Latest Blogs from SBS and Company LLP

    Issue of Debentures vis - a-vis Actually Paid - Section 43B - Supreme Court Decision in MM Aqua Technologies Limited

    Claiming of a deduction in respect of expenditure which are covered under Section 43B is always a discussion point at various appellate fora. Section 43B was introduced into the Income Tax Act, 1961 (for brevity ‘ITA’) through the Finance Act, 1983, making it effective from April 01, 1984. The primary objective of Section 43B is to compel the assessee to discharge certain liabilities by actually making the payment in order to claim such expenditure. Earlier to this, the assessee was creating a provision and claiming the said expenditure as deduction while computing business profits, without actually paying them. The Government after observing this, has introduced the said section to allow the said expenses as deduction only if the same are being paid.

    The payments covered under Section 43B inter-alia includes ‘interest payable on any loan or borrowing from public financial institution in accordance with the terms and conditions of the agreement governing such loan’. This clause (d) has been inserted in Section 43B through the Finance Act, 1988 with effective from 01st April 1989.

    Where does this ‘road’ lead to? - Taxability on Annuities - HAM Projects

    The construction of road is quintessentially a primary infrastructure and boost to the national infrastructure. The construction of road and maintenance thereof, is one of the important factors to boost the national income and economic productivity. The taxation of construction of road under the service tax regime was completely exempted from tax. Though, there was a lot of confusion on the taxation of maintenance of roads under the service tax regime, the ambiguity was put into rest by creating a specific entry for exemption. This was a huge relief to the sector and the service providers, considering the huge stakes of demands.

    SBS Wiki E Journal August 2021

    In this edition, we bring you, an article on the issue of deduction available on basis of payment in terms of Section 43B of Income Tax Act. As all of us are aware, that Section 43B allows certain expenditures as deductions only on payment basis, there always exist a question as to the meaning of ‘payment’. Whether the payment made by way of issue of debentures would still qualify as ‘payment’ under Section 43B was recently decided by Honourable Supreme Court in the matter of MM Aqua Technologies Limited. We have surveyed the said matter right from the inception to the Honourable Supreme Court and laid down our understanding and conclusions.

    The next article is on one of the recent disturbances caused by a Circular in GST laws, which was released post GST Council meeting. The Circular tried to unsettle a settled understanding of taxability of annuities in case of Hybrid Annuity Model. The unsettling of taxability, apart from the main issue also will unsettle other issues. In this article, we have coined the problem, the issue created by circular, our conclusion on the main issue and the possible issues and their solutions, if at all tax would exist.

    I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.

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    Resident Welfare Associations – Exemption under GST – Madras High Court Rules in favour of RWA

    The birth of Resident Welfare Association (for brevity ‘RWA’) is guided by Section 11(4)(e) of Real Estate (Regulation & Development) Act, 2016. The said section mandates that promoter should enable the formation of RWA under the local laws. In absence of such local laws, the section mandates that RWA must be formed within 3 months from the majority of allottees having booked their apartment.

    RWAs are formed primarily with an objective to protect and upkeep the welfare of all the members who are the owners of apartments forming part of such residential complex. All RWAs are incorporated with intention of ‘no profit no loss’ and guided by bye-laws which are agreed at the time of incorporation.  

    Basis such bye-laws, different RWAs collect different types of fees from members for provision of certain services. The most common fees are corpus, admission fee, transfer fee, No-Objection Certificate fee and other similar items. Majority of RWAs in their bye-laws have modus operandi which must be adopted for each type of fee charged by them. The bye-laws would also contain provisions dealing with accounting treatment of such fee, purposes for which a particular fee can be used, purposes for which a particular fee cannot be used, the timing of usage, the necessary approval for such usage, the nature of investments into which the idle funds of RWAs can be made into and various other aspects. Apart from the said fee, RWAs will also collect monthly maintenance charges from all the members against provision of specific services. The services will include the upkeep of common area, common amenities, security services and various others.

    Payment Of Income Vs. Treaty Protection - Morgan Stanely - Classic Case Of Treaty Interpretation Of Dtaa

    In this article, we get to one of the recent interesting judgment in the arena of international taxation. The judgment is authored by Honourable Vice President, Mr Pramod Kumar of Mumbai ITAT[1]. As a student and learner of International Taxation, I would never miss reading a judgment of Mr Pramod Kumar. The way he interprets the law, the vast knowledge he possess and adequate application to the facts of the case, is no match. Let us proceed to understand the facts in the matter of Morgan Stanley Mauritius Co Limited vs. Deputy Commissioner of Income Tax, International Taxation Circle, 3(2)(2), Mumbai[2].

    Morgan Stanely Mauritius Co Limited (for brevity ‘MS - Mauritius’) is a company incorporated and fiscally domiciled in Mauritius and has a tax residency certificate issued by Mauritius Revenue Authorities. The assessee is an investor in Indian Depository Receipts (for brevity ‘IDR’) issued by Standard Chartered Bank – Indian Branch (for brevity ‘SCB – India’). The underlying assets of IDRs are the shares of Standard Chartered Bank Plc (for brevity ‘SCB -UK’), held by the custodian Bank of New York (for brevity ‘BNY-US’). SCB – UK is listed on London Stock Exchange and the IDRs so issued are listed on Indian Stock Exchange.

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