any transaction that allows the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of TOPA. In other words, those arrangements which confirmed the privileges of ownership without a corresponding transfer of title would now be covered under section 2(47)(v).

Section 53A of TOPA was incorporated to provide protection to a transferee to retain his possession where he had taken possession of the property, pursuant to part performance of the contract. But the following conditions have to be fulfilled, if a transferee wants to defend or protect his possession under Section 53A of TOPA:

There must be a contract to transfer for consideration any immovable property;

The contract must be in writing, signed by the transferor, or by someone on his behalf;

The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;

The transferee must in part performance of the contract, take possession of the property, or of any part thereof;

The transferee must have done some act in furtherance of the contract; and

The transferee must have performed or be willing to perform his part of the contract.

Section 53A of the TOPA was amended in 2001 and as per the revised provisions, documents containing contracts to transfer for consideration are required to be mandatorily registered. In other words, if a JDA is not registered, it would have no effect in law for the purposes of Section 53A of the TOPA. Thus, it provided an incentive to the parties to register the JDA since it granted them legally enforceable rights.

Given this background, the primary issue before the SC was whether an unregistered JDA, which granted access to the developers for the purposes of development in part performance of the JDA, would get covered within the extended definition of ‘transfer’ under Section 2(47)(v) of the IT Act.

After going through the facts and circumstances and contentions of the taxpayer as well as the tax authorities, the SC observed that under Section 2(47)(v) of the IT Act, the term ‘transfer’ includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in Section 53A of the TOPA.

Taking note of the amendment to Section 53A of the TOPA, the SC went on to hold that to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which is enforceable under law (i.e. complies with the provisions of Section 53A of the TOPA). A perusal of Section 53A suggests that in the eyes of law, there was no contract which could be taken cognisance of, if it was not registered. Therefore, for the JDA to be considered for the purposes of section 53A of TOPA, it was required to be a registered instrument and since it was not registered in the instant case, the SC held that in the absence of registration of such an agreement, the same was not enforceable under general law and, thus, the transaction would not fall under Section 2(47)(v).

The SC also observed that the ITAT was not correct in its view that, since Section 2(47)(v) of the IT Act refers to “contract of the nature referred to in Section 53A of the TOPA”, the JDA was not required to be registered to attract Section 2(47)(v) as the requirement of registration was introduced only in 2001. The SC clarified that all that was meant by this expression was to refer to the ingredients of applicability of Section 53A of the TOPA to the contracts mentioned therein and only where the contract contained all the essential ingredients under Section 53A of the TOPA, it will be covered within the ambit of transfer, as provided under Section 2(47)(v) of the IT Act. Accordingly, it was held that such an expression could not be stretched so as to say that, though registration of a contract is required only after 2001, Section 2(47)(v) of the IT Act would include within its purview only such contracts mentioned in Section 53A of the TOPA, but without the requirement of registration.

At the same time, the SC rejected the view of the HC which had held that Section 2(47)(vi) of the IT Act would not apply in the absence of any change in membership of the Society. The SC clarified that under Section 2(47)(vi) of the IT Act, any transaction that has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. Such a transfer could be by way of becoming a member or acquiring shares in a co-operative society ‘or in any other manner whatsoever’. The SC further observed that the HC had erred by not adverting to the expression ‘or in any other manner whatsoever’, which expression shows that it was not necessary that the transaction must refer to the membership of a cooperative society. It held that a reading of the JDA in the present case would show that the Assessee continued to be the owner throughout its tenor, and at no stage purported to transfer ownership rights to the Developer. At the highest, possession alone was granted under the JDA for the specific purpose of the property development. Thus, the present case did not attract the provisions of Section 2(47)(vi) of the IT Act.

Lastly, it was also held that as the JDA was abandoned due to lack of required approvals/permissions, therefore, the income from capital gain on a transaction which never materialised was merely a hypothetical income and no capital gains tax could be levied on such notional income under Section 45, read with Section 48, of the IT Act. In other words, the SC expounded the principle of “real income” and followed the well-established precedents set up by the Indian judiciary to hold that, since no profit or gain was realised, no capital gains tax could be levied.

Conclusion

The SC has reiterated that for a transaction to be regarded as a ‘transfer’ under Section 2(47)(v) of the IT Act, all the conditions of Section 53A of TOPA should be satisfied and possession of the property should be obtained by the transferee in part performance of the contract. It also observed that only real income should be brought to tax and not notional income.

We have discussed here the taxability of income earned from a JDA in the light of the SC decision. It is pertinent to note that there could be several other forms of JDAs, which may raise several other issues regarding taxation of income accruing or arising therefrom, depending on the terms and conditions of such JDAs.

Transaction of unregistered development agreement not regarded as a ‘transfer’ under 2(47)(v); on subsequent cancellation of development agreement, expected income cannot be taxed on hypothetical basis

The Punjab and Haryana High Court (HC), in the taxpayer’s case, held that since the Joint Development Agreement (JDA) was not registered (one of the requirements for grant of possession under the JDA), possession of land could not be said to have been given under the JDA. Therefore, the transaction could not be said to be a ‘transfer’ as per section 2(47)(v) of the Income-tax Act, 1961 (Act) read with section 53A of Transfer of Property Act, 1882 (TOPA). Further, in view of the cancellation of the JDA, no further money was received by the taxpayer and no further actions were taken. Therefore, no income tax could be levied on any hypothetical income from the deal.

Important Judgements:-

2021 (3) TMI 707 – AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH

IN RE: M/S. NORTH SHORE TECHNOLOGIES PRIVATE LIMITED

Classification of supply – supply of services or not – subsidized shared transport facility provided to employees in terms of employment contract through third party vendors – valuation of subsidized shared transport facility provided to employees under employment contract – classification of activity of arranging transport facility for employees – person liable to pay GST – Rate of GST.

HELD THAT:- The applicant is transferring the entire amount collected from their employees, to the third party vendor who is providing transport services to their employees. We also observe that the applicant, in his application, has informed that apart from subsidized amount collected from the employees, they are also adding up a considerable amount into it and then paying it to the third party vendor. The applicant is not retaining any amount collected from the employees towards said transportation charges. We further observe that the applicant is in the business of software development and staff augmentation services and not in the business of providing transport service. Rather, this is a facility provided to their employees under the obligation of Law of the Land. Moreover, this activity is not integrally connected to the functioning of their business. Also, the said activity is not a factor which will take their business activity forward.

Thus, providing transport facility to its employees cannot said to be in furtherance of business.

Thus, arranging the transport facility for the employees and recovery from employees towards such transport facility, under the terms of the employment contract, cannot be considered as supply of service in the course of furtherance of business. Providing transport facility to employees is no where connected with the business of the applicant – thus, we are in unison with the applicant that arranging the transport facility for the employees is definitely not an activity which is incidental or ancillary to the activity of software development, nor can it be called an activity done in the course of or in furtherance of development of software as it is not integrally connected to the business in such a way that without this the business will not function.

Further, coming to the subsequent questions, it is observed that the subsequent questions in the application apply only when the answer of first question is in affirmative. As we are of the view that arranging transport facility to its employee is not a supply of service, accordingly the remaining questions become redundant and merit no discussion.

GST: Classification of services – Leasing – Royalty – exploration of natural resources – This activity of payment of lease charge/ dead rent/ royalty is towards the supply of service i.e. Licensing service for the right to use minerals including exploration and evolution, wherein the Government of Uttar Pradesh is supplier and the applicant is recipient. The liability of payment of GST liability on the amount of royalty paid to the Government is on the Service recipient i.e. the applicant in the instant case – AAR

Supply of water : Where applicant, engaged in business of management and maintenance of various residential Project, is providing services to Residential Welfare Association (RWA) which was formed for common interest of all intending buyers in two parts viz. maintenance services and supply of water and it has been observed that as a general practice across trade and market, maintenance services is inclusive of supply of water and hence supply of water provided by applicant through a separate agreement i.e. MOU in instant case, raises a suspicion in its activity. In view of fact that, that supply of water in MOU and supply of maintenance services in maintenance agreement are to same RWA and relevant to each other, hence there is no case of direct supply of water by applicant to individual resident of society. Thus is to be held that maintenance agreement and MOU is directly linked with each other as there is no case of direct supply of water by applicant to individual resident of society. Supply of water to individual units is not different from supply of water for maintenance services. Therefore, applicant is required to pay GST as applicable on maintenance agreement – Ashiana Maintenance Services LLP, In re – [2021] 124 taxmann.com 54 (AAR – HARYANA)

Due date of GSTR9 & 9C of 18-19 extended to 31.12.20. Due date of Tax Audit etc. & ITR for non audit cases extended to 31.12.20 & ITR of audit cases to 31.1.21.

GST: Period of limitation for filing an appeal – whether the appellate authority was justified in rejecting the appeal on the ground of limitation or not? – there was no failure on part of the petitioner to file the appeal within the prescribed period of limitation as the period of limitation did not start till the order passed by the adjudicating authority was uploaded on the GST portal. – HC

Income Tax: Belated filing of ITR – offences u/s 276(c)(c) – Admittedly, the respondent on the inspection dated 18.12.2012, had seized the relevant book of accounts and as such the petitioner could not able to file the return of income on or before 05.08.2013. Therefore, the petitioner had no wilful intention to evade tax as alleged by the respondent – Further since tax has been paid in 2018, the offence is not at all attracted as against the petitioner herein, and the entire criminal proceedings pending against the petitioner is nothing but clear abuse of process of law. – HC

Income Tax: Maintainability of appeal filed by the erstwhile company before amalgamation – without considering the order of the High Court in the matter of amalgamation and the automatic transfer of litigations of transferor companies into transferee company, the Tribunal has simply rejected the appeal, on the ground that the appeal was filed in the name of non-existing person. We do not agree with the said finding of the Tribunal as the same is not legally sustainable.- HC

GST: Refund of ITC in case of inverted duty structure – Not allowing refund of unutilized input tax credit relatable to input services – Explanation (a) to Rule 89(5) which denies the refund of “unutilised input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017. – HC

Toggle ContentGST: The class of registered person required to issue e-invoice – SEZ units excluded – Threshold limit of turnover enhanced from 100 crores to 500 crores.

Interest – ECB loan : Interest income earned by a Mauritius based Foreign Institutional Investor, on foreign currency loans and debt securities was exempt under Article 11(3)(c) of Indo-Mauritius DTAA – Deputy Commissioner of Income-tax (International Taxation) v. HSBC Bank (Mauritius) Ltd. – [2020] 117 taxmann.com 750 (Mumbai – Trib.

GST: Computation of threshold limit for the purpose of GST registration – Interest received on PPF Account / Saving Bank Account / Personal loan account should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law.

SECTION 5 OF THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION OF TAX

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