Source: http://aiftponline.org/category/journal/2017/january-2017/
Timestamp: 2019-04-23 14:58:26+00:00

Document:
The Employees State Insurance Corporation in its 170th meeting held on 3-12-2016, has approved a Scheme to promote registration of Establishment/Factories and employees coverable under the ESI Act. 1948.
under 2nd Generation Reforms, titled as “ESIC 2.0”.
to recover damages as an arrear of land revenue.
1. The employers registering during the period will be treated as covered from the date of registration or as declared by them.
2. The newly registered employees shall be treated as covered from the date of their registration.
3. This will not have any bearing on actions taken / required under ESI Act, if any, prior to 20th December 2016.
All the employers/employees are encouraged to use this opportunity & ensure that all the units/employees coverable under the ESI Act. are registered availing the one time benefits of the Scheme.
It is advisable that eligible employers should take the advantage of this amnesty scheme.
“It seems that Tribunal did not deal with the factual issues relating to transaction itself, as it was under the belief that the ratio of law laid down in K. Raheja Development Corporation (supra) as well as M/s. Larsen and Toubro Limited (supra) were clearly apparent. The distinction in fact have not been noticed, though it was apparent and had been pressed. In such circumstances, the Tribunal has failed to discharge the obligation imposed upon it by law of dealing with the factual issues raised and pressed before it, and therefore the order of Tribunal cannot be sustained. Since the Tribunal has not gone into factual issues in correct perspective, as such, the findings returned by it on the different issues are not liable to be sustained. It is clarified that this Court has not adjudicated the issues on merits, and any observations made in this order is not to be construed as an expression of opinion on the respective claim of parties on merits. All issues of fact and law are left open to be considered by the Tribunal.
[Source: M/s. Supertech Ltd. Noida v. The Commissioner, Commercial Tax, U.P. Lucknow, STR Nos. 2 and 3 of 2017, dated 6th January, 2017 (All)].
The court cannot interpret the law in such a manner so as to read into the Act an inherent power of condoning the delay by invoking Section 5 of the Limitation Act, 1963 so as to supplement the provisions of the VAT Act which excludes the operation of Section 5 by necessary implications.
[Source: M/s. Patel Brothers v. State of Assam And Ors. Civil Appeal Nos. 49-50 of 2017, dated 4th January, 2017 (SC)].
Even if no period of limitation is provided under the Act for exercise of revisional jurisdiction that does not mean that the power can be exercised at any time. The notice issued for revising the assessment after more than 7 years certainly deserves to be set aside on account of delay.
Tata Sons Limited v. State of Maharashtra1 and Subway Systems India Pvt. Ltd. v State of Maharashtra2.
a) The trademark can be used by the Querist for purposes of its business including in relation to or upon its products, labels, letterheads, brochures, pamphlets and other advertising material.
b) The trademark can only be used in such form and in such manner as is approved by XYZ. Querist cannot use the mark in any way which can jeopardise the significance, distinctiveness or validity of the mark.
c) Querist is bound to assist XYZ in monitoring of the business of Querist to determine whether Querist has achieved or maintained the standards as are acceptable to XYZ. Failure to achieve or maintain standards required by XYZ can lead to termination of the agreement .
d) The licence has been granted on a non-exclusive basis. XYZ can use the trademark without consent of Querist. Similarly, XYZ can grant any number of licences without the consent of Querist.
e) The agreement dated 1-4-2013 does not envisage any territorial restrictions for the use of the trademark either.
f) The licence cannot be transferred to anyone else by the Querist.
g) XYZ reserves the right to revoke the licence at any point of time if the terms of agreement are breached. Such revocation can happen even if the management or control of the Querist changes.
h) On termination or expiry of the agreement, Querist has to discontinue the use of the trademark and remove any reference to the trademark from products, labels, letterheads, brochures, pamphlets, invoices, advertising material or any other thing, equipment or substance.
3. Under the Maharashtra Value Added Tax Act, 2002, Sales Tax or VAT can be levied on the “transfer of right to use goods”. Such taxation is enabled by Article 366(29A)(d) of the Constitution of India which allows Sales Tax to be levied on the “transfer of right to use goods”. If a transaction amount to mere permission to use, without the transfer of right to use goods, then it does not fall within the ambit of the Maharashtra Value Added Tax Act, 2002 at all.
6. Justice Dr. Lakshmanan’s criterion was taken to be locus classicus on the law of “transfer of right to use goods” for a long period of time.
7. However, in Tata Sons4, the Bombay High Court took a divergent view on requirements (d) and (e) of Justice Dr. Lakshmanan’s criterion. That case pertained to a Brand Equity and Business Promotion Agreement under which the mark “TATA” was licensed to group companies of the Tata group. Tata Sons placed reliance on requirements (d) and (e) of Justice Dr. Lakshmanan’s judgment, which say that once the owner has transferred the right to use, he himself has no right to use and therefore it cannot be transferred again till the right to use does not revert back to the owner. Since Tata Sons could use the mark even after it is licensed and since licences could be granted to any number of entities at the same time, Tata Sons argued that there was no “transfer of right to use goods” as such.
9. Subsequently, the decision in Subway Systems,6 was handed down. In our opinion, the broad observations of the Court in Tata Sons have been watered down by Subway Systems. While Tata Sons “seemed” to totally abandon the requirements of exclusivity and effective control for intangible goods, Subway Systems has retained the same, albeit in a modified form.
a) The licensee was allowed to use the trademark only till the time that the agreement did not expire.
b) In case of breach of agreement, the licence to use the trademark would stand revoked.
c) Subway could even compete with their franchisees. There was no territorial exclusivity wherein Subway was prohibited from competing with the licensees in a particular territory or granting any other licensee in that territory.
d) Franchisees were prohibited from sub-licensing the trademark and sub-franchising without consent of Subway.
e) On termination of agreement, the franchisees could no longer display of the marks.
f) Subway had deep and pervasive control over day-to-day activities of the franchisees. Even the ingredients like bread etc. were to be sourced either from Subway or from authorised dealers.
11. As can be seen, the six factors listed above which led the Court to hold that the Subway agreement was not in nature of “transfer of right to use” trademark, are similar to the essential features of the agreement dated 1-4-2013 outlined in Para 2 of this Opinion. The only point of slight distinction is Point No. (f) which talks of deep and pervasive control that Subway exerted over day-to-day activities of franchisees. Even though the control exerted by XYZ is not as deep and pervasive as Subway’s, in our view XYZ exercises sufficient control on the use of trademark which would mean that Querist does not have effective control of the trademark. The trademark in this case can only be used in accordance with the manner prescribed by Querist and any deviation will entitle XYZ to terminate the agreement and ask the Querist to stop using the mark. Furthermore, XYZ monitors performance to determine whether the Querist has achieved the level of excellence which is required by XYZ. If the Querist does not achieve the level of excellence or maintain such level, XYZ is entitled to terminate the agreement and direct that the marks no longer be used by the Querist.
“the effective or general control does not always mean physical control and even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods”.
These observations have been approved in in Para 45 of the Judgment given in case of Monsanto Mahyco,8 which was decided along with Subway Systems vide a common judgment.
13. By parity of reasoning, it can be said that if the manner, method and modalities of use of the goods is decided by the owner of goods and the person who is allowed to use the goods is bound to use the goods in the manner prescribed by the owner of goods, the goods are under the effective control of the owner and there is no transfer of right to use goods.
14. Therefore, as long as the Querist is bound to use the mark in the manner prescribed by XYZ and is bound to observe standards of excellences which entitle it to use the mark, the use of the mark amounts to bare permission to use and there is no transfer of right to use goods. Consequently, no liability can arise under the Maharashtra Value Added Tax Act, 2002.
The dealer has sold goods to its buyer in course of inter-state trade. The buyer has issued C form. Subsequently its RC is cancelled on various grounds retrospectively including that the buyer is not existing and also not doing genuine business. The Sales Tax authority of the vendor contemplates to disallow the C form. Whether such action is justified?
When the sales are in the course of interstate trade, one of the facilities available is about lower rate of tax, if the sales are effected to registered dealer under CST Act. However, such lower rate is available to the seller, if the said sale is supported by C form as obtained from the buyer.
One of the conditions of C form is that the buyer, issuing the C form, should be registered dealer under the CST Act at the time of purchase.
It is the fact that the buying dealer has issued C form. Subsequently the RC of the said dealer is cancelled retrospectively due to various reasons as stated in the query. The question is whether C form issued earlier is valid or not?
The answer to above query is in affirmative i.e. the vendor should get benefit of C form in spite of retrospective cancellation.
In this relation the note is required to be taken of the recent judgment of Hon’ble Delhi High Court in case of Jain Manufacturing (India) Pvt. Ltd. v. The Commissioner Value Added Tax & Anr. (W.P.(C)1358 of 2016 dt. 1-6-2016.
“3. The Petitioner made an interstate sale of goods to Respondent No. 2 (Purchasing Dealer) by way of two invoices both dated 10th March, 2015.
The first invoice was for a sum of ₹ 7,53,373/- and the second for a sum of ₹ 2,49,715/-. In terms of Section 8(1)(b) of the CST Act with Respondent No. 2 being a dealer registered under the CST Act in New Delhi [apart from being registered under the Delhi Value Added Tax Act, 2004 (DVAT Act)] as of that date, and having purchased the goods from the Petitioner by way of interstate sale, tax at the concessional rate of 2% was chargeable in the invoices and was accordingly included in the invoices raised by the Petitioner. The said two invoices accordingly mentioned the CST amounts as ₹ 15,067 and ₹ 4,994 respectively. The total sums of the 2 invoices were ₹ 7,68,441/- and ₹ 2,54,709/- respectively. The payments for these invoices were made by RTGS into the Petitioner’s bank account.
4. On 13th April, 2015, Respondent No. 2 obtained C form from the DT&T in respect of the aforementioned two invoices. A copy of the said C form is enclosed with the petition as Annexure P-4. It shows that it was a system generated C form containing details of the purchasing dealer i.e. Respondent No. 2 with its Registration Certificate Number and the amount up to which such registration is valid. The name and address of the purchasing dealer i.e. Respondent No. 2 has also been indicated. It also bears the TIN and name of the selling dealer i.e. the Petitioner. It contains the details of the two invoices dated 10th March, 2015 with the respective amounts.
C form had been cancelled by the DT&T. In order to verify this, the Petitioner checked the website of the DT&T. The status of the C form issued to the Petitioner was shown as cancelled on 27th November, 2015. The Petitioner also obtained a copy of an order passed by the Assistant Value Added Tax Officer (AVATO) in Form DVAT-11 on 4th August, 2015 cancelling the registration of Respondent No. 2. A copy of the said cancellation order has been enclosed as Annexure P-6 to the petition. It was noticed that the cancellation was made retrospective from 26th February, 2014.
In Writ petition the petitioner made submission that the C form has been cancelled because the registration of the buying dealer is cancelled retrospectively. It was argued that there is no power for retrospective cancellation of the Registration. It was further argued that as a selling dealer it is only required to ensure that on date of sale the buying dealer is holding valid RC under CST Act. The retrospective cancellation cannot affect the selling dealer. The judgments in case of Suresh Trading Company (109 STC 439)(SC) and in case of Santosh Kumar and Company (54 STC 322)(Ors.) were cited.
On behalf of State, it was argued that the selling dealer is making the proxy litigation as the buying dealer, in whose case RC is cancelled, has not come forward. It was argued that the selling dealer, who is from Kanpur has no locus to contest the matter. It was also submitted that the transaction of sale was under cloud and it suspected being effected with collusion. It was further argued that there is no vested right in the purchasing dealer to insist issuance of C form in its favour. However, the State could not point out any provision under CST Act by which RC can be cancelled retrospectively.
“16. The central issue in the present case is whether there exists a power in the Commissioner VAT, Delhi under the CST Act and the Rules thereunder to cancel a C form and further if such power exists then whether in the facts and circumstances of the present case such power was rightly exercised.
17. No provision in the CST Act has been brought to the notice of the Court which enables an authority issuing a C form to cancel the C form. Rule 5(4) of the Central Sales Tax (Delhi) Rules, 2005 enables the authority which has to issue a C form to “withhold” the C form. The contingencies under which a C form may be withheld are set out in Rule 5(4). For instance, Rule 5(4)(v) envisages that some adverse material has been found by the Commissioner “suggesting any concealment of sale or purchase or furnishing inaccurate particulars in the returns.” The Commissioner could, in terms of the proviso to Rule 5(4), instead of withholding the C form, issue to the applicant such forms in such numbers and subject to such conditions and restrictions, as he may consider necessary. However, there is no specific provision even under the aforementioned Rules which enables the Commissioner to cancel the C form that has already been issued.
18. There is merit in the contention that one of the primary requirements for issuance of a C form is that the dealer to whom the C form is issued has to have a valid CST registration on the date that the C form is issued. If the purchasing dealer does not possess a valid CST registration on the date of the transaction of sale, then the selling dealer cannot insist on being issued a C form. In the present case, on the date of the transaction i.e. 10th March, 2015 the purchasing dealer viz., Respondent No. 2 did posses a valid CST registration. The name of the purchasing dealer as shown in the invoices, and the name and address of the registered purchasing dealer as reflected in the C forms issued by the DT&T matched. The cancellation of the CST registration of Respondent No. 2 took place subsequently on 4th August 2015. Therefore, there was no means for the Petitioner as the selling dealer to suspect as of the date of sale or soon thereafter that the payments made to it RTGS was not by Respondent No.2 but by some other entity with the same name. It is not possible, therefore, to straightaway infer any collusion between the Petitioner and Respondent No. 2 or for that matter the other entity of the same name spoken of by the DT&T.
Hon’ble High Court has referred to various judgments in support of above holding.
After above discussion Hon’ble High Court also discussed about the practical effect of the cancellation of C forms in following words.
“26. It was submitted by Mr Narayan that there would be a practical difficulty in the DT&T seeking to inform every selling dealer in the country of the cancellation of registration of a purchasing dealer registered under the CST Act in Delhi and that the remedy of the selling dealers in such instance would be to proceed against the purchasing dealers. In the considered view of the Court, if the selling dealer has after making a diligent enquiry confirmed that on the date of the sale the purchasing dealer held a valid CST registration, and is also issued a valid C form then such selling dealer cannot later be told that the C form is invalid since the CST registration of the purchasing dealer has been retrospectively cancelled. Where, a selling dealer fails to make diligent enquiries and proceeds to sell goods to a purchasing dealer who does not, on the date of such sale, hold a valid CST registration then such selling dealer cannot later be seen to protest against the cancellation of the C gorm. As observed by the Supreme Court in Commissioner of Sales Tax, Delhi v. Shri Krishna Engg. (supra) the selling dealer in such instance will have to pay for his “recklessness”.
Thus, even if there is retrospective cancellation of RC of the buyer, the vendor cannot be affected. The judgment being of Hon’ble High Court under Central Act, it is binding in other States also unless there is contrary judgment of the jurisdictional High Court. Accordingly, in given query the benefit of the C form will be available to the vendor.
An agriculturist sold his agriculture land to an infrastructure company for the commercial project after obtaining permission from the Collector under section 63 of the Bombay Agriculture & Tenancy Act. The sale deed was executed for agriculture land as per jantri value mentioning order number of Collector. One of the conditions of the order was that the stamp duty would be payable as per N.A land. Now the assessee has executed sale deed for agriculture land as per jantri value. The Assessing Officer has passed the order making addition of difference value of ₹ 90/- lakh as per non agriculture under section 50(C); though the assessee has executed sale deed for agriculture land. Whether action of Assessing Officer is right?
“Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purpose of section 48 be deemed to be the value of the consideration received or accruing as a result of such transfer”.
Thus reading above, it is clear that this section is applicable to all kinds of land, whether agricultural [other than land situated in area stated in clause (iii) of section 2(14)] or non- agricultural. Therefore, action of the Assessing Officer is right in making addition of difference in value of land as per stamp duty value over Jantri value.
An immovable property is purchased by a firm at circle rate. Whether S. 56(2)(vii) is applicable? Further, registration would be in the name of individual partners. Will this alter the applicability of Section 56(2)(vii)?
S. 56(2)(vii) is applicable to only individual or HUF who receives any money, an immovable property or any property, other than immovable property without consideration or for consideration which is less than the aggregate stamp duty value, if fair market value of the property or value exceeds ₹ 50,000/-.
Thus if immovable property is purchased by the firm at circle rate, which is less than the stamp duty value then difference in value is not liable to be taxed in the hands of the firm.
non-listed company only and not any other property.
Even registration in the name of individual partners would not attract section 56(2)(vii), if money has gone out of chest of the firm.
Can the Assessing Officer disallow the amount in the hands of charitable trust, particularly when, the trust has given donation directly to hospitals with instructions that particular amount should be used only for treatment of a particular patient. In all cases the trust takes a printed application form duly filled and signed by patient or his kin and in the said form the complete address is available of the patient. In no case the copy of PAN card or Aadhaar Card is available with hospital.
If a charitable trust give donation to a hospital for a particular patient, then, the hospital would issue receipt for the said amount with its PANo.. In such case, it is not necessary for the trust to produce a copy of the PAN card or Aadhaar card of the patient.
However, if the payment is made directly by the trust to patient, it is necessary that trust should have a copy of PAN card or Aadhaar card to prove genuineness of the patient, only name and address of the patient would not be enough to prove genuineness of the patient.
Can fee paid under Section 234E be claimed as deduction while computing the total income under the head “Profit and gains of business or profession”?.
The Constitution 101st Amendment Act, 2016 has brought in a completely new system of taxation. The entire field of taxation of goods as well as services is now open to the Union and States to tax, except for some goods like petroleum products etc. which have been kept outside the GST net. The Constitution amendment merely provides for the power to levy GST, the actual levies will have to be enacted individually by Parliament and the State Legislatures by ordinary law-making process. No such Bill has been introduced in either Parliament or any of the State Legislatures so far. All we have is a “Revised Model GST Law” released in November, 2016 and newspaper reports that most of this law has been approved by the GST Council. This paper will therefore proceed on the base of the Model Law, November 2016.
1. They help the taxpayer in assessing whether a particular supply is intra-state or whether the supply is in the course of interstate trade or commerce, import or export. Except for an intra-state transaction, each of the other types of transactions have been Constitutionally placed beyond the power of the State Legislatures and no State GST can be levied on them.
2. Even in the case of intra-state transactions, the place of supply provisions help in restricting the taxing power of the States qua intra-state transactions, so that only one State can tax one intra-state supply. This has been done to avoid a simultaneous levy of State GST by multiple States on one intra-state supply which is frowned upon the Constitution due to traditions which have come down to us from the Sales Tax law.
3. In the case of supplies having a foreign element, the place of supply provisions are aimed at determining whether a particular supply can be taxed by the Union Government or not.
Therefore, the place of supply rules are a sort of criteria to test, in all cases, the basic questions of power of either the Union or the State Governments to levy GST on a supply. They establish Constitutional right of taxation and thus go the root of the subject of taxing jurisdiction.
In order to understand the place of supply provisions and appreciate fully the issues that arise out of those provisions, it is necessary to first understand the Constitutional context of those provisions. As afore-said, these provisions are integrally connected with the question as to whether a particular supply is intra-state or in the course of interstate trade or commerce, import or export and discussion of one without the other is not possible.
Thus, Central and State GST is only to be levied on intra-state supplies, they are not relevant for any other purpose. On all other transactions, that is supplies in the course of interstate trade or commerce, import or export, only Integrated GST is to be levied.
Furthermore, Parliament has been exclusively empowered to determine whether a supply is in the course of interstate trade or commerce or in the course of import or in the course of export.2 State Legislatures understandably have no role to play in such determination.
In short, the State Legislature can tax a supply within the State, but not any supply outside the State. The State Legislature cannot tax a supply made in the course of interstate trade or commerce or a supply in the course of import or export. Only Parliament can tax a supply in the course of interstate trade or commerce or a supply in the course of import or export.
Thus, the question as to whether a particular supply is interstate or intra-state depends principally on two factors: Location of supplier and the Place of Supply. If the location of supplier and the place of supply are in the same state, then the supply is an intra-state supply. If the location of the supplier and the place of supply are in different states, then the supply is an interstate supply.
The difficulty, however, is that the Integrated GST Model Law only defines “location of supplier of service”. Neither the Integrated GST Model Law nor the Central GST Model Law3 define “location of supplier of goods” as such.
Consider this situation: XYZ Ltd. has a registered place of business in Maharashtra as well as warehouse in Karnataka. Goods are supplied from the registered place of business in Maharashtra for assembly and installation at site in Karnataka. The place of supply in such case is therefore Karnataka as per Section 7(5) of the Integrated Model GST Law. “Place of business” as defined in Section 2(22) specifically declares a warehouse to be a place of business. Can it be said that the supplier is located in Karnataka as well as Maharashtra at the same time?
We will proceed in this paper on the basis that the meaning of “location of supplier of goods” will have to be the place where the supply originates. This meaning is analogous to the that which is given to “location of supplier of services” in Section 2(18) of the Integrated Model GST Law. If the definition of “location of supplier of services” is seen closely, it is apparent that the substance of that definition is that the location of supplier of service is taken to be the place from where the supply originates. Thus, literal meaning should not be given to the words “location of supplier”.
This is also in line with the logic of things. The place of supply for both goods and services is mostly styled on the destination principle. Wheresoever the supply ends or is consumed, the place of supply is to be taken to be that place. Thus, at least as regards services, when the Integrated Model GST Law says that “location of supplier of service” and “place of supply of service” have to be in different states, the underlying test for determining interstate nature of supply is whether the supply originates and ends in different states. This principle could have been expressed in a less round-about manner.
A word of caution: Though we are making this assumption, it does not take away from the fact that the Integrated GST Model Law is fatally vague on this point. If tomorrow the Court holds that the meaning of “location of supplier” as regards supply of goods is uncertain, then the entire scheme of the Integrated GST Law as regards goods may fail and judges will have to lay down the principles for interstate, import and export supplies judicially. It is quite possible that the Court will refuse to make any blanket assumption that Parliament intended to give same meaning to “location of supplier of goods” as has been given to “location of supplier of services” given the fact that it would go beyond the function of interpretation and will amount to legislating from the bench.
(7) Place where a taxable person is engaged in business through an agent, by whatever name called.
“Fixed Establishment” is defined in Section 2(8) of the Integrated Model GST Law. It is a definition borrowed from the judgment law of European Court of Justice (“ECJ” hereinafter) which was also subsequently adopted by the CBEC Education Guide on Service Tax.
(See Planzer Luxemborg Case C-73/06 and related cases). Section 2(8) considers any place which does not fulfil the criteria of a place of business as a fixed establishment if it is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive services, or to receive and use services for its own needs. It seems the definition of fixed establishment has nothing to do with the supply of goods.
This definition of fixed establishment is another example of the unnecessary piling up of layers of definitions in the model law. This definition has no other purpose to serve except be used in the definition of location of supplier of services. Furthermore, there is no special treatment for supplies made from fixed establishments as compared supplies made from places of business. The draftsman has probably not realised that the “place of business” definition is wide enough to cover even fixed establishment: the definition says that any place where a taxable person provides or receives services is a place of business. This anomaly arises due to the fact that the draftsman has tried to copy the scheme for place of supply of services under UK VAT Act (which is also substantially copied into our service tax law) where “place of belonging” is understood as either a business establishment, fixed establishment or usual place of residence. However, that scheme is different and a “place of business” definition like ours does not exist under the UK VAT Act.
2. W Ltd. situated in Cyprus entered into a co-operation agreement with P Ltd. in Poland (both distinct legal entities at the time of transaction), whereby P Ltd. would make available its website for the sale of W Ltd’s goods and also provide associated services like leasing of servers etc. P Ltd. principally undertook to sell W Ltd.’s goods on the website. Question involved in this case was whether W Ltd. had acquired a fixed establishment in Poland which received and used P Ltd.’s services, which was also situate in Poland.
1. How are the particular services provided?
2. What is the significance of the activities carried out at each establishment in contributing to the services provided?
3. Where are the necessary human and technical resources (for example database, technical equipment, office equipment, telephones, and so on) for actually providing the services permanently based?
4. Which establishment appears on the relevant contracts, correspondence and invoices?
5. Where are the directors or other personnel who entered into the contract permanently based?
6. Where are decisions taken and controls exercised over the performance of the contracts?
7. Does reference to the preferred establishment lead to a more appropriate or rational result for tax purposes?
In case where a supply originates from a place which is neither a registered place of business nor a fixed establishment, the location of supplier of services is to be taken as the “usual place of residence of the supplier”. Usual place of residence is, in turn, defined in Section 2(108) of the Central GST Model Law to mean either the place of ordinary residence (for individuals) or place of incorporation (for body corporates) or place where the person is legally constituted (in case of persons other than individuals and body corporates).
The usual place of residence rule is an exception to the origination of supply principle which is followed throughout the definition of “location of supplier of services”. Unlike supplies which originate from registered places of business or fixed establishment, a supply which originates from neither is traced to the residence of supplier or place of incorporation though the supply may not have originated from there. This clause has been brought in to cover casual supplies/non-resident supplies. Thus, if a doctor who has a registered place of business in Maharashtra goes for a vacation to Delhi and while in Delhi, renders professional services to people resident in Delhi, the location of supplier of service will still be regarded as Maharashtra though supply is taking place from Delhi itself and no supply is actually taking place from Maharashtra. The supply will thus be an interstate supply since the location of supplier is in Maharashtra and the place of supply is in Delhi.
Commissioner of Customs and Revenue v. Newey demonstrates the tendency of tax authorities to raise disputes as to where a supply has originated from by terming commercial arrangements as sham.5 It is to be seen how aggressive the Indian tax authorities get on this front.
The other component to decide whether a supply is intra-state or in the course of interstate trade or commerce is the “place of supply”. It is only when the place of supply is in a state different from the location of supplier, that the supply becomes an interstate supply. Section 7 deals with place of supply of goods in case of interstate/intra-state supplies and Section 9 deals with place of supply of services in case of interstate/intra-state supplies.
Section 7(2) deals with place of supply of goods where the supply “involves” movement of goods. Section 7(2) has to be read in contrast with Section 7(4) which deals with place of supply of goods where the supply does not involve the movement of goods. The place of supply in a case where the supply involves movement of goods is the location of the goods at the time at which movement of goods terminates for delivery to the recipient.
Examples: A in Pune supplies goods to B in Nagpur and the goods have to be delivered to B’s warehouse in Nagpur by A, the place of supply will be Nagpur where the movement will stop after delivery. Similarly, when A in Maharashtra enters into a contract with B in Delhi to sell and deliver goods to B’s factory in Gujarat, the place of supply is Gujarat.
There are two possible interpretations which can be placed on the words “supply involves movement”.
Both interpretations seem logical and convincing, but do not bear uniform results in all cases. It would be better if the GST Council brings in a simpler and clearer provision.
The first interpretation depends on Section 3 of the Central Sales Tax Act, 1956 which defines an interstate sale as a sale in which the contract of sale “occasions” the movement of goods across State frontiers. This word “occasions” has been interpreted judicially to mean that the contract of sale has to contemplate and envisage the movement of goods from one State to another and the goods have to move in pursuance of that contract. Under the Central Sales Tax law, whether the transfer of property took place before or after movement is irrelevant. Movement could either be before transfer of property in the goods or afterwards, as long as the sale occasioned the movement of goods, the sale was an interstate sale.
We are doubtful as to whether the words “supply involve movement” were meant to achieve a similar result as that which came about through the words “sale occasions movement”. It cannot be ignored that the GST Council, while making this draft law, has consciously avoided using the word “occasions” which is regarded as the heart of the Central Sales Tax law. Instead, the Council uses the words “involves”. The second interpretation is based on this difference in language between Section 3 of Central Sales Tax Act, 1956 and Section 7(2) of the Integrated GST Model Law.
Now, according to Schedule II, only a transfer of title in goods is considered to be supply of goods. Everything else is a supply of services. Transfer of title in goods has to be understood as per the principles of the Sale of Goods Act, 1930 to mean transfer of property in goods. Under the Sale of Goods Act, 1930, transfer of property in goods takes place as soon as the contract is made in case of ascertained or specific goods or as soon as apportionment to the contract takes place in case of unascertained goods. Ordinarily, transfer of property does not wait till actual delivery of goods. It is only if parties agree, the transfer of property in goods will be postponed to the event of delivery.
“Supply involves movement” therefore has to mean a transfer of property in goods where the movement of goods to a specified place of delivery is essentially before such transfer of property in goods can take place. Thus, Section 7(2) will certainly cover those cases where the transfer of property will take place after the goods are transported to the place of recipient or his agent and delivery to the recipient is given at the place of buyer. However, if transfer of property takes place before movement of goods, we are afraid, it cannot be said that the transfer of property involves the movement of goods.
Now, movement as contemplated by Section 7(2) has to either be by the supplier or by the recipient or by any other person. Movement by supplier would occur in a case where the supplier himself undertakes the delivery of goods. Movement by recipient, in context of Section 7(2), would include cases where movement is undertaken by the recipient but the transfer of property will only take place after the goods are moved to the place of delivery. Movement by any other person will be movement by a transporter engaged by supplier or recipient. Another example of movement by any other person would be movement in cases of back-to-back contracts where (say) A has a contract with B to sell and deliver 100 TVs for 150 Rs. each. A then enters into a contract with C to deliver 100 TVs directly to B for 100 Rs. Each. Here there are two contracts and two supplies, one by C to A and then by A to B. C has no privity of contract with B and no consideration flows between them. Hence there is no supply as understood under Section 3 of the Central GST law between C and B. However, the supply by C to A will be governed by Section 7(3) due to involvement of third party directions. The supply by A to B will be governed by Section 7(2) where though the movement is not by the A or B, it is by “any other person”, that is C.
There are some issues with this interpretation. Firstly, Section 7(2) contemplates that movement can be by the recipient. However, at the same time it says that the place of supply will be the place where the movement terminates for delivery to the recipient. Generally, once the goods are handed over to the recipient, the event of delivery is complete though transfer of property in goods may be contractually delayed to the point of the goods arriving at the place of recipient. It is not clear as to what the Council seeks to achieve here.
Secondly, it is uncertain as to how this particular clause will operate in case where a contract for sale of goods was cancelled before the supply actually takes place. Section 3 of the Central GST Act an agreement to make a supply also within the definition of “supply”. Thus, the taxable event is complete as soon as an agreement to make a supply is in place and consideration is stipulated. When the supply is cancelled, it is difficult to apply Section 7(2) since the words “time at which movement terminates” seem to indicate actual movement and termination and not contemplated movement and termination. Clarity from the Government in this regard is essential.
Similar issue will arise in case of supply of goods by way of documents of title to goods. For example, if A in Maharashtra has entered into a contract of sale and delivery of goods to B in Karnataka. Before the movement of goods is undertaken, B endorses the documents of title to the goods in favour of C in Gujarat. The goods therefore are delivered to Gujarat directly without entering Karnataka. In this case also, there are two supplies – first supply is by A to B and second supply is by B to C. The second supply by B to C will have to be covered by Section 7(3), however the first supply by A to B cannot fall in Section 7(3). In case of the first supply by A to B, it was never contemplated by the parties at that time that the goods will be delivered to Gujarat and not to Karnataka: the endorsement is a subsequent event. Furthermore, as far as Section 7(2) is concerned, it talks of delivery to the recipient. The recipient in case of the first supply between A and B has to be B according to the definition of “recipient” which defines “recipient” as one who pays the consideration. No delivery ever takes place to B and hence application of Section 7(2) to such transactions is fraught with problems.
Section 7(4) of the Integrated GST Model Law deals with supplies which do not involve movement of goods, e.g. ex-works delivery. In such cases, the place of supply is mandated to be the location of such goods at the time of delivery of the goods to the recipient.
As aforesaid, Section 7(4) has to be understood in contrast with Section 7(2). However, if Sections 7(2) and 7(4) are closely perused, it is apparent that both of them contemplate the same result: the place where goods are situated at time of delivery is the place of supply.
The scheme of Sections 7(2) and (3) makes one thing quite clear: Sections 7(2) contemplate only two parties, whereas Section 7(3) contemplates three or more than three parties. Section 7(3) deals with goods delivered by a supplier to a recipient on directions of a third person. The person who is actually delivering the goods is referred to as the “supplier” in this case and the person actually receiving the goods is referred to as the “recipient”, whereas the person who gives the directions for delivery to the actual recipient is referred to as the “third person” and the third person is deemed to have received the supply of goods. The principal place of business of that third person is taken as the place of supply of the goods.
In this cases, there are two contracts. First one is between A and B for supply of 1000 motor cycles by A to B. Second contract is between A and C for supply of 1000 motor cycles by C to A. Under the second contract, delivery is to be made directly by C to B. This is thus a back-to-back supply contract. Since there is no privity of contract and consideration flowing between B and C, there is no taxable supply as between them, though there is a physical supply of goods. There are only two taxable supplies here, first by A to B and second by C to A. Each contract will have a separate place of supply.
The place of supply for the second contract can be conveniently determined before the place of supply for the first contract is determined. The place of supply for the second contract has to be determined by applying Section 7(3) since three parties are involved in the said supply. Here the physical receipt of goods is by B and hence B is the “recipient”. C has made the physical supply of goods and hence C is the “supplier”. Since the goods were delivered by C on instructions of A, A is the “third person”. The place of supply has to be the principal place of business of the third person, i.e. Delhi even though the physical supply originated from Punjab and ended in Madhya Pradesh.
As far as the first contract is concerned, it does not involve three parties as such and hence the place of supply has to be determined as per Section 7(2).
Section 7(3) also talks of supply of goods by transfer of documents of title to the goods. The transfer of documents of title can either be before or after the movement of goods.
Where goods are assembled or installed at site, the place of supply is the place of such installation or assembly as per Section 7(5) of the Integrated GST Model Law. It is to be remembered, however, that a works contract is deemed to be a supply of services under Schedule II. Hence, the assembly or installation being talked about here has to necessary exclude any assembly or installation which is of such a nature as to amount to a works contract – E.g. fabrication and installation of a lift. Section 7(5) will thus cover goods which are transported in completely-broken down condition and assembled at site of recipient. That is how the word “assembled” can be understood.
It is, however, difficult to ascertain any meaning of “installation” which does not involve a works contract. This is because recent judicial pronouncements on what constitutes a works contract have practically brought into the scope of the term works contract any contract which involves both the element of supply of goods and supply of services. The GST Council has to clarify exactly what is and is not covered by Section 7(5). The term “installation” has been used here perhaps because the UK VAT place of supply provisions also use the same term. However, the draftsman has not realised the controversies which the term can cause in India which are not prevalent in UK.
Section 7(6) of the Integrated GST Model Law says that if a supply is made on board a conveyance (that is vehicle/train/aircraft/vessel), the place of supply for supply of goods on board that conveyance is where the goods are taken on board. This provision has been made to deal with situations where merchandise is sold on aircrafts etc. which fly over various States or territories. It is impossible to determine the actual place of supply in such a case. The law has therefore enacted a fiction that the place of supply is the place where the goods were taken on board.
In cases which are covered by Sections 7(2) to 7(5), the Central Government has been empowered to prescribe the rules for determining the place of supply in accordance with the recommendations of the GST Council.
The provisions relating to place of supply of services follow the general principle that the place of supply is where services are generally consumed. This is keeping in line with the nature of the GST as a destination based consumption tax.
Sections 9(2) and (3) lay down the general rule that if a supply is made to a registered person, the place of supply is the location of the registered person. If the supply is not made to a registered person, then location of the recipient as per address on record of the supplier has to be taken as the place of supply. Where the address on record also does not exist, then the location of supplier of service is to be taken as the place of supply. The principle therefor is to locate the place of supply as far as possible in the recipient’s State. Only in exceptional circumstances where the address of recipient is not on record and the recipient is also not registered, will the rule be reversed and place of supply in such cases will be location of supplier of service.
Section 9(4)(a) of the Integrated GST Model Law states that place of supply of services provided directly in relation to immovable property will be where the immovable property is located. If the services are provided in relation to immovable property which has not yet come into being, then the place of supply is where the immovable property was intended to be located.
Services provided by way of grant of rights to use immovable property and services provided by way of co-ordination of construction work are also covered by Section 9(4)(a). In both these cases, the place of supply will be the location/intended location of the immovable property.
Section 9(4)(c) speaks about services provided way of accommodation in any immovable property for organising any marriage, reception or related functions and other official, social, cultural, religious or business functions. The place of supply in such a case would be the location of the immovable property.
Other services of lodging accommodation provided by hotels, inns, guest houses, homestay, club or campsite are dealt with by Section 9(4)(b). Curiously there is no specific place of supply provided for these. The place of supply relating to “immovable property” has to apply therefore.
Section 9(4)(b) also covers services by way of lodging accommodation in house boats or vessels. The place of supply of such services is the location of the house boat or vessel.
Proviso to Section 9(4) says that if the location of the immovable property is located or intended to be located outside India, the place of supply shall be the location of the recipient. It is to be remembered that Section 9 only applies when location of supplier as well as location of recipient is in India. Thus, where ABC Ltd. having registered place of business at Bengaluru engages an architect who has his registered place of business in Mumbai to design a skyscraper tower for housing its branch office at Dubai, the location of the immovable property being outside India, the location of the service recipient in India will be the place of supply. Thus, the place of supply in this case will be Bengaluru.
Explanation to Section 9(4) clarifies that where the immovable property or boat or vessel is located in more than one State, the supply of service shall be treated as made in each of the States in proportion to the value for services separately collected or determined, in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.
According to Section 9(6), the place of supply in relation to training and performance appraisal services is location of the recipient (if registered) or place of actual performance (if services provided to unregistered persons).
(d) Services relating to events/parks etc.
Services in relation to admission to events/parks etc. and organisation of events are covered by Sections 9(7) and (8) of the Integrated GST Model Law. However, the place of supply rules in relation to admission to events are different from the place of supply in relation to organisation of events.
Section 9(7) deals with supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational or entertainment event or amusement park or any other place. Place of supply of such services is where the event is actually held or where the park or such other place is located.
Section 9(8) deals with organisation of cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to organisation of such events or services, or assigning of sponsorship of such events. The place of supply in relation to such events is the location of the recipient (if services provided to registered person) or place where the event is actually held (if the services are provided to unregistered persons).
Like the Proviso to Section 9(4), the Proviso to Section 9(8) says that where the location of the event is outside India, the place of supply will be the location of recipient. Principles discussed therein will apply here.
The Explanation appended to Section 9(8) says that where an event is held in more than State and a consolidated amount is charged for supply of services relating to such event, the place of supply of such services shall be taken as being in each of the States in proportion to the value of services so provided in each State as ascertained from the terms of the contract or agreement entered into in this regard or, in absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.
Section 9(9) sets out the place of supply for transportation of goods (including by mail/courier) services and Section 9(10) deals with place of supply for transportation of passengers. In both cases, if the recipient of services is a registered person, then the place of supply is the location of the recipient. In case the services are provided to a non-registered person, then the place of supply in case of transportation of goods is the location at which the goods are handed over for transportation and in case of transportation of passengers is the place where the passenger embarks on the conveyance for a continuous journey.
“Continuous journey” is defined in Section 2(29) of the Central GST Model Law as a journey for which a single or more than one ticket or invoice is issued at the same time, either by a single supplier of service or through an agent acting on behalf of more than one supplier of service, and which involves no stopover between any of the legs of the journey for which one or more separate tickets or invoices are issued. Explanation to Section 2(29) defines the meaning of ‘stopover’ as a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it a later point of time.
Section 9(10) which deals with transportation of passengers, contains a Proviso and an Explanation. The Proviso says that where the right to passage is given for future use and the point of embarkation is not known at the time of issue of right to passage, the place of supply shall be determined as the general thumb rules laid out in Sections 9(2) and 9(3). For example, ABC Ltd. enters into a contract with Jet Airways whereby employees of ABC Ltd. can travel one time during the New Year holidays through Jet Airways on any domestic flight. ABC Ltd. pays a lump sum amount to Jet Airways for providing these services to its employees. This is a supply of future right to passage and since the point of embarkation is not known at the time of issuance of the right to passage, the place of supply will have to be determined as per the general thumb rules.
Explanation to Section 9(10) says that a return journey will be treated as a separate journey even if the right to passage for onward and return journey is issued at the same time.
Place of supply of services provided on board a conveyance (train/vessel/aircraft/vehicle) is the location of the first scheduled point of departure of that conveyance for the journey in accordance with Section 9(11).
4. In cases not covered by points 2 and 3, the place of supply shall be the address of the recipient as per records of the supplier of the service.
There are two provisos appended to Section 9(12). The first proviso says that where the address of the recipient as per records of the supplier of service is not available, the place of supply shall be location of the supplier of service. The second proviso says that if pre-paid service is availed or the recharge is made through internet banking or other electronic mode of payment, the location of the recipient of services on record of the supplier of services shall be the place of supply of the such service.
Explanation to Section 9(12) clarifies that where the leased circuit is installed in more than one State and a consolidated amount is charged for supply of services relating to such circuit, the place of supply of such services shall be taken as being in each of the States in proportion to the value of services so provided in each State as ascertained from the terms of the contract or agreement entered into in this regard or, in absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.
According to Section 9(13) the place of supply of banking and other financial services, including stock broking services provided to any person is the location of the recipient of services on the records of the supplier of services.
The proviso to Section 9(13) says that if the location of the recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services.
Section 9(14) states that the place of supply of insurance services is the location of the recipient (if the service is provided to a registered recipient) or the location of the recipient on the records of the supplier of services (if the recipient is not a registered person).
According to Section 9(15), where advertisement services are provided to the Central Government, State Government, a statutory body or a local authority and the supply is meant for identifiable State, the place of supply shall be located in each State and the value has to be apportioned on basis of contract.
The Integrated GST Model Law lays down an elaborate machinery for determining whether a supply is in the course of interstate trade or commerce or whether a supply is intra-state. When it comes to provisions for determining whether a supply is in the course of import or export, another elaborate machinery is set out in the model law.
Let us start with Section 3 of the Integrated GST Model Law. Sub-section (3) declares that a supply of goods in the course of import into the territory of India till they cross the customs frontiers of India shall be deemed to be a supply of goods in the course of interstate trade or commerce. Section 3(4) similarly declares that a supply of services in the course of import into the territory of India shall be deemed to be a supply of services in the course of interstate trade or commerce. Sections 3(3) and 3(4) simply enact what the Constitution says, through Explanation to Article 269A, that a supply in the course of import is deemed to be a supply in the course of interstate trade or commerce. This allows Integrated GST to be levied on all supplies in course of import. In fact, import of goods will now be subject to Customs as well as GST.
3. Place of supply is located in India.
5. Supplier of service and recipient of service are not merely establishments of a distinct person in accordance with Section 5(1).
It is pertinent to note here that though the Integrated GST Model Law defines “import” and “export”, it does not specifically lay down any formula for determining whether a supply is in the course of import or export. A supply in the course of import or export will therefore have to be determined as per the principles evolved judicially under Article 286 before the Central Sales Tax Act, 1956 was enacted.
Section 8 deals with place of supply in case of goods imported or exported into India. It says that the place of supply of goods imported into India shall be the location of the importer and the place of supply of goods exported from Indian shall be the location outside.
According to Section 3(5) a supply of goods and/or services when the supplier is located in India and the place of supply is outside India is to be deemed as a supply in the course of interstate trade or commerce.
Section 10 determines the place of supply when the location of the supplier of services or the location of recipient of services is outside India. Again, it does not purport to define “supplies of services in course of import” or “supplies in the course of export”. It merely lays down the rules for place of supply when the location of the service recipient or the location of the supplier is outside India.
The thumb rule, as laid down in Section 10(2) of the Integrated GST Model Law, is that the place of supply of services in such cases is the location of recipient of service. In case the location of recipient of service is not available in the ordinary course of business, the place of supply shall be the location of the supplier. There are, of course, exceptions to this thumb rule which are set out in Sections 10(3) to 10(13).
Where services are supplied in respect of goods that are required to be made physically available by the recipient of service to the supplier of service or to a person acting on behalf of the supplier of services in order to provide the service, the place of supply as per Section 10(3)(a) is the place of actual performance of services. First Proviso to Section 10(3)(a) states that when such services are provided from a remote location by way of electronic means, the place of supply is the location where the goods are situated at the time of supply of service. Second Proviso states that Section 10(3)(a) is not supposed to apply in case of a service supplied in respect of goods that are temporarily imported into India for repairs and are exported after repairs without being put to any use in India, other than that which is required for such repairs.
Section 10(3)(b) speaks about services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the receiver or the person acting on behalf of the recipient, with the supplier for the supply of the service. The place of supply in this case is also the place of actual performance.
Section 10(4) says that the place of supply of services supplied directly in relation to immovable property, including services supplied in this regard by experts and estate agents, supply of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located.
The place of supply of services supplied by way of admission to, or organisation of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar events and of services ancillary to such admission, shall be the place where the event is actually held as per Section 10(5).
Place of supply for services supplied by a banking company, or financial institution or a non-banking financial company to account holders, intermediary services, hiring of means of transport other than aircrafts and vessels except yachts up to a period of month is the location of the supplier of services as per Section 10(8). Explanation to Section 10(8) says that for the purposes of that section, “goods” includes securities.
Place of supply of transportation of goods services, excluding by way of mail or courier, is set out in Section 10(9) as being the place of destination of goods. Section 10(10) says that the place of supply in respect of passenger transportation services shall be the place where the passenger embarks on the conveyance for a continuous journey. Place of supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, is the first scheduled point of departure according to Section 10(11).
vii. Location of the fixed landline through which the service is received by the recipient is in taxable territory.
Lastly, Section 10(13) authorises the Central Government to notify any description of service or circumstances in which place of supply shall be the place of effective use or enjoyment of a service in order to prevent double taxation or non-taxation or for the uniform application of rules.
• Cascading effect of taxes (tax on taxes).
• Fractured flow of Input Credits.
A single Goods and Services Tax (GST) was envisaged with a view to overcome all these issues of taxpayers. Ideally GST is a comprehensive Consumption Based Value Added Tax to be levied at all stages of supply of Goods and/or services, whereby Input Tax Credit on all types of business procurements (i.e. goods, services and capital goods) should be available without State Geographical Barriers.
Since the desired Constitutional Amendments has already been done and notifications for giving effect to provisions of the same have been issued, it is only a matter of time that the GST will be levied in the country. The Government at many point of times has disclosed its intention to levy GST as early as possible. It may be noted that as per constitutional amendment the Government will lose power to levy existing taxes on 15th September, 2017, hence it can be understood that GST will become reality in our country by September 2017.
In our country, instead of single comprehensive tax, GST is proposed to be levied on Dual Tier basis i.e. on all transactions of supply of goods and services, two taxes namely ‘State Goods and Services Tax’ (SGST) and ‘Central Goods and Services Tax’ (CGST) shall be charged. However, if such transaction takes place in the course of inter-state trade or commerce, then instead of two different taxes one single tax to be called as ‘Integrated Goods and Services Tax’ (IGST) shall levied, the rate of which shall be equivalent to sum total of SGST and CGST.
The GST is not only a tax reform, rather it is complete business reforms for number of reasons. It will greatly affect business practices and parameters. So apart from tax professionals it is important that the basic concepts of the GST should be known to businessman their finance, procurement and sales team.
In the present regime levy of tax on goods are at the time of sale thereof or in case of services at the time of Provision of services. The term ‘Sale of Goods’ and ‘Provision of Services’, in the present respective legislations, normally creates charge when particular goods are sold by one person to another or some services are provided by one person to another for a consideration.
In the proposed tax regime, the taxable event will be Supply of Goods and Services. The term ‘Supply’ is much broader than existing charge of taxes i.e. Sale and Provision, it includes all commercial supplies such as Sale, Transfer, Barter, Exchange, Licence, Rental, Lease, Disposal etc. In the proposed GST law, it is not necessary that Supply should be there from one person to another, i.e. even self supplies can be under GST tax-net. Further the proposed law provides list of activities/ transactions whereby even if no consideration is charged the transaction will be treated as deemed supply, that means liability to pay GST will be there. For instance if a company situated in Jaipur sends some of its assets (stock or otherwise, on which ITC was taken at the time of purchase) from its Jaipur office to its Mumbai office to be used there, the liability to pay GST will arise on such transactions, despite the fact that neither there were two persons involved nor any consideration was there in such transaction.
i) Date of issue of the invoice by supplier or the last date when he is required to issue the invoice.
ii) Date on which payment is received by the supplier.
Further the model law provides the invoice is to be made at the time or before delivery of the goods. So for all practical purposes the tax will have to be paid at the time of earliest of all major commercial events i.e. Delivery of goods OR preparation of Invoice OR Receipt of advances. In the current practices payment of VAT/ CST or Excise duty doesn’t have any bearing on receipt of advances. Whereas in GST regime, even if the delivery has not been given or sales has not been completed, if the advance is received the tax liability has to be discharged. Provisions for time of supply for services are more or less similar to the present provisions of ‘Point of Tax’ in the Service Tax Laws.
Time of supply provisions for supply of goods on approval basis and Continuous Supply of Goods/ Services are separately given to provide deserving relief. All taxpayers have to modify their systems and procedure so that all relevant dates are captured to determine correct Time of Supply for all transactions and taxes be paid timely.
The concept of place of supply is important to work out whether a particular transaction is Intra-State or Interstate. If a particular transaction is Intra-State, there will be levied two taxes i.e. SGST & CGST. Whereas if the transaction is in the course of Interstate Trade, one tax i.e. IGST will be levied. The rate of tax of IGST will be equivalent to sum total of SGST & CGST.
i) Import of Goods/Services in India.
ii) Supply where ‘Location of supplier’ is in India and the ‘Place of Supply’ is outside India. (Majorly being, export and some other supplies which cant be technically classified as Export due to non-realisation of consideration in convertible foreign exchange or supply to distinct person of same entity).
iii) Supply to/by a SEZ unit or developer.
iv) Any other supplies which are not an Inter-State Supplies.
Accordingly, any transaction with SEZ developer or unit will be Interstate transaction even if the both parties to transaction are in the same State. Further since Union Territories without State legislature (eg. Chandigarh) are not State any transaction originating from them shall be treated as Interstate Transaction and accordingly will attract levy of IGST.
The concept of Place of Supply is new to the Service Tax assessees. Whereas the dealers paying VAT & CST are used to with the concept of Intra and Interstate Sales, however provisions of classifying particular supply of goods as inter state or intra-state are fairly different from the present legal provisions.
In the GST Regime the concept of Place of Supply is very important, because if by any reason any taxpayer deposits the IGST instead SGST/CGST or vice versa, then as per provisions of proposed law, unlike present regime, one has to first deposit the correct tax and then only refund of the wrongly deposited tax can be claimed.
a) He is in possession of Tax Invoice/ Dr. Note/Prescribed Tax paying document.
b) He has actually received the goods and/ or Services.
c) Tax charged in the invoice has actually been paid.
d) He has furnished required return under the GST Law.
Further, in case of ITC of Services there is requirement to pay value of supply along with tax to the supplier within three months from the date of issue of invoice by the supplier, failing which ITC shall be reversed along with interest liability in the manner yet to be prescribed.
In the present tax regime, so many litigations are going on the allowability of ITC on the conditions of matching of taxes paid by vendors on respective sale, however this matching concept is presently not there in excise and service tax. Whereas in GST regime provisions for invoice level matching of input tax credit has been provided in law for all supplies of goods and services. In result if a supplier does not deposit taxes into the credit of Government account, the recipient will not be allowed to avail the ITC despite the fact that he had paid such taxes to the supplier. Accordingly one needs to carefully select the vendor from whom such goods and/ or services are to be purchased/ procured. If a taxpayer does not select the vendor diligently for procuring inputs under GST regime, it can result into double payment of taxes, hence categorisation of vendors becomes necessary.
However, cross utilisation of credit between CGST and SGST shall not be available. Further, unlike CENVAT Credit there is no specific concept of availment and utilisation of credit under MGST Law. Alike, current indirect taxes, reversal of input tax credit is there when inputs, input services or capital goods are used partly for business and non-business purpose, or taxable and exempted supplies purposes.
Compliances under GST is the area whereby any organisation complies with its obligation in relation to payment of taxes and filing of different returns and statements. In GST regime normally a taxpayer is required to file minimum three monthly statements/ returns per registration apart from annual return. Further in case the taxpayer is supposed to deduce tax at source one additional return per month per registration is required to be filed. That means if any taxpayer is having three registrations and is required to deduct TDS, he shall be filing 147 statements/ returns in a financial year. Moreover in most places these statements requires invoice level entry, i.e. information contained in each and every invoice has to be uploaded in the monthly statements e.g. Name, Address, GSTIN of Recipient, description of goods/services, HSN code, Details of tax etc. Apart from filing of statement and returns, in case of post supply events, such as return and/or rejection of goods, difference in rates, quantity etc. the GST law specifies adjustments of the same in a particular manner through debit and/or credit notes, which in turn also reported through monthly statement/ returns.
• Carry forward of complete and eligible Input tax credits paid on goods, input services and capital goods. The taxpayer might have been paid Sales Tax, Services Tax and Excise Duty on inwards supplies in the existing tax regime which are eligible to be carried forward. Further it may be possible that those eligible credit may not be reflected in the returns filed in the existing laws. Identification and proper compliances to carry forward the same are most important aspect of the Transitional phase.
• It is better to decide the place or places of registration in the proposed regime as soon as possible. It may be noted unlike existing service tax system whereby the taxpayer can take centralised registration, as per model GST law there will not be any system of centralised registration. Persons located in different States will have to take separate registration under GST. In addition to it, person having multiple business vertical in the same States will be having option to take different registration within same State. All registrations shall be treated as separate taxable person from adjudication and compliances point of view under proposed GST law.
In summary the GST is effecting most of aspects of business be it Procurement, Supplies, Geographical Presence etc. Accordingly, it is advisable to all business houses, specifically those who are multi-located or are having multi registration, to analyse their business structure in the light of proposed law and have a complete impact analysis of their business process. By this taxpayer can plan their business structure in optimum manner. In absence of proper planning there may be situations whereby investment in working capital may raise significantly.
The expression “Hindu Undivided Family” has not been defined under the Income-tax Act or in any other statute. When we dissect – essentials are (1) One should be Hindu, Jains, Sikhs and Buddhists are considered as Hindus but not Mohammadans or Christians; (ii) There should be a family; i.e. group of persons – more than one and (iii) They should be undivided i.e living jointly and having commonness amongst them. All these three essentials are cumulative. It is a body consisting of persons lineally descended from a common ancestor and include their wives and unmarried daughters, who are living together, joint in food, estate and worship (not now necessary). The daughter, on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband’s HUF. However, after 1-9-2005, daughter married or unmarried, is a co-parcener like a son in her father’s family.
2. What is a Hindu Coparcenery? In what ways is it different from an HUF?
A Hindu Coparcenery is a much narrower body within Hindu Undivided Family. Generally speaking, it is a body of individuals who acquires interest by birth in the joint family property. They are the son, grandson and great grandson of the holder of the joint property for the time being. Since 1-9-2005 daughters married or unmarried are now included. The coparcenery, therefore, consists of a common male ancestor and his lineal descendants in the male line within 4 degrees, running from and including such ancestor. No coparcenery can commence without a common male ancestor though after his death, it may consist of collaterals such as brothers, uncles, nephews etc. The essence of coparcenery is community of interest and unity of possession.
3. Who can be co-parceners/members of an HUF ?
Birth of a male/female (after 1-9-2005) in a Hindu joint family makes him a co-parcener of the HUF. In view of this, all male members automatically become members of the HUF. In addition to that, if a child is adopted then he also becomes a member of the HUF. Moreover, upon marriage, wife becomes a member of her husband’s joint family. Female child remains a member till marriage. Only male can be a coparcener. This is changed now after 1-9-2005 daughters are coparceners like sons.
4. What is the difference between a co-parcener and a member?
A HUF, as such, can consist of a very large number of members including female members as well as distant blood relatives in the male line. However, out of this, coparceners are only those males (now daughters also) who are within 4 degrees in lineal descendent from the common male ancestor. The relevance of concept of coparcenery is that only coparceners can ask for partition. The other male/female family members : i.e. other than coparceners in an HUF, have no direct claim over HUF property, but can claim only through the coparceners.
5. How does an HUF come into existence?
The concept of Joint Family under Hindu Law as well as the HUF in Income-tax Act, 1961 is broadly the same. HUF is purely a creature of law and cannot be created by an act of parties (except in case of adoption and reunion). An HUF is a fluctuating body, its size increases with birth of a member in the family and decreases on death of a member of the family. Females go and come into HUF on marriage. If there is family nucleus, there need not be more than one male member to form an Hindu undivided family as a taxable entity under the Income-tax Act. The expression “Hindu undivided family” in the Income-tax Act is used in the sense in which a Hindu joint family is understood under the personal law of the Hindus. Under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and the Income-tax Act does not indicate that an Hindu undivided family as an assessable entity must consist of at least two male members (refer Gowli Buddanna v. CIT (1966) 60 ITR 293(SC). Where a coparcener having a wife and minor daughters and no son receives his share of joint family properties on partition, such property, in the hands of the coparcener, belongs to the HUF of himself his wife and minor daughters. (refer N.V. Narendranath v. CWT (1969) 74 ITR 190(SC).
6. Can a single male constitute HUF?
C. Krishna Prasad v. CIT (1974) 97 ITR 493(SC). Husband and wife can constitute HUF if property is received on partition. An individual who receives ancestral property at a partition and who subsequently acquires family, but has no issue, would hold that property only as the property of the family. Under the Hindu Law the wife of the coparcener is certainly a member of the family. Whatever be the school of Hindu Law by which a person is governed, the basic concept of a Hindu undivided family in the sense of who can be its members is just the same. Thus, in order to constitute a joint family it is not always necessary that there must be two male members. (refer CIT v. Parshottamdas K. Panchal 92002) 257 ITR 96 (Guj). In cases where the property held by the person who claims it to be his own, had in fact been held by a joint family earlier and is ipso facto capable of being held by other sharers as well in future if and when the family comes into existence and a son/daughter (after 1-9-2005), whether by birth or adoption, is added thereto, such property continues to retain the character of joint family property, even when the family is reduced to a single male member as in the case of a sole surviving coparcener. Though such a sole surviving coparcener may be assessable as an individual as he cannot be said to have a family, unless there are, in fact female joint family members in the family, the character of the property continues unaltered as joint family property though for the time being it is not shared with any other member of the family and may or may not be subject to any charge in favour of anyone else for any purpose. When the assessee got married and acquired a family that family constituted a Hindu undivided family and the ancestral property which the assessee had received at the partition became the property of that Hindu undivided family. In cases where the property even at the time it vested in the hands of the family had the character of ancestral property the absence of a son, who can claim partition, does not render what is joint family property, individual property. The test is not as to whether his issues are male or female. The test is whether the property was ancestral. Therefore an individual who receives ancestral property at partition and who subsequently acquires a family, but had no male issues would hold that property only a property of the Hindu undivided family (refer W. P. A. R Rajagopalan v. C.W.T (2000) 241 ITR 344 (Madras).
7. Can a son who is the sole surviving coparcener along with other females in the family after his father’s death constitute an HUF?
Yes. The HUF shall continue with the son as Karta and other female members as members.
8. Can a son being a member of HUF consisting of his father, himself and his brothers, form an HUF consisting of himself, his wife and minor son?
Under Hindu Law, there can be an HUF within an HUF. Therefore, a son can have his own smaller HUF while he continues to be a member of his father’s HUF. In his father’s HUF, he is a mere member – coparcener and in his own HUF, he is Karta.
9. Can there be an HUF with only female members?
CIT v. RM AR. AR. Veerappa Chettiar (197)) 76 ITR 467(SC). However, after the enactment of the Hindu Adoptions and Maintenance Act, 1956 as well as Hindu Succession Act, 1956, this legal position does not seem to be correct. This is because such female members, upon such death would get their interest in the property absolutely and their absolute interest so crystallised cannot be divested by any subsequent event, for example remarriage or adoption.
1. What is HUF and individual property of an Hindu?
Any property which is received from ancestors by way of partition or otherwise is HUF property. Any property received by the HUF by way of gift through Will, accretions to the existing properties, blended or properties thrown in common hotchpot or impressed with the Character of HUF property by any coparcener etc., are also HUF property. Character of the HUF property on partition in the hands of the coparcener, remains as HUF property.
Any property earned by an individual whether on account of own exertion or out of individual fund without investment of the HUF funds, earning of learning, service, personal qualifications, etc. is separate and individual property of an Hindu (refer K.S Suffiah Pillai v. CIT (1999) 237 ITR 11(SC). Self-acquired property of an Hindu will pass on to his/her legal heirs as per the rules of succession and the legal heirs receive the property as individual property. So also the share of the deceased coparcener in HUF, which otherwise devolves by survivorship to other coparcener goes by succession to legal heirs, which they hold as separate property, if such coparcener has left certain class of female relatives or a male relative who claims through such female relative specified in Class I of the first schedule to Hindu Succession Act, 1956.
2. Whether a family that does not own any property can have the character of Hindu joint family?
Yes, the concept of HUF is not related to possession of any property by the family nor the existence of such joint property is an essential precondition for constituting an HUF. This is because Hindus get joint family status by birth and joint property is simply an adjunct to the joint family.
3. What is the nature of property received by a male member after his marriage but before a male child is born?
There is considerable controversy on these aspects. There are divergent views expressed by different Courts from time-to-time. One view is that since an HUF, as known under Hindu Law, can consist of even husband and wife only, once such an HUF has come into existence upon marriage of a Hindu male, such family can receive property from any source and regard the same as HUF property. However, the other view is that in such a case, a distinction should be made between a property that already has characteristic of a joint property (for example, property received on partition) and other than such properties. In case of receipt of properties of the former kind, such family (that is consisting only of husband and wife) can receive and treat such property as joint Hindu family property. But in case of latter (that is, in the cases like gift or will), unless there are at least two coparceners in the family, such HUF cannot receive or treat such property as HUF property. In other words since in such family of husband and wife there is only one coparcener i.e., husband (wife being a mere member and not coparcener), if such HUF wants to receive and regard any property from an outside source as HUF property then it has to have another coparcener in the family i.e., son. The earlier view seems to a better one. Of course, a donor or testator must indicate that he gives it to the person’s HUF.
4. What is the nature of property received by an Hindu, who has only wife and daughters in his family, from his father?
This will depend upon whether the property received by such Hindu from his father is father’s individual property or property of father’s HUF. In case of the former, such Hindu will be receiving the property as a legal heir of the father and rules of succession as prescribed under Hindu Succession Act, 1956 will prevail. If the property is received from father’s HUF, then it can form part of HUF of such Hindu. But the share of the father in the HUF upon his death can go to his legal heirs which will be their individual property if the father has left behind him any female relative or a male relative claiming through such female relative, as in Class I of the schedule to that Act.
Of course by will he can give his share to son’s HUF.
5. Is property acquired by gift by the assessee with an intention of the donor that the money should be used for the benefit of his family, HUF property?
CIT v. Maharaja Bahadur Singh & Others (1986) 162 ITR 343 (SC).
1. What is the doctrine?
If a coparcener makes a declaration blending his individual property with that of HUF or impresses such property with the character of HUF property or throws the property in the common hotchpot – such property becomes HUF property and loses the character of individual or separate property.
2. Can a coparcener blend his individual property into his smaller HUF wherein he is a Karta, while continuing to be a member of the bigger HUF consisting of his father, himself and his brothers?
CIT v. MM Khanna (1963) 49 ITR 232 (Bom).
3. What will be the position where the HUF consists of only his wife and minor daughter?
S. K Bohra v. CIT (1988) 173 ITR 400 (Rajasthan). Position will be different after 1-9-2005, as daughter would be coparcener from the beginning.
4. Is it necessary for the HUF to have any ancestral property prior to receiving the property from one of the coparceners?
No, it is not necessary for the HUF. Even an empty hotchpot can receive and hold any property that is thrown into it by the coparcener. (Refer CIT v. S. Sivaprakasa Mudaliar (1983) 144 ITR 285 (Mad).
5. Can a female member of the family blend her individual property into the HUF?
Mallesappa v. Desai (AIR (1961) SC 1298) and Pushpa Devi v. CIT 91977) 109 ITR 730(SC). After 1-9-2005, daughter being a coparcener can throw her separate property into joint family hotchpot.
6. What are the clubbing provisions in tax laws?
The clubbing provisions u/s. 64(2) of the Income -tax Act as well as section 4(1A) of the Wealth -tax Act shall apply. Under the Income-tax Act, the income arising from such converted property will be deemed to be income of the transferor individual. Moreover, on partition of such property, in case such property is allotted to the wife of such individual the income arising therefrom shall continue to be taxed in the hands of the transferor individual. Income in respect of the property allotted to minor children till majority shall be clubbed in the hands of the father, on account of overriding provisions contained u/s. 64(1A) of the Income tax Act. Similarly under the Wealth-tax Act the converted property is deemed to be the asset belonging to the individual and when such converted property has been the subject matter of partition, the converted property or any part thereof, which is received by wife of the individual on such partition shall be deemed to be the property belonging to such individual and as such will be includible in the wealth of such individual. Under Gift-tax Act such act is considered as a transfer and is liable to tax as gift in respect of the value excluding share of the transferor in the HUF. However, at present there is no gift tax.
1. Can Hindu Undivided Family accept gifts from its members or coparceners or outsiders?
Sajjan Das & Sons v. CIT (2003)) 264 ITR 435 held mere identification of the donor and showing the movement of the amount through banking channel was not sufficient to prove the genuineness of the gift. Since the claim of gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it had actually been received as a gift from the donor. Gift being by cheque and of movable property, no registration is necessary. However, gift declaration detailing complete information relating to the donor should be drawn and recorded. Gift cheque should go in a bank account in the name of the donee for realisation and subsequent utilisation.
However, section 56(2) Income-tax Act (v) puts restriction on the gifts made by a person to another. Gifts exceeding ₹ 50,000/- in the aggregate received by any person before 1-10-2009 becomes taxable in the hands of the donee. After 1-10-2009 not only sum of money but even gift of immovable property and any other property exceeding ₹ 50,000/- will be taxable in the hands of the donee. The valuation of immovable property will be the valuation adopted for stamp duty purposes. While for other property it will be the fair market value.
(c) Under a will or by way of inheritance.
The definition of relative is given in section 56(vi) proviso (e).
The “relative” include (i) Spouse of the individual (ii) Brother or sister of the individual (iii) Brother or sister of the spouse of the individual (iv) Brother or sister of either of the parent of the individual (v) Any lineal ascendant or descendant of the individual (vi) any lineal ascendant or descendant of the spouse of the individual (vi) Spouse of the person referred to in Clauses (ii) to (vi).
It therefore appears that gift can only be received under this exception by individuals mentioned in the definition and not by an HUF. The main provision regarding ₹ 50,000/- refers to individual or an HUF but the definition of relative only refers to individuals. Thus HUF cannot make a gift nor possibly receive gift falling on the definition of relative. The question will be whether gift received by an HUF from an individual can be considered as gift received from a relative as defined. Similarly, gift by an HUF to a member of an HUF will not also fall within the exception because the donor or donee if it is HUF will not fall within the exception.
However, the above position is now slightly changed by reason of Finance Act, 2012 which has extended the definition of a “relative” to include gift from any member of an HUF to HUF. Thus it is now clear that an HUF can receive a gift from its member exceeding ₹ 50,000/- without any liability to pay tax u/s. 56(2) of Income-tax Act.
1-10-2009. However the HUF can distribute its income to its member/members under the General Hindu Law principles as such distribution is not a gift. Further, the HUF can spend for marriage, education etc of its members also under general principle for Hindu Law as it is considered as part of its obligation towards its members.
2. Whether share of an Hindu can be bequeathed by Will ?
Yes, now there is a specific provision (section 30) under the Hindu Succession Act, 1956 by which any Hindu can dispose of, by will or other testamentary disposition any property which is capable of being so disposed of by him. It is specifically mentioned that the interest of a male Hindu in a Mitakshara coparcenary property shall be deemed to be property capable of being disposed of by such Hindu. After Amendment Act, 2005, even daughter who is now coparcener can make a will bequeathing her share in joint family property.
Similarly. prior to the coming into force of this Act, neither under the Mitakshara nor under the Dayabhaga Law a widow or other limited female heir could in any case dispose of by will any property inherited by her or any portion thereof whether the property was movable or immovable. The effect of section 14 of this Act inter alia is to abrogate that traditional limitation. She is now full owner of all property howsoever acquired and held by her and can dispose of it by will. The only qualification to this rule is that she cannot do so where she holds any property as ‘restricted estate’ as visualised under section 14(2). This is so because in any such case she is not and has not become full owner of the property.
3. Can an HUF give away its property by way of gift?
Although sons acquire by birth rights equal to those of a father in ancestral property both movable and immovable, the father has the power of making within reasonable limits gifts of ancestral movable property without the consent of his sons for the purpose of performing “indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth”. A “gift of affection” may be made to a wife, to a daughter, and even to a son. But the gift must be of property within reasonable limits. A gift of the whole, or almost the whole of the ancestral movable property to one son to the exclusion of the other sons, cannot be upheld as a “gift through affection” prescribed by the text of law. A Hindu father or other managing member has power to make a gift within reasonable limits of ancestral immovable for “pious purpose”.
Thamma Venkata Subbamma v. Thamma Rattamma (1987) 168 ITR 760(SC).
R. Kuppayee v. Raja Gounder (2004) 265 ITR 551(SC).
4. Whether the gift above reasonable limit or to stranger is void or voidable?
CIT v. Motilal Ramswaroop (1970) 76 ITR 43 (Rajasthan), R.C. Malpani v. CIT (1995) 215 ITR 241 (Gauhati), Raghuban Chaman Prasad Narain Singh v. Ambica Prasad Singh – AIR 1971 SC 776, CIT v. K.N. Shanmughasundaram (1998) – 232 ITR 354, CIT v. Bharat Prasad Anshu Kumar – (2001) 249 ITR 755 (Delhi).
1. Who can become Karta of an HUF?
An adult male member who manages the affairs of the HUF is known as Karta or Manager of the family. Only a coparcener can become Karta. Generally, the senior most male adult member of the family is made Karta of HUF. However, such senior member may give up his right of management and a junior member may by consent, be appointed as Karta. Where a junior member is in custody, control or possession of the property or the eldest member is not working in the interest of the family or is working against the interest of the family, junior member may be recognised as Karta.
(Refer V.M.N. Radha Ammal (1965) 57 ITR 510). However, a minor can act as Karta of the joint family through his natural guardian, his mother, in certain exceptional circumstances, for example, where whereabouts of the father are not known at the time. However, after 1-9-2005, daughter married or unmarried is now made a coparcener and can become Karta of her father’s family.
2. What are the rights of a coparcener or member?
No coparcener is entitled to any special interest in the coparcenery property nor is he entitled to exclusive possession of any part of the property. As observed by their Lordships of the Privy Council, “there is community of interest and unity of possession between all the members of the family”. A member of a joint Mitakshara family cannot predicate at any given moment what his share in the joint family property is. His share becomes defined only when a partition takes place. As no member, while the family continues joint, is entitled to any definite share of the joint property it follows that no member is entitled to any share of the income of the property. The whole income of the joint family property must be brought according to the theory of an undivided family, to the common chest or purse and there dealt with according to the modes of enjoyment by the members of an undivided family.
3. After the marriage of female member after 1-9-2005 whether the daughter would continue to be a member of her father’s family and also would become member of her husband’s family ?
Yes. She continues to be a coparcener of her father’s HUF. A very peculiar position will arise inasmuch as such daughter upon her marriage will automatically become only a member of her husband’s family while she will continue to be coparcener in her father’s family.
4. Can such female member demand partition of her father’s HUF as well as her husband’s HUF ?
As after 1-9-2005 daughter continues to be a coparcener of her father’s family, having all the rights and privileges as of a coparcener, she can demand partition of her father’s HUF property. However, as far as her husband’s HUF is concerned, she is a mere member of the family and not a coparcener and as such cannot demand partition of her husband’s HUF property. But would be entitled to a share in case of partition between her husband & her sons or between her sons.
5. What is property of sole surviving coparcener and its incidents?
Attorney General v. Arunachalam Chettiar (1958) 34 ITR (ED) 42 (PC), M.S.P. Rajah vs. CGT (1982) 134 ITR 1(Madras), CIT v. Anil J. Chinai (1984) 148 ITR 3 (Bombay), CIT v. N. Kannaiyiram (1999) 240 ITR 892 (Madras). Position would be different after 1-9-2005, if he has a daughter as she will be a coparcener & he will not be sole surviving coparcener.
(1) Daughter (married or otherwise) is made a coparcener same as a son to claim partition.
(2) Will have same rights as a son with all incidents of coparcenery.
(3) Property devolves as per section 8, Hindu Succession Act where sons, daughters, wife, mother are equal shares Class I. Hence not only daughter is made coparcener to have her own share in HUF, further on death of father intestate, she is one of heirs in father’s separate portion. Deceased’s share will devolve on heirs as per section 8 while deemed partition takes place of all coparcenery properties to heirs, entitled including daughter.
Share in the joint family does not go by survivorship to the other coparceners of the joint family but will go to her sons by intestate succession as listed in section 8 of the Act. Similarly, a coparcener (including daughter now) is now entitled to make a Will with regard to his/her share in the joint Hindu family and his share will, therefore go according to the provisions of the Will.
There are no restrictions with regard to the power of a Hindu making a Will with regard to his individual property. As regards his/her share in the joint family property under section 30 of Hindu Succession Act, if he/she is a coparcener, he/she will be entitled to make a Will of his/her share in the joint family property. His/her share in the joint Hindu family will go by testamentary succession if he/she and section 15 if female has made a Will or by intestate succession as provided in section 8, if a male. So far as restrictions are concerned, there does not appear to be any restriction on the power of a Hindu to make a Will. However, it may be noted that section 22 of the Hindu Adoption and Maintenance Act, 1956 creates an obligation on the heirs receiving the estate of the deceased either by intestacy or by way of testamentary succession to maintain the dependents of the deceased out of the estate received if such dependents have not received any share in the estate by testamentary or intestate succession.
So far as female Hindus are concerned, there is no restriction on them regarding making of the Will of their individual properties and now daughters married or unmarried. However, though wives are entitled to a share in the joint family property when partition takes place between father and son or between sons, they being not entitled to a share, in absence of such partition they cannot make a Will with regard to their share in the joint family property unless she has received it. The status of women is altered radically by Hindu Succession (Amendment) Act, 2005, whereby daughters whether married or unmarried are coparceners and entitled to a share in the joint family properties. Wife and daughter can also ask for partition of her share. The amendment applies to agricultural property also. Amendment Act applies as from 9-9-2005. However, transactions such as partition which is by a deed of partition duly registered or decree of Court prior to 20-12-2004, will not be affected by the amendment.
It is open to person of any community in India to solemnise a marriage under the Special Marriage Act, 1954, but it has certain consequences with regard to the mode of succession to their properties and their joint Hindu family. Section 19 of the Act lays down that the marriage solemnised under this Act of any member of an undivided family who professes Hindu, Buddhist, Jain or Sikh religion shall be deemed to effect his severance from such family. Thus, automatic severance from the family would take place.
Further, section 21 provides that notwithstanding any restrictions in the Indian Succession Act with respect to its application to members of certain community, succession to property of any person whose marriage is solemnised under this Act and to the property of the issue of such marriage shall be regulated by the provisions of the said Act. Thus the parties to the marriage would lose their personal law of succession and would be governed by the Indian Succession Act.
However, this position was not a welcome situation and accordingly an amendment has been effected by Marriage Laws (Amendment) Act, 1976 with effect from May 27, 1976 wherein section 21A has been introduced in the Special Marriage Act, 1954.
Under this new section, where marriage is solemnised under the said Act of any person who professes Hindu, Buddhist, Sikh or Jain religion with a person who professes Hindu, Buddhist, Sikh or Jain religion, section 19 and section 21 shall not apply. The result of this amendment would be that if both the parties to the marriage under this Act are Hindus etc., there will be no severance from the joint family nor will they lose their personal law of succession.
Partition is the severance of the status of Joint Hindu Family, known as Hindu Undivided Family under tax laws. Under Hindu Law once the status of Hindu Family is put to an end, there is notional division of properties among the members and the joint ownership of property comes to an end. However, for an effective partition, it is not necessary to divide the properties in metes and bounds. But under tax laws for an effective partition division by metes and bounds is necessary. There should be physical partition of the property and not the notional partition. Partition under Hindu Law, can be total or partial. In total partition all the members cease to be members of the HUF and all the properties cease to the properties belonging to the said HUF. Partition could be partial also. It may be partial vis-à-vis members, where some of the members go out on partition and other members continue to be the members of the family. It may be partial vis-à-vis properties where, some of the properties are divided among the members other properties continue to be HUF properties. Partial partition may be partial vis-à-vis properties and members both. However, tax laws do not recognise partial partition of property or/and persons after 30-3-1978 on insertion of sub-swction (9) to Section 171 of the I.T. Act. This restriction was put to avoid creation of multiple HUFs which was a misuse.
2. How a partition can be effected and what is its effect?
To constitute a partition all that is necessary is a definite and unequivocal indication of intention by a member of a joint family to separate himself from the family. What form such intimation indication or representation of such interest should take would depend upon the circumstances of each case. A further requirement is that this unequivocal indication of intention to separate must be to the knowledge of the persons effected by such declaration. A review of the decisions shows that this intention to separate may be manifested in diverse ways. It may be by notice or by filing a suit. Undoubtedly, indication or intimation must be to members of the joint family likely to be affected by such a declaration.
Kalyani v. Narayanan – AIR 1980 SC 1173).
3. Can there be an oral partition?
Popatlal Devram v. CIT (1970) 77 ITR 1073 (Orissa), Padam Lochan v. State of Orissa 84 ITR 88 (Orissa).
Nani Bai v. Gita Bai – AIR 1958 SC 706, Rishan Singh v. Zila Singh – AIR 1988 SC 881, Hansraj Agarwal v. CCIT (2003) 259 ITR 265 (SC). No particular method is prescribed – AIR 1964 SC 136.
4. Does a partition take place at the time of death of a coparcener?
State of Maharashtra v. Narayan Rao Sham Rao Deshmukh (1987) 163 ITR 31(SC).
5. Can a widow or wife claim partition?
Ram Narain Paliwal v. CIT (1986) 162 ITR 539 (P & H), CIT v. Mulchand Sukmal Jain (1993) 200 ITR 528(Gauhati).
Kundanlal v. CIT (1981) 129 ITR 755( P&H).
6. Is partition a transfer?
Ajit Kumar Poplai and Another AIR (1965) SC 432). Partition does not give a coparcener a title or create a title in him, it only enables him to obtain what is his own in a definite and specific form for purposes of disposition independent of the wishes of his formal co-shares (Refer Girija Bhai v. Sadha Shiv Dund Raj AIR 1916 PC 104).
CIT v. S. Balasubramanian (1988) 230 ITR 934 (SC). The partition does not effect any transfer as generally understood in the Transfer of Property Act. (Refer CIT v. N. S. Jetty Chettiar (1971) 82 ITR 599).
7. Can there be an unequal partition?
CGT v. N.S Getti Chettiar 91971) 82 ITR 599(SC). In the light of the said law, it can be a sound tool of tax planning by giving larger share to the less financially sound coparcener and lesser share to the affluent.
8. Whether physical division by metes and bounds is necessary?
Hindu Law does not require division of joint family property physically or by metes and bounds. However, partition as defined under Explanation to Section 171 of the Act means – (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition: or (ii) where the property does not admit of a physical division, then such division as the property admits of but a mere severance of status shall not be deemed to be a partition). Hence physical division of the property as the property admits of is an condition precedent for recognition of partition u/s. 171 of the Act.
Kalloomal Tapeshwari Prasad v. CIT (1982) 133 ITR 690 (SC), CIT v. Venugopal Inani (1999) 239 ITR 514. In case of single property like house or chawl division by plan is valid, so also allotting different portions of a single building is valid.
Lalitaben Hariprasad v. CIT – 180 Taxman 213, 224 CTR 306, 320 ITR 698 (Guj.). Similar Gujarat decision Vimalbhai Nagindas Shah v. CIT 140 ITR 29 (partial partition), CIT v. Vajubhai Chunilal, CIT v. 120 ITR 21(Guj.).
9. What shall be the nature of the property received on partition?
The nature of the joint family property on partition shall be as that of joint family property as and when the recipient person is married. Hence the character of the property shall remain that of the joint family property. Such property shall be assessed as individual property, as long as the recipient is unmarried or is reduced to a single person.
CWT v. Chander Sen (1986) 161 ITR 370(SC), CIT v. P.L Karuppan Chettiar 91992) 197 ITR 646(SC), CIT v. Arun Kumar Jhunjhunwala 7 Sons (1997) 223 ITR 43).
10. Whether an order u/s. 171 is required when an HUF has not been hitherto assessed?
Additional CIT v. Durgamma (P) (1987) 166 ITR 776 (AP), CIT v. Kantilal Ambalal (1991) 192 ITR 376(Gujarat), CIT v. Hari Kishan 920010 117 Taxman 214.
In such a case even partial partition will be valid.
11. What are the rights of daughters and female members not entitled to share on partition ?
State of Kerala v. K.P Gopal (1987) 166 ITR 111(Ker.-FB). This position is changed since 1-9-2005 as daughters are made coparceners and are entitled to a share.
12. What is notional partition and whether such concept exist under the Income-tax Act ?
When a Hindu male dies on or after 17th June, 1956 having at the time of his death an interest in coparcenery property, leaving behind a female heir of the class one category, then his interest in the coparcenery property shall devolve by succession and not by survivorship. The interest of the deceased will be carved out over devolution, though there is no actual partition. Such an act is considered as a notional partition under the Hindu Law. The concept of notional partition is non-existent under the Income-tax Act. The Income-tax Act recognises only an actual partition and not the notional partition.
13. Stamp Duty on Deed of Partition.
The question arises as to what stamp duty is payable when partition takes place.
“The same duty as a Bond (No. 14) for the amount of the market value of the separated share of shares of the property.
N.B : The largest share remaining after the property is partitioned (or if there are two or more shares of equal value and not smaller than any of the other shares, then one of such equal shares) shall be deemed to be that from which the other shares are separated.
The duty on bond mentioned in Entry 14 is 25 paise for every 100 Rupees or part thereof, if the value does not exceed 100 crores but if it exceeds ₹ 10 crores it would be 50 paise instead of 25 paise.
(c) Be subject to the same liabilities in respect of the said coparcenary property as that of a son, and any reference to a Hindu Mitakshara coparcener shall be deemed to include a reference to a daughter of a coparcener.
Provided that nothing contained in this sub-section shall affect or invalidated any disposition or alienation including any partition or testamentary disposition of property which had taken place before the 20th day of December, 2004.
(2) Any property to which female Hindu becomes entitled by virtue of sub-section (1) shall be held by her with the incidents of coparcenery ownership and shall be regarded, notwithstanding anything contained in this Act or any other law for the time being in force in, as property capable of being disposed of by her by testamentary disposition.
(c) The share of the pre-deceased child of a pre-deceased son or of a pre-deceased daughter, as such child would have got had he or she been alive at the time of the partition shall be allotted to the child of such pre-deceased child of the pre-deceased daughter, as the case may be.
(5) Nothing contained in this section shall apply to partition, which has been effected before the 20th day of December, 2004.
Explanation – For the purposes of this section “partition” means any partition made by execution of a deed of partition duly registered under the Registration Act, 1908 or partition effected by a decree of a court.
(1) Any property possessed by a female Hindu, whether acquired before or after the commencement of this Act, shall be held by her as full owner thereof and not as a limited owner.
Explanation – In this sub-section, “property” includes both movable and immovable property acquired by a female Hindu by inheritance or devise, or at a partition, or in lieu of maintenance or arrears of maintenance, or by gift from any person, whether a relative or not, before, at or after her marriage, or by her own skill or exertion, or by purchase or by prescription, or in any other manner whatsoever, and also any such property held by her as stridhana immediately before the commencement of this Act.
Another major issue which can now be dealt with is the impact of the Amendment Act, 2005 qua the position of daughters of a father who is co-parcener in an HUF.
It is obvious that amended section 6 is prospective and not retrospective. In other words by the amendment daughter does not become co-parcener from any earlier date. However, the question remains whether in an HUF which is continuing, a coparcener who has a daughter before 9-9-2005 is included now as coparcener. It is submitted that though the amendment is not retrospective it is retroactive meaning thereby it includes earlier events like birth of a daughter but operates with effect from 9-9-2005. A prospective legislation can draw for its application earlier events to which amendment applies from the date of its coming into force. It is submitted that the amended section would equally apply to a daughter born before 9-9-2005 and she becomes coparcener not from the date of her birth but only from 9-9-2005.
In such a situation the proviso to section 6 applies and induction of the daughter into coparcenery will not affect or invalidate any disposition or alienation including any partition or testamentary disposition of property which has taken place before 20-12-2004. Thus a limited retrospective operation is given to amended Section 6 up to 20-12-2004. Therefore, daughter does not get any rights nor can she challenge any disposition including partition which has taken place before 20-12-2004. Unfortunately there are divergent views taken by various High Courts in India on the correct interpretation of amended Section 6 as to whether it applies to daughter born before 9-9-2005.
M/s. Vaishali Satish Ganorkar v. Satish Keshorao Ganorkar reported in AIR 2012 Bom. 101, held by Full Bench in the case of Badrinarayan Shankar Bhandari v. Omprakash Shankar Bhandari reported in AIR 2014 Bom. 151, that the Act of 2005 will apply to all daughters born even prior to 9-9-2005 provided on that day the father of the daughter is alive.
Pushpalatha N.V. v. V. Padma – AIR 2010 Karnataka 124 where it considered that the section is retrospective in the sense that it applies to daughter born earlier. However, the Kerala High Court took the view a daughter could get the right, even if born after 1956 when the Hindu Succession Act was enacted.
Another interesting point which can be dealt with in this article is the difference between ancestral property and joint family property. As the word “ancestral” indicates it is the property received by the person from his father, grandfather etc. The said ancestral property will assume the character of joint Hindu family if the recipient has wife and children or only wife. Till then he can deal with it fully. However as soon as he marries the ancestral property becomes joint family property.
CWT v. Chander Sen 161 ITR 370 (SC) Thus there are basically two sources of joint family property (1) property received from ancestors by the son from his father etc. and (2) property received on partition of an existing joint family property. However if the chest of the HUF is zero, by gift from an outsider, such property will also become HUF property.
Reference may be made to the Mulla Hindu law 19th Edition Vol. 1 page 369 which states “Ancestral property is a species of coparcenery property. As stated above if a Hindu inherits property from his father it becomes ancestral in his hands as regards his son. In such a case, it is said that the son becomes a coparcener with the father as regards the property so inherited and the co-parcenery consists of the father and the son”.
In other words every ancestral property received by a male Hindu from his ancestors becomes joint family property. However individual property of the ancestor may either become joint family property in the hands of the son or his individual property depending on the wording of the will or gift by the father or grandfather. However, property received from any other collateral relation or even mother will not become joint family property in his hands except when it is so intended and so mentioned in the will or gift deed.
Hardeo Rai v. Shakuntala Devi – AIR 2008 SC 2489.
Incidentally certain other questions consequential on daughter becoming coparcener would arise.
I. Can unmarried or married daughter become karta of her father’s HUF ?
The first question is whether a married daughter can become karta of the father’s HUF on the death of her father if she is the eldest child. The basic concept of karta is that the male head of the family becomes a karta. A peculiar situation would arise when a married daughter belonging to another family can become the karta of the father’s HUF while she cannot be a karta of her husband’s joint family. However, the logical answer would be that she can be a karta. The basic Hindu Law would be modified in such a situation. It is also held since long that mother can be a guardian/karta of the her minor sons.
II. Whether children of married daughter become co-parcener of new father’s HUF?
Another interesting question is whether the children of the married daughter would become coparceners of father’s HUF. Again logically the answer should be in the affirmative but it would negate the fundamental concept of Hindu Law, because the children of the daughter cannot at the same time become coparceners in their father’s HUF and also in the maternal grandfather’s HUF. It is submitted that a limited effect has to be given to the Amendment Act and it cannot disturb the basic concept of an HUF having as its members, son, son’s wife, and son’s children. Making children of the daughter coparcener in the father’s HUF would be repugnant to the basic concept of an HUF. Similarly it is submitted that husband of the married daughter does not become member of her father’s HUF though son’s wife, becomes member of the father’s HUF. On the same reasoning ,the answer to the earlier question could be that Amendment Act should be given on limited application which should stop by making her daughter married or otherwise a coparcener in the father’s family. And not her children or husband. However on the death of the daughter there would be deemed partition and her share would devolve to her heirs as per her will and as on intestacy.
III. Whether sister married or unmarried can become coparcener?
A peculiar question arises as whether if the father is dead and the HUF continues with his sons their sister becomes a coparcener if the father dies before 9-9-2005.
It is submitted that daughters becomes coparceners only if their father is alive on 9-9-2005 as sisters are not covered by Section 6.
(1) Partition before 30-12-2004 is not affected by 2005 Act, but such partition is required to be registered. Does it mean that partition deed should be executed before 20-12-2004 or that it should be registered before 20-12-2004, though a document can be registered within 4 months of its execution and within 8 months with penalty?
Yes: Documented should be executed before 20-12-2004 but should be register before 1-9-2005.
(2) Requirement of registration – Does it rule out oral partition or even written partition of movables which does not require to be registration?
Ans. It is not clear but seems to be in writing even in case of movables. Surprisingly married daughter becomes coparcener in father’s HUF but not in her husband’s HUF, wife should have been made a coparcener in her husband’s family and not in her father’s family. Ans : This would have been logical and should be done.
In reality it is a very unusual situation created that a married daughter becomes a karta in her father’s HUF but not in her husband’s HUF.
It is submitted that it would have been better if instead of making a married daughter co-parcener in her father’s family to make wife a co-parcener in her husband’s family, where under Hindu Law she is entitled to share only when partition takes place between the father and son or between the sons but she cannot demand partition.
Problems are common, but attitude makes the difference !!!
Whether Is it necessary to have Income Computation and Disclosure Standards (Icds)?
Section 145(2) of the Income-tax Act, 1961 (the Act) authorises the Central Government to notify Income Computation and Disclosure Standards (ICDS) for the purposes of computation of income.
The basic principle of income-tax is to tax the real income and commercial profit of the assessee subject to certain specific allowance / disallowances. The accounts of the assessee are maintained on the basis of the Accounting Standards prescribed under the Companies Act and / or issued by The Institute of Chartered Accountants of India (ICAI). Therefore, the profit disclosed in the books of account maintained by the assessee adopting such Accounting Standards reflects the true commercial profit earned by the assessee. Generally, that should be accepted as income for the purpose of the Act, subject to certain necessary allowances and disallowances as per the Act.
revenue benefit in the long run by enforcing ICDS.
It is totally unjust, unfair, unrealistic and very onerous to impose another set of standards i.e., ICDS on the assessees for the purpose of computation of total income. These ICDS in fact change the above basic principles and affect the computation of total income of assessees. Although it is stated that such ICDS are not meant for maintenance of books of account, if one peruses even the amended ICDS notified by the CBDT, it becomes clear that effectively such ICDS will have a direct bearing on the maintenance of books of account. As such, with these ICDS, effectively the assessee would be required to keep and maintain dual set of books of account to comply with the requirement of ICDS and / or will have to spend considerable amount of time, energy and manhours in preparing and reconciling income as per ICDS and the one computed as per books of account maintained as per the applicable Accounting Standards. This becomes clearer with the amendment made in Form 3CD (part of Tax Audit Report) in this respect.
Moreover, even though the preamble to ICDS states that the ICDS are not for the purpose of maintenance of books of account, the deviations from accepted accounting principles (such as different formula for capitalising general borrowing costs, non recognition of expected or marked-to-market (MTM) loss) would result in maintenance of separate books of account for tax purposes. Such maintenance of parallel set of books of account would be burdensome, require changes to existing IT systems and result in high cost of compliance.
Accounting Standards are applicable to all corporate and non-corporate entities. Whereas ICDS is applicable to all taxpayers following mercantile method of accounting (i.e., to all taxpayers other than those following the cash system of accounting).
Further, the amended Form 3CD requires a tax auditor to certify the adjustments to be made to the profit and loss in accordance with the provisions of ICDS. Before certification, a tax auditor would invariably require such parallel profit and loss account and balance sheet to be prepared, to ensure that all adjustments required on account of ICDS have been considered. This will result in substantial work for most businesses and may even result in the requirements of parallel MIS, one for the purposes of regular accounts, and the other for the purposes of ICDS.
At this juncture, it is to be noted that only 1% of the total population pays the Income tax as per the official Government published data, of which persons filing return of income on cash basis as well as persons filing return of income under the head “salaries” plus persons who are not liable to tax audit in the preceding previous year would go out of 1% of the said population. So, compliance with ICDS is an additional requirement, for few persons, will increase the compliance burden and cost in the hands of the taxpayers and would thus defeat the purpose of ICDS in terms of simplification of processes. Therefore, it is to be pondered, whether there would be any increase in revenue to the Government because, generally, in ICDS, there is pre-ponement of income.
In fact, Income tax Simplification Committee, set up by Ministry of Finance and chaired by Justice R. V. Easwar (Retd.) in its report containing first batch of recommendations has rightly made the following observations w.r.t. ICDS.
“Taxpayers are already grappling with regulatory changes of the Companies Act, 2013 Ind-AS and the proposed GST. Industry should be allowed more time to deal with another change of this nature. The Committee understands that the taxpayers feel that many of the provisions of the ICDS are capable of generating, a legal debate about which at present there is no clarity.
Further, multiple accounting methods, one for the books of account and other for tax purposes, creates confusion, interpretation issues, multiplicity of records and additional compliance burden which may outweigh the gains to be obtained by the application of ICDS. It has also been felt by the Committee that ICDS deals only with the method of accounting and at best it brings timing differences on recognition of expenditure or income as compared to the books of account. The Committee therefore feels that a fuller study of the implication of the ICDS is necessary before it is implemented”.
Recently, the Indian Accounting Standards (“Ind AS”) were notified by the Ministry of Corporate Affairs wherein companies may voluntarily adopt Ind AS for financial statements for accounting periods beginning on or after April 1, 2015 with the comparatives for the period ending March 31, 2015 or thereafter. Once a company opts to follow Ind AS, it will be required to follow the same for all the subsequent financial statements.
Further, there could be earlier judicial rulings which are based on the relevant provisions of the Act and as well as accounting standards, where the courts interpreted the law on the basis of such accounting standards. These judicial rulings would now have to be reconsidered in light of the requirements of ICDS, as the method of accounting is now subject to ICDS.
Thus, it would defeat the very purpose of ICDS of bringing certainty in tax and reduction of litigation.
Currently, profits reflected as per the normal accounting standards is accepted as a basis for determining taxable business income subject to specific provisions contained in Chapter IV-D of the Act. However ICDS does not recognise the universally-accepted principles of ‘prudence’ even though the same has been accepted by the courts for tax purposes. Non-recognition of the principle of prudence will lead to taxable profits being overstated. Also, such a deviation adopted by ICDS is bound to lead to litigation.
image of India as a favourable investment destination.
We, therefore, suggest that in the interest of making India a highly attractive place for doing business and for the furtherance of stated policies of the Government of ‘Make in India’ and ‘Ease of doing Business in India’, section 145(2) and the notified ICDS should be abolished.

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