STATE CERTIFICATE TAX (STCG) ON INVESTMENT OF INDIAN COMPANY TO MAURITIUS COMPANY, PRIOR TO APRIL 1, 2022, NO TAX IN INDIA

The Income Tax Appellate Tribunal, Delhi (ITAT), quasi-judicial authority to hear appeals against decisions of Income-tax authorities, in the case of MIH India (Mauritius) Ltd. (TAX PAYERS) v. Additional Commissioner of Taxes[1]held that STCG received by a Mauritian company on sale of shares of an Indian company, prior to April 1, 2017, is not taxable in India by virtue of the revised Article 13(4) of the Double Taxation Convention in India. and Mauritius (DTAA).

The taxpayer, a company incorporated in Mauritius and a tax resident of Mauritius, acquired the shares and shares of an Indian company, Citrus Payments Solution Private Limited (Citrus India), in 2016. Further, in March 2017, the taxpayer sold its shares in Citrus India to PayU Payments Pvt. Ltd. (PayU India). Citrus India and PayU India are related companies of the assessee and the assessee has bought the shares from key management staff of PayU India.

The taxpayer claimed that the STCG received would be exempt from tax in India under Article 13 (4) of the amended DTAA. However, rejecting the taxpayer’s claim, the Assessing Officer (THERE) held that the beneficial provisions of the DTAA cannot be claimed by the taxpayer and STCG will be taxable in India. In its decision, the AO noted that: (a) the taxpayer is commercially and economically incompetent; (b) the taxpayer did not have the financial capacity to purchase the shares of Citrus India and the funds used for the purchase were borrowed from its holding company, PayU Global BV, a company incorporated in the Netherlands (Holding Company), therefore, the owner of the profit is the Business Company; and (c) the effective control and management of the taxpayer was on the Client Company and the taxpayer acted as a conduit for the use of the benefits of the DTAA.

Disagreeing with the decision of the AO, the ITAT upheld the contention of the taxpayer and held that: (i) vide CBDT circular no. 789 in 2000[2]valid proof of residence (TRC) will be proof of residency and beneficial ownership to obtain DTAA benefits; and (ii) the STCG received by the taxpayer will not be taxable in India by virtue of Article 13(4) of the pre-revised DTAA.

For its decision, the ITAT observed that: (A) since the taxpayer had sold the shares of Citrus India before 1 April 2017, the sale and the resulting STCG were not covered by amended article 13 (which made STCG a tax in India) and was governed by Article 13(4) of the DTAA; and (B) the taxpayer is not a shipping company because: (aa) it was incorporated in Mauritius in 2006 and has invested in India and other countries since 2006; and (bb) hold a valid TRC in Mauritius. The ITAT also held that the payment of tax to the Holding Company to be used for investment is not a valid reason to treat the taxpayer as a mere conduit.

The Central Board of Direct Taxes (CBDT) allows non-resident / foreign (NR) taxpayers to submit FORM 10F manually.

The Income Tax Act, 1961 requires a NR, desiring to claim relief/benefits under the DTAA applicable to the NR, to provide TRC from his country of residence and additional information relating to NR in Form 10F for Indian authorities. such information is not yet provided in the TRC.

The CBDT, vide notification no. 03/2022 on July 16, 2022, forced them to file the 10F form electronically.[3]. Such electronic filing required the NR to provide its permanent income tax account number (baking). Therefore, if the NR is not required to obtain PAN and does not have PAN, it cannot make electronic submission of Form 10F. Due to this challenge and practical difficulty of these NRs, the CBDT vide its notification no. 9227/2022[4] on December 12, 2022 allowed such NRs, not having PAN and not required to obtain PAN under Indian Income Tax Act, to file Form 10F manually. Although this exemption has been granted for filing Form 10F by March 31, 2023, a more permanent solution may be required to provide relief to mitigate the difficulties faced by NR.

TAX AGAIN

Limitation period is not applicable for recovery of wrongly paid service tax claim
The High Court of Customs, Excise and Labor (CESTAT – CAL) in the matter, Techno Power Enterprises Private Limited Vs. CGST & Excise Commissioner[5], held that the period of limitation prescribed in Section 11B of the Central Excise Act, 1944 would not apply to the claim for refund of wrongly paid service tax. While upholding the petitioner’s request for the Commissioner’s decision, CESTAT pointed out that when the authority to collect said tax from the petitioner is not sufficient, the agency will not give them the authority to retain the money paid by the petitioner. . they are not paid in the first place.

CESTAT – CAL confirmed that when the money is paid incorrectly, the person who receives that money becomes a trustee under common law and has the obligation to return the money received and cannot be retained by the revenue.

Registration of house is not a necessary condition for claiming refund under Cenvat Credit Rules, 2004

The Delhi Bureau of Customs, Excise and Customs (CESTAT – DEL), in the case of M/s. Selling Simplified India Private Limited Vs. Commissioner of CGST, East Delhi[6]held that registration of the house is not a necessary condition for claiming refund under rule 5 of Cenvat Credit Rules, 2004.

The bench observed Rules 4 and 5 said that if a service provider, providing services of products, which are exported, does not pay service tax on bond, he is entitled to refund of cenvat credit and the Registration at each location is not. conditions necessary for claiming cenvat refund.

The CESTAT – DEL also pointed out that the conditions laid down in the Export of Service Tax Regulations, 2005 for services eligible for export are: a) the service should be supplied from India and used outside the India; and (b) payment for such services shall be made in a convertible foreign currency.

Industrial groups cannot be kept in limbo by being denied incentives promised under the state industrial policy because of changes in laws.

The Calcutta High Court, in the case of Emami Agrotech Ltd vs. State of West Bengal & Ors[7], opined that industry groups cannot be kept in limbo by denying promised incentives due to change in tax regime from VAT to GST. VAT refunds were promised to them under the West Bengal Industry Support Scheme, 2008 (scheme). In addition, the Scheme clearly established the continuation of incentives under the Scheme, should VAT be replaced by other legislation.

The Court observed that the introduction of the GST regime should not deprive the groups of the incentives they were promised under the earlier scheme. Further, the Calcutta High Court held that, there is a well-defined case of legal expectation and therefore the petitioner is entitled to a clear explanation. The court directed the state authorities to take immediate steps to comply with the GST law for the benefit of industrial groups.

Refund of Goods and Services Tax IGST allowed on exported goods after deduction of default tax.

The Delhi High Court, in the case of Kishan Lal Kuria Mal International v. Union of India[8]allowed the writ petition and directed the assessing authority to grant refund of IGST paid on goods exported by the assessee during the transitional period (July-September 2017), after deducting the amount ‘different obligations, if there is a stated difféciale value. not yet returned by the auditor.

The Court observed that the Constitution Commission is entitled to ascertain the extent of duty deficiency suffered by the petitioners and also whether they have availed duty deficiency/ CENVAT credit. Customs duties and taxes on exports. If there is an amendment to be made, the commissioner is in charge of it.

There is no estoppel against the legislature in the exercise of its legislative functions

The Supreme Court (SC)in the case of M/S Hero Motocorp Ltd. v. Union of India & Ors.[9] with another, pointed out that when the exemption granted earlier is revoked by a subsequent notification based on a change in policy, even in such cases, it cannot be used the doctrine of promissory estoppel.

The SC while interpreting the provisions of Article 174(2)(c) observed that the legislature in its wisdom specifically inserted the proviso which provides therein that the tax exemption given as an incentive to investment through disclosure will not continue to benefit if the said. The notification is canceled and therefore the appellant will not be given 100% tax exemption as per the earlier notification, as the tax regime has changed with the introduction of GST.

The SC also noted that although the plaintiffs may not have a legitimate claim, they have a legitimate expectation that their claims deserve careful consideration. Therefore, the Court allowed the petitioners to make representations to each State Government as well as to the GST Council.



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