The Supreme Court in a recent decision in the case of Nestle S.A. and Others has held that the benefit of concessional tax rate provided in a third-country treaty shall not be automatically applied by virtue of the MFN clause contained in the protocol forming part of the DTAA unless the application of lower rate is notified under a notification by the government.

Issue involved

In the present case, the tax treaties in question were India-Netherlands, India- France and India-Switzerland. The issue under consideration before the Supreme Court was whether the benefit of concessional rate of tax contained in the tax treaty of a third country which obtained membership of Organisation for Economic Co-operation and Development (OECD) after signing its DTAA with India can be claimed by virtue of the MFN clause contained in the relevant DTAA with Netherlands, France and Switzerland.

The MFN clause as per India-Swiss DTAA provides that if India limits its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower than the rate provided for in this Agreement on the said items of income under any DTAA between India and a third State, which is a member of the OECD, signed after the signature of this Amending Protocol, the same rate as provided for in that DTAA on the said items of income shall also apply between both Contracting States under this Agreement as from the date on which such DTAA enters into force.

In the first of the judgements in the case of M/s Steria (India) Limited challenged in the appeal before the Supreme Court, the High Court of Delhi had held that in terms of Clause 7 of the protocol forming part of DTAA between India and France, no separate notification was required to apply concessional tax provisions contained in India-UK DTAA, by virtue of the said protocol. In case of other assessees viz. Concentrix Services Netherlands B.V., Optum Global Solutions International B.V. and Nestle S.A., the relevant DTAA were India-Netherlands and India-Switzerland respectively. In these cases also, the High Court of Delhi accepted the arguments of the assessee of automatic application of MFN Clause contained in their respective treaties. Consequently, the lower tax rates contained in the treaties entered into with Slovenia, Lithuania, and Columbia were allowed to be applied by the above assessees.

Revenue’s arguments

Challenging the above orders of the High Court, the revenue argued that India follows the “dualist” practice, which means that international treaties and conventions are not upon their ratification automatically assimilated into Municipal Law (i.e., the national legal system) but would require enabling legislation. Therefore, in the present case, the trigger to the MFN clause can occur at a later point in time when India enters into a DTAA with other nation being a member of the OECD at that time, if such DTAA provides for lower taxation than the subject DTAA. However, it would still require issuance of a notification to give effect to such consequence. The mere fact that India entered into DTAAs with Slovenia, Lithuania, and Columbia at certain points in time and that some of them gained membership of OECD, ipso facto could not lead to claims by the assessees that similar or identical treatment had to be extended to them as tax residents of Netherlands, France, and Switzerland respectively.

The revenue pointed out the Treaty practice between India and each of the three countries (i.e. France, Netherlands and Switzerland) and based on the same urged that the triggering event itself (i.e. mere entering into DTAA with a country which was or became a member of the OECD) did not result in grant of any benefit or advantage to the other treaty partner. These practices were in consonance with the mandate and requirements of Section 90. It was also submitted that without the benefit of any notification, any tax administrator or an assessing officer or revenue authority would find it hard to verify the claim of any assessee.

It was argued that the order of the High Court as held in favour of the assessees is erroneous in as much as it relied upon executive orders and decrees issued by Swiss, Dutch and French authorities, which could not possibly bind Indian revenue authorities, as the same had been issued unilaterally.

Based on the above, the revenue contended that MFN clause clearly demonstrates that the third country is required to be an OECD member as on the date of the signing of the treaty and not on any future date. Therefore, when Slovenia, Lithuania or Columbia entered into respective DTAA with India, they had to be members of OECD at that time, for Netherlands, France and Switzerland to claim parity of treatment.

It was lastly argued that the notifications, which amended existing DTAAs in respect of the three countries, reveal two aspects:

1. they were issued because of benefits granted to countries, other than Netherlands, France and Switzerland;

2. that such subsequent notifications were triggered by the lowering of rate, or treatment of certain kinds of income (dividends, interest and royalties and fee for technical services) and their definitions.

These notifications were preceded by negotiations, communications and letters exchanged between India and the other country. In many cases, the amending notification granted one benefit, while denying other benefits (granted to other, third countries, whose DTAAs conferred such benefits after Netherlands or France or Switzerland’s DTAAs were entered into). This clearly showed that such notifications were necessary, and that there could not be any automatic applicability of such benefits given to other OECD members.

Assessee’s arguments

Per contra, the assessees urged that Section 90 only requires notification of a treaty or protocol, and does not mandate each clause of such agreement to be further notified separately. There is no requirement in the subject MFN clause to issue any notification to bring into force the beneficial provisions from subsequent DTAAs or by way of a notified protocol or negotiation.

The use of different language in the DTAA by the two contracting states is indicative of their intent and cannot be disregarded whilst interpreting their terms. It was emphasised that in the case of the India-Switzerland DTAA, the nature of the existing MFN clause is such that no negotiation is needed, however for change in scope in respect of royalties or fees for technical services, the requirement for negotiation has still been retained by the treaty partners, and these differences in the language of the clauses bear significance.

Regarding the revenue’s contention about the past treaty practice, the assessees submitted that the absence of a unilateral notification which may have in the past been issued as an administrative practice cannot override the clear language of an MFN clause which provides for automatic application.

On the OECD membership issue, it was argued that the revenue's only reason in the order denying the applicability of the lower rate of withholding tax at 5% - which was challenged by the assessees before the High Court, was that the benefit of the MFN clause cannot be given as Lithuania, Columbia, etc, were not OECD members at the time of signing of the India-Netherlands DTAA. OECD membership requirement for the third country at the time of signing of its own DTAA was not the reason given for rejection in the order impugned before the High Court.

With regard to the argument of the revenue that Slovenia/ Lithuania/ Columbia ought to be members of OECD both at the time of signing of the India-Netherlands DTAA or at the time of execution of their own DTAA and also at the time of claim for lower withholding, the assessees, based on the interpretation of the word “is” appearing in Article 10 of the DTAA submitted that the word "is" does not postulate continuous requirement of residence. Therefore, the same word "is" when it appears in the MFN clause can only mean that Slovenia etc. need to be OECD members only when the benefit of the MFN clause is invoked.

Supreme Court’s observations and decision.

The Supreme Court placing reliance on its earlier decisions, observed the following-

1. The terms of a treaty ratified by the Union do not ipso facto acquire enforceability;

2. Parliament can refuse to perform or give effect to such treaties, which can leave the Union in default vis-a-vis the other contracting states.

3. The application of such treaties is binding upon the Union. Yet, they are not by their own force binding upon Indian nationals.

4. Law making by Parliament in respect of such treaties is required if the treaty or agreement restricts or affects the rights of citizens or others or modifies the law of India.

5. If citizens’ rights or others’ rights are not unaffected, or the laws of India are not modified, no legislative measure is necessary to give effect to treaties.

6. In the event of any ambiguity in the provision or law, which brings into force the treaty or obligation, the court is entitled to look into the international instrument, to clear the ambiguity or seek clarity.

The Supreme Court held that upon India entering into a treaty protocol does not result in its automatic enforceability in courts and tribunals; the provisions of such treaties and protocols do not therefore confer rights upon parties till such time the appropriate notifications are issued in terms of Section 90(1).

Regarding the interpretation of the word “is” as appearing is appearing in MFN clause, the Supreme Court held that the expression “is” has a present signification and it derives meaning from the context. It, therefore, concluded that when a third party country enters into DTAA with India, it should be a member of OECD, for the earlier treaty beneficiary to claim parity.

Based on the precedents of behaviour of treaty practise of notifying the amendments and protocols to the DTAA, the Supreme Court held that the omission of certain benefits (available to other member countries of OECD who had entered into DTAA with India) in the subsequent notification is another indication that a trigger event such as India granting favourable relief to a country per se does not cover all the benefits granted through the later instrument.

Regarding the different terminology used in the protocol under India-Swiss DTAA, the court held that it could plausibly be argued that this condition is not substantive but only diplomatic. What it requires is that the concerned governments have to notify how and when the protocol is assimilated into the domestic legal system. Therefore, Switzerland cannot claim an exception based only on the language of the third protocol.

The court relied on the India's treaty practice with Canada and observed that the protocol to the original DTAA was unambiguous and emphatic; it required that the trigger event would lead to “such lower rate will automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where the royalties or fees for technical services are paid in respect of a right or property”. Even in such a case where the language in the protocol being emphatic as the third protocol to the India-Switzerland DTAA, a notification was later issued.

Regarding the reliance of the assessees on the decrees issued in each of these countries to underline the treaty practice of the three countries, the court held that the context of these executive orders or decrees is to be understood in relation to each country’s manner of assimilation of treaties in municipal or national law. Since in India, either the treaty concerned has to be legislatively embodied in law through a separate statute or it gets assimilated through a legislative device i.e. notification in the gazette, in the absence of this step, treaties and protocols would be unenforceable.

Considering the International Law Commission (ILC) draft conclusions and International Court of Justice (ICJ) decisions, though not binding on the court, the court held that while considering treaty interpretation, it is vital to take into account practice of the parties. The treaty practice of Switzerland, Netherlands and France is dictated by conditions peculiar to their constitutional and legal regimes. Likewise, the treaty practice in India points to a consistent pattern of behaviour when the signatory to an existing DTAA points to the event of a third state entering into OECD membership and a resultant trigger event, the beneficial effect given to the later third-party state has to be notified in the earlier DTAA as a consequential amendment, preceded by exchange of communication/ negotiation and acceptance of that position by India. The essential requirement of a notification under Section 90 of the consequences of the trigger (or causative) event cannot be undermined.

Based on the above the court held that:

1. A notification under Section 90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA or any protocol.

2. A stipulation in a DTAA or a Protocol with one nation requiring same treatment provided to a third-party country DTAA, does not automatically extend the same benefit as third- country DTAA without a separate notification under Section 90.

3. For a party to claim benefit of a “same treatment” clause based on entry of DTAA between India and another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when after entering into DTAA with India such country becomes an OECD member, in terms of India’s practice.

   DSD Noell GmbH [TS-714-ITAT-2023 (DEL)] dated November 30, 2023

In a recent decision the Delhi Bench of ITAT held that offshore supply of plant & equipment by a foreign company does not give rise to any taxable income in India under the provisions of the Act and the DTAA. Further, it also held that offshore services that primarily involve the supply of drawings and designs, being inextricably linked with such offshore supply shall also be not taxable under the provisions of the Act and the DTAA

On the facts of the case, the assessee (DSD Noell GmbH) is a company incorporated in Germany and is also a tax resident of Germany. It is a group company of DSD Steel Group GmbH and specializes on hydromechanical steel equipment for navigational shipping, barrages and waterpower plants.

The assessee entered into a contract with a Government Undertaking in India for Hydro Mechanical Works that include supply of hydromechanical plant & machinery, related drawings along with rendering of offshore and onshore services. The assessee had also set up a project office in India for executing the onshore portion under the contract and a deemed PE was also constituted in India for onsite activities.

While filing the tax return, receipts towards offshore supply and offshore services were claimed as non-taxable. However, the Ld. AO / CIT(A) regarded the receipts towards offshore supply taxable in India as business income attributable to PE in India and receipts towards offshore services taxable as Fee for Technical Services both under the Act and the DTAA. Aggrieved by the same, the assessee filed an appeal before the Delhi Bench of ITAT.

The ITAT allowed full relief to the assessee and held that offshore supply and offshore services in question does not give rise to any taxable income in India. The specific observations made by the ITAT are summarized in the ongoing paras.

Observations with regard to the taxability of offshore supply.

• While appraising the terms and conditions of the contract, the ITAT accentuated the fact that though the custom clearance is the responsibility of the assessee under the contract, however, all the plant & machinery and materials received shall remain absolute property of the owner and shall at all time open for inspection.

• The ITAT observed that the allegation made by the lower tax authorities with that 100% supply of machinery is not preceded to the formation of the Project Office in India is inconclusive and not relevant to determine the taxability of the offshore supply.

• One of the contentions of the Ld. AO / CIT(A) was that ownership in goods is transferred subsequent to defects liability period. In this regard while referring to the decision of Delhi High Court in the case of DIT vs LG Cables Ltd reported in 197 Taxman 100 (Del) the ITAT highlighted that the term it is to be understood in a practical manner that the Defects Liability clause would be incorporated in every contract to take care of a contingent event. This has got nothing to do with the passing of title to the equipment. The ITAT made similar observation with regard to the clause dealing with retention of money for offshore supply till successful commissioning of the plant.

• While relying on the decision in the case of Ishikawajima-Harima Heavy Industries Limited reported in 288 ITR 408 (SC) and Delhi High Court in the case of National Petroleum Construction vs DIT reported in 66 taxmann.com 16 (Del) it also held that no part of consideration received outside India for offshore supplies of plant, equipment and spares could be deemed to accrue or arise in India as per section 9 of the Act in the hands of the assessee. Further, such consideration would only be in the nature of business income not attributable to PE in India and hence not taxable under Article 5 read with Article 7 of the India Germany DTAA.

• The ITAT also relied on the provision of Protocol 1(a) to the DTAA as well to hold that the receipt of such consideration received for offshore supplies of plant & equipment outside India is not liable to tax in India.

Observations with regard to the taxability of offshore supply of drawings and design relating to supply of plant and equipment.

• The ITAT observed that on facts the Contract for offshore services and for the offshore supply of Plant and Equipment were entered on the same date and are inextricably connected because the supply cannot be made without the drawings.

• The ITAT outrightly rejected the applicability of the decision of Karnataka High Court in the case of AEG Aktiengesllschaft vs. CIT reported in 267 ITR 209 (generally relied on by the tax officers in case of taxability of drawings and design), as relied upon by tax officer, and held that this decision is not applicable in view of the contrary decision from the Delhi High Court (jurisdictional court) in the matter of Linde AG, Linde Engineering Division vs. DIT reported in 365 ITR 1 (Del).

• The ITAT asserted upon the main contention of the assessee that the dominant object of the contract in question was to supply a plant manufactured according to the designs developed, then, even though the obligation to carry out the designs may be under a separate contract of same date and a separate consideration is mentioned therein, the character of the receipt must be that of a sale price for the supply of the equipment.

• In view of the above observations, the ITAT held that when the supply of drawings and designs is coupled with supply of equipment, which is manufactured in accordance with the designs supply, the amount received cannot be characterized as FTS.

• The ITAT also affirmed that even if such receipts are considered to be in the nature of FTS, then, having regard to the provisions of paragraph 6 of Article 12, it would be clear that the provisions of Article 12 would have no application to bring to tax the consideration received from the sale of the designs and plant and such consideration could only be brought to tax in terms of Article 7 of the DTAA. Further, in this case taxability shall not arise in Article 7 due to protocol 1(b) to the DTAA whereunder consideration for technical services rendered outside India shall not be attributable to PE in India.

   Jiangdong Fittings Equipments [TS-724- ITAT-2023(DEL)] dated Dec 04, 2023

In a recent decision, the Tax Tribunal, Delhi Bench held that the receipts from offshore supplies were not taxable in India as the title to goods transferred outside India and the sale was completed outside India.

On facts, the taxpayer is a company and a tax resident of China. It entered into three contracts with Power Grid Corporation of India Ltd. (PGCIL) and its two subsidiaries for design, manufacture, testing and supply of goods and equipment from China to India on CIF basis. The taxpayer was not involved in any onshore activities in India and the same were performed by its Indian subsidiary, ZTT India Private Limited (ZTT India). The taxpayer claimed receipts from supply of equipment as non-taxable in India as the title over the goods/equipment passed to the customers outside India and sale was completed outside India.

During assessment proceedings, the tax officer contended that in the course of supply of goods and equipment, the taxpayer also provided technical know-how, experience, skill, managerial and consultancy services. It was further contended by the tax officer that ZTT India was permanent establishment (PE) of the taxpayer in India as it was fully controlled by the taxpayer and was engaged in the same nature of business as that of the taxpayer. The tax officer held that out of the total receipts from offshore supply of equipment, 60% could be apportioned towards fees for technical services (FTS) and 40% towards supply of equipment/goods. And out of 40% revenue allocated towards supply of equipment, he attributed 25% as profit of the PE. The Dispute Resolution Panel (DRP) sustained the additions made by the tax officer.

On appeal, the Tribunal held as under:

• the terms of the contract clearly demonstrated that transfer of title over the goods took outside India with all associate risks and liabilities and the payments were also made outside India.

• although 10% of the price was payable on receipt of goods at site after acceptance by the purchaser, the said term only ensured that the goods were free from any defect.

• merely because the taxpayer had a subsidiary/related entity in India, which has performed some onshore activities under a distinct and separate contract with the same customer, that by itself would not make the offshore and onshore contracts composite.

• although the responsibility of clearance, handling at port, inland transportation, insurance, etc. was of ZTT India, the entire cost was reimbursed by the customer.

• the fact that ZTT India received commission from the taxpayer on certain percentage at CIF price would not make ZTT India a dependent agent PE of the taxpayer as it was not involved in any manner in supply of goods on CIF basis from China.

• merely because there was a cross-fall breach clause in the contract to ensure seamless execution of the contract, it could not be said that two different and distinct contracts were composite in nature.

• the attribution by the tax officer of 60% of the receipts towards FTS and 40% towards price of goods/materials was totally irrational and perfunctory.

• the activities of design and testing etc. were certainly part of the manufacturing activity and could not considered de hors such activity. As such, the artificial segregation of receipts between supply of goods and FTS was unacceptable.

BBC World (India) Private Limited [TS-653-ITAT-2023(DEL)-TP]

In recent decision the Hon’ble ITAT, Delhi Bench upheld that the costs in relation to advertisement, business promotion and participation in trade events incurred by the assessee on request of and under the control of its Associated Enterprises (‘AEs’) are pass through costs which do not require mark-up.

On the facts of the case, BBC World (India) Pvt Ltd (‘the assessee’) is a part of multinational group engaged in broadcasting international TV channels throughout the world, production and distribution of TV/ radio programs and other related activities. The assessee entered into international transaction of marketing and distribution activities. The assessee also received reimbursement of various expenses incurred on behalf of its AEs, which according to the assessee were not relevant to the main services provided by the assessee. All cost incurred by the assessee on payment to third party vendor for marketing and research for the channel were reimbursed at cost, as these costs were incurred by the assessee on behalf of the AE. In the same way, all cost incurred under the division of finance, administration and direction were reimbursed at cost. These costs pertain to the expenditure incurred inter-alia on compliance by the assessee with various tax laws, on payment of rent etc. According to the assessee, no extra services were rendered by incurring these expenses. As such, these costs were recovered by the assessee from its AE without any markup.

During the transfer pricing proceedings, the TPO opined that as per the service agreement between the assessee and its AEs, the assessee is to provide services on all the areas of activities. The central activity of the assessee is to market advertisements and sponsorships, to carry out research in respect of performance and viewership and to carry out distribution and marketing activities. The TPO concluded that such kind of reimbursement of expenses which are so thickly related to core business activity cannot be taken on cost-to-cost basis.

Recently, Mumbai ITAT in the case of Indium IV (Mauritius) Holdings Limited (assessee) held that the source of income has a direct nexus with the stream out of which the income springs to the assessee. The Heads of Income are provided to aggregate similar incomes derived from different sources for deduction and taxation purposes.

On facts of the case, the assessee is a tax resident of Mauritius and is engaged in the investment activities in India through Foreign Direct Investment (FDI) Route or through subsidiaries. The assessee incurred Short- Term Capital Gains (STCG) and Long-Term Capital Loss (LTCL) on the alienation of shares, out of which STCG were claimed as exempt from tax in India in accordance with Article 13(4) of the India-Mauritius DTAA (the treaty) while LTCL was carried forward under Section 74(1) of the Income Tax Act, 1961 (the Act).

AO rejected the carry forward of the capital loss on the premise that any capital gain from trading in securities in India by a tax resident of Mauritius is taxable only in Mauritius and observed that since the Capital Gains derived by the tax resident of Mauritius in India is exempt, question of carry forward of Capital Losses from such transaction does not arise at all either in India or in Mauritius. The Ld. DRP upheld the AO’s order, noting that the loss and income from the same source of income cannot be treated differently and Article 13 of the treaty cannot be selectively applied.

The assessee filed an appeal before Hon’ble Mumbai ITAT. It was contended that the assessee has an option to apply the provisions of the Act or treaty whichever is beneficial to the interest of the assessee and it can choose to be governed either by the provisions of the Act or the provisions of the treaty whichever are more beneficial qua each source of income.

  2023:AHC:217747-DB

The Hon’ble High court of Allahabad in the case of the Commissioner of Income Tax (TDS) versus Lalitpur Power Generation Co. Ltd and others has held that an indivisible contract cannot be artificially dissected by Revenue to the prejudice of the Assessee subjecting a part of the contract to higher TDS.

The work of installation, testing, commissioning, etc. were to be performed by the contractor not by way of independent work awarded to it but by way of execution of the whole contract to set up a thermal power plant therefore unless an external legal tool under any provision of the Act or an internal tool exists in the contract, the Revenue is not allowed to bifurcate otherwise indivisible or composite contract. Allahabad HC upholds ITAT order that the Assessee as not in default for short deduction of tax @ 2% under Section 194C instead of 10% under Section 194J as fees for technical services (FTS).

The facts of the case are Lalitpur Power Generation Co. Ltd, a Special Purpose Vehicle of Uttar Pradesh Government, was engaged in business of generation of power. To set up a thermal power plant, it entered into contracts with BHEL for transportation, insurance, erection, installation, testing and commissioning of bolier turbine generator (BTG) and another contract with Carbery Infrastructure Pvt. Ltd (CIPL) involving erection, installation and commissioning of balance of plant (BOP). For assessment year 2012-13 to 2014-15, the Assessee was held    to be in default under Section 201 for short-deduction of TDS @ 2% under section 194C instead of withholding tax at 10% under section 194J treating the aforesaid payments as ‘Fees for technical services’ for both the contracts.

There were other works covered under the two contracts involving supply component, which did not form subject matter of dispute. CIT(A) upheld the Revenue's order which was reversed by the ITAT by relying on Punjab & Haryana HC ruling in Bharat Heavy Electricals.

Revenue challenged the ITAT order before the Hon’ble High court of Allahabad. It was their contention that the Assessee has not maintained any separate account to establish payment for testing and commissioning to BHEL for BTG and installation and commissioning payment to CIPL and since the payment for those works constituted Fee for technical services, TDS @ 10% under Section 194J was applicable.

The Assessee argued that Revenue could not have broken down an indivisible contract for wholly artificial reasons to discover on assumptive basis, the alleged component of fees for technical service. It further argued that the contract clauses have to be read in light of its main object and in the absence of any internal tool arising therefrom as well as in absence of any legal provision allowing the breaking down of indivisibility or composite nature and character of the contract, the exercise carried out by Revenue is erroneous and impermissible in law.

The Hon’ble Allahabad High Court upheld that that the dominant object of the contract would subsume the other objects and in the absence of any enabling law it is not open to the Revenue to overlook the primary object to reach to conclusion that there exists a fee for technical services component merely because part of the contract involved testing and commissioning. It was further held that in the absence of any internal tool shown to exist in the contract, it cannot be inferred that the contracting parties intended to treat the work of testing and commissioning as separate/independent of the contract to set up plant. The Hon’ble Allahabad High Court relied on Punjab & Haryana High Court ruling in Bharat Heavy Electricals, being similar to the instant case, having an element of testing and commissioning of technical works etc. as part of the main contract to set up a thermal power plant including therein work of transportation, insurance, erection, installation, testing and commissioning. The High Court concurred with the reasoning given in said decision. Further it also relies on Karnataka High court ruling in Bangalore Metro Rail Corporation and observed that an indivisible/composite contract may not be bifurcated to cull out any indivisible component of such contract, to make a higher deduction of tax at source.

a. Applicability of GST on reimbursement of electricity charges:

• If electricity is supplied, bundled as part of renting of immovable property and/or maintenance of premise such as CAM charges, supply of electricity would be subject to GST. Since, renting of immovable property or CAM charges would be principal supply, supply of electricity would suffer the same GST rate ie., 18%. Even if, electricity is charged through separate invoice or shown separately on invoice it would still be subject to GST@18%.

• However, where electricity is charged in the capacity of pure agent or on actual basis by the lessor ie., lessor charges the same amount as charged by the Electricity board/authority, then it would not be subject to GST. In other words, reimbursement of electricity on actuals, based on sub-meters, by the lessors from lessee would not be subject to GST.

• The above clarification is useful for Mall Owners, Real-Estate Owners, Residential Welfare Associations etc.

b. Clarification w.r.t. Services of transport of passengers by motor vehicle with operator wherein cost of fuel is included in the consideration:

• As per Notification No 11/2017- CGST (Rate), services of transport of passengers by any motor vehicle and renting of motor vehicle designed to carry passengers with operator where cost of fuel is included in the consideration, attracts GST@5% subject to condition that input tax credit would only be admissible of services in the same line of business.

The Department denied benefit of ITC when supplier/dealer has not remitted the tax collected on the supply. Petitioner Aggrieved by the order passed by the Adjudicating Authority filed a writ before the Hon’ble Kerala High Court.

Hon’ble Kerala High Court held that if the seller dealer (supplier) has not remitted the said amount paid by the petitioner to him, the petitioner cannot be held responsible. Whether the petitioner has paid the tax amount and the transactions between the petitioner and seller dealer are genuine are the matter on facts and evidence. The petitioner has to discharge the burden of proof regarding the remittance of tax to the seller dealer by giving evidence. Thus, writ allowed and case referred back to the assessing officer.

The Ministry of Corporate Affairs [MCA], vide notification dated 27th October, 2023, has amended Companies (Prospectus and Allotment of Securities) Rules, 2014, by notifying Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 [hereinafter referred to as “the amendment rules”].

It may be noted that earlier the MCA, vide its notification dated 10^th September 2018, had made mandatory dematerialisation of securities for unlisted public companies.

As per the amendment rules, now dematerialisation of securities [in accordance with the provisions of Depositories Act 1996] has been made mandatory for all the Private Limited Companies also, and a period of 18 months has been provided, commencing from the closure of financial year ended 31^st March 2023 i.e. latest by 30^th September, 2024, to comply with the amendment rules.

The key highlights of the amendment rules are as under:

1. Any issue of a security after 30^th September, 2024, can only be in demat form, and before any such issue of a security, the company has to ensure that the entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised. Similar conditions need to be met for Buyback of securities or issue of bonus shares or rights offer, after 30^th September, 2024.

2. Any holder of security who intends to transfer the security on or after 30^th September, 2024, shall get such securities dematerialised before the transfer.

3. On or after 30^th September, 2024, before making subscription to any security of a private company, whether by way of private placement, or bonus shares or rights offer, the intended security holder shall ensure that all his securities are held in demat form, or he has a demat account in place, enabling him to hold the subscribed securities in demat form.

4. A private company has to facilitate the process of dematerialisation of all its securities, so that on or after 30^th September 2024, the above referred issue / transfer / of security can take pace in demat form.

5. As per the amendment rules, certain provisions, pertaining to dematerialisation of securities, as currently applicable to unlisted public companies, will now apply to private companies also. Few such provisions, as now made applicable to a private company also, are listed as under:

6. It may be noted that these amendment rules are not applicable to a government company and a Small company [whose paid up capital does not exceed Rs 4 crores and turnover, as per P/L of immediately preceding financial year does not exceed Rs 40 crores]. However, if a private company ceases to be a small company, based on the audited financial statements of a particular financial year, it shall, within 18 months of closure of such financial year, shall comply with these amendment rules.