Taxmann | This Week
This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from November 07th to 12th, 2022, namely:
(a) The exemption could not be denied just because the sum received as a gift wasn’t transferred from the bank account of a relative: ITAT;
(b) Civil Court can entertain and try borrower suit against Bank/FI; however, it can’t transfer the suit to DRT;
(c) High Court directs the anti-evasion wing not to proceed with notices issued for the period whose GST audit had been commenced;
(d) High Court allows the petitioner to amend GSTR-1 and rectify the mistake of the wrong GSTIN mentioned against invoices as no loss to revenue; and
(e) How to present the cash flows from long-term investments in the cash flow statement of an Alternative Investment Fund (AIF)?
The exemption could not be denied just because the sum received as a gift wasn’t transferred from the bank account of a relative: ITAT
The Mumbai Tribunal has delivered a significant ruling in respect of the taxability of gifts received from relatives. The Court held that a ‘Constructive Gift’ from the relative is also eligible for exemption under Section 56(2)(vii) [Section 56(2)(x) substituted Section 56(2)(vii) with effect from 01-04-2017. However, the meaning of ‘relative’ is the same in Section 56(2)(x) and Section 56(2)(vii)].
Facts
The assessee was a proprietor of rice mills. During the relevant assessment year, a scrutiny assessment under Section 143(3) was conducted, and it was found that the assessee received a gift of Rs. 50 lacs from his paternal uncle. However, such a gift was received from the bank account of the son and daughter-in-law of the uncle.
Considering the fact that the gift was not received from the bank account of the uncle, the Assessing Officer (AO) denied the exemption available under Section 56(2)(vii). The AO stated that the son and daughter-in-law of the parental uncle are not covered under the term “relatives”. Thus, the sum received from them is to be treated as income of the assessee.
Ruling
The Tribunal held that the term ‘relative’ as defined under section 56(2)(vii) includes the brother or sister of either of the parents. Thus, the assessee’s uncle falls within the term ‘relative’.
In the instant case, the only reason to deny the exemption to the assessee was that the gift amount was transferred from the bank accounts of the son and daughter-in-law of the uncle.
The son and daughter-in-law are not alien to the uncle but very close relatives of the uncle, and it could be understood that the gift was first provided by the uncle to them and then transferred to the assessee. Thus, it can be considered a ‘Constructive Gift’ from the uncle.
The uncle had also confirmed the gift to the assessee, and the transfer happened on his instructions. Thus, the gift so received by the assessee was eligible for exemption under Section 56(2)(vii).
Civil Court can entertain and try borrower suit against Bank/FI; however, it can’t transfer the suit to DRT
The Supreme Court held that Civil Courts could entertain and try borrower suits against Bank/FI; however, it could not transfer such suits to DRT.
Facts
In the instant case, the appellant bank had applied to the Debts Recovery Tribunal (DRT) to recover the amounts due from the borrower under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB).
The respondent (borrower) defended the proceedings and filed a Civil Suit before the Kolkata High Court against the appellant. The respondent, inter alia, claimed a decree for the sale of the pledged shares, recovery of sale proceeds, and an inquiry into the losses suffered by the respondent, along with a decree for payment of money after the same.
After that, the appellant filed an application seeking rejection of the plaint and dismissal of the suits filed by the respondent. It was claimed that the suits were not maintainable and that the High Court lacked jurisdiction as the same exclusively vested with the DRT.
The High Court, through a single judge, allowed both the applications of the appellant and directed the suits to be taken off. Later, the Division Bench of the High Court opined that as per the view of the Court in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation, a suit filed by a borrower against the Bank was not barred before the Civil Court. However, a suit filed by the Bank against the borrower was barred.
Thereafter, an appeal was made to the Supreme Court against the order passed by the High Court. As the two judges bench of the Apex Court noticed the conflicting views expressed in the judgement, the Apex Court referred the following issues to a larger bench:
(a) “Whether an independent suit filed by a borrower against a Bank or Financial Institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, is liable to be transferred and tried along with the application under the RDB Act by the DRT?
(b) If the answer is in the affirmative, can such a transfer be ordered by a court only with the consent of the plaintiff?
(c) Is the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a Bank or Financial Institution?”
The Supreme Court observed that the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution in relation to the proceedings for recovery of debt by a Bank or Financial Institution is not ousted by virtue of the scheme of the RDB Act.
The Supreme Court held that in the absence of any such power existing in the Civil Court, an independent suit filed by a borrower against a Bank or Financial Institution, which has applied for the recovery of its loan against the plaintiff under the RDB Act, cannot be transferred and tried along with the application under the RDB Act by the DRT under the RDB Act, as it is a matter of option of the defendant in the claim under the RDB Act.
The Supreme Court further held that since the Civil Court has no power to transfer the borrower’s suit against Bank/FI to DRT, there is no question of transfer of the suit, whether by consent of the plaintiff-borrower or otherwise.
High Court directs the anti-evasion wing not to proceed with notices issued for the period whose GST audit had been commenced
The Calcutta High Court has held that proceedings initiated by the Anti-evasion and Range Office shall not proceed for the same period for which GST audit proceedings were initiated but not completed. The Court also directed that audit proceedings should be first taken to the logical end.
Facts
The Anti-evasion wing and Range Office have issued notices to the appellant for certain financial years for which GST audit proceedings were initiated but not completed. It filed a writ petition and contended that three wings of the same department are proceeding against it. The learned Single Bench dismissed the writ petition on the ground that the proceedings were in the nature of show cause notice, and therefore, the appellant filed an appeal.
High Court
The High Court noted that four issues were pointed out for the said period, out of which two issues, as pointed out by the audit, were accepted by the appellant and the necessary tax and interest were remitted. However, the appellant had submitted a response to the notice for the remaining two issues, and the matter has not been taken to the logical end. In the meantime, the other two wings of the department, viz. Anti-evasion wing and the Range Office, have also proceeded against the appellant by issuing notices for the very same period for which audit proceedings under Section 65 of the Act have already commenced.
Therefore, the Court held that proceedings initiated by the Anti-evasion and Range Office for the very same period should not proceed any further and audit proceedings should be taken to the logical end. Also, the order of Single Bench was set aside.
High Court allowed the petitioner to amend GSTR-1 & rectify the mistake of the wrong GSTIN mentioned against invoices as no loss to revenue
The Calcutta High Court has allowed the assessee to amend GSTR-1 after more than 2 years to rectify the mistake of the wrong GSTIN mentioned against invoices raised on the purchaser. The Court noted that the other party whose GSTIN was wrongly mentioned had not claimed ITC. Therefore, there would be no loss of revenue to the Government, and the interest of justice would be served by allowing the assessee to amend GSTR-1 and rectify the mistake.
Facts
The petitioner company was engaged in the business of mining. There was an error in GSTR-1 filed for January 2019 of inadvertently mentioning the GSTIN Number due to an employee’s mistake, and this error was noticed only during the settlement of accounts in 2021. The purchaser withheld payment for the invoice as the invoice was not reflected in the GSTR-2A return for the said period. It filed a writ petition seeking relief by way of rectifying GSTR-1.
High Court
The High Court noted that the purchaser had reversed the entry of ITC wrongly availed based on entries in books of account since the invoice was not reflected in his GSTR-2A return for the said period. Moreover, the party whose GSTIN was wrongly mentioned had not availed ITC incorrectly reflected in its GSTR-2A. Therefore, it was held that there was no loss of revenue to the Government and the interest of justice would be served if the petitioner would be allowed to make the necessary correction in GSTR-1. Thus, the petitioner was allowed to rectify its GSTR-1 within a period of 8 weeks from the date of order.
How to present the cash flows from long-term investments in the cash flow statement of an Alternative Investment Fund (AIF)?
AIF is a fund established in India in the form of a trust, a company, an LLP, or a body corporate which is a privately pooled investment vehicle collecting funds from investors in accordance with a defined investment policy for the benefit of its investors; and is not covered under SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
Where the AIF operates as a financial enterprise with restricted activities, the two views on the presentation of long-term investments in the Cash Flow statement can be made. One view is that the cash flows from investments, i.e., generated from interest, dividends, etc., and proceeds from the purchase/sale of investments can be considered as cash flows from/used in investing activities by the Fund and another view is to treat the same as operating activities.
In this regard, the Expert Advisory Committee (EAC) of ICAI has provided that for classification of interest paid and interest & dividend received in the cash flow statement, it is important to understand whether the cash flows are principal revenue-producing activities having regard to the nature of the business of an enterprise or not. Also, revenue may flow from activities undertaken by an enterprise or from a resource created or acquired by an enterprise. Hence, cash flows from such revenue-producing activities are cash flows from operating activities. Whereas investments are resources acquired by the enterprise and, therefore, usually, acquisition and disposal of investments (whether or not long-term) are investing activities even for a financial enterprise.
But, earning income, such as interest and dividends, is the principal revenue-producing activity. Thus, receipts of interest and dividends are cash flows from operating activities.
That’s it from us for today! Stay Tuned for more updates from?Taxmann.com
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