The Income Tax Appellate Tribunal, Delhi (ITAT), a quasi-judicial authority to hear appeals against decisions of the income tax authorities, in the case of MIH India (Mauritius) Ltd. (taxpayer) v. Additional Commissioner of Income Tax1, held that STCG earned by a Mauritius company on the sale of shares of an Indian company, before April 1, 2017, are not taxable in India by virtue of the pre-amended Article 13(4) of the Double Taxation Avoidance Agreement between India and Mauritius (DTAA).

The taxpayer, a company incorporated in Mauritius and a tax resident of Mauritius, acquired equity shares and cumulative preference 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). Both Citrus India and PayU India were associated enterprises of the taxpayer and the taxpayer had purchased the shares from a key managerial personnel of PayU India.

The taxpayer claimed that the STCG earned would be exempt from tax in India under Article 13 (4) of the pre-amended DTAA. However, rejecting the claim of the taxpayer, the assessing officer (AO) held that beneficial provisions of the DTAA cannot be claimed by the taxpayer and STCG would be taxable in India. For coming to its decision, the AO took note that: (a) the taxpayer lacked commercial and economic substance; (b) the taxpayer did not have the financial capability to purchase the shares of Citrus India and the money used for purchase was borrowed from its holding company, PayU Global B.V., an entity incorporated in Netherlands (Holding Company), hence, the beneficial owner was the Holding Company; and (c) the effective control and management of the taxpayer was with the Holding Company and the taxpayer was acting as a conduit for availing the benefits of DTAA.

Disagreeing with the decision of the AO, the ITAT upheld the contentions of the taxpayer and held that: (i) by virtue of the CBDT circular no. 789 of 20002, a valid tax residency certificate (TRC) would constitute proof of residence and beneficial ownership to avail the DTAA benefits; and (ii) STCG earned by the taxpayer will not be taxable in India by virtue of pre-amended Article 13(4) of the DTAA.

For coming to its decision, the ITAT took note that: (A) since the taxpayer sold the shares of Citrus India prior to April 1, 2017, sale and the resulting STCG was not covered by the amended Article 13 (which made STCG taxable in India) and was governed by the pre-amended Article 13(4) of the DTAA; and (B) the taxpayer was not a conduit company because it was: (aa) incorporated in Mauritius in 2006 and had been investing in India and other countries since 2006; and (bb) holding a valid TRC in Mauritius. The ITAT further held that, merely because the taxpayer borrowed money from its Holding Company to invest in shares is not a valid reason to treat the taxpayer as a conduit.

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, wishing to claim any relief/ benefits under the DTAA applicable to NR, to provide to Indian income tax authorities a TRC from the country of its residence and additional information relating to NR in Form 10F, if such information is not already provided in the TRC.

The CBDT, by its notification No. 03/2022 dated July 16, 2022, made it mandatory for such NR to file Form 10F electronically3. Such electronic filing required the NR to provide its income tax permanent account number (PAN). Hence, if a NR was not required to obtain a PAN and did not have a PAN, it could not make an electronic filing of Form 10F. Because of this practical challenge and hardships faced by such NRs, the CBDT by its notification No. 9227/20224 dated December 12, 2022 has allowed such NRs, not having a PAN and not required to obtain a PAN as per the Indian income tax law, to file Form 10F manually. Although, this exemption has been granted for filing Form 10F manually March 31, 2023, a more permanent solution may be required to provide relaxation to mitigate the hardships being faced by NR.

INDIRECT TAX

Limitation period not applicable to refund claim of mistakenly paid service tax

 The Customs, Excise and Service Appellate Tribunal (CESTAT - CAL) in the matter of, Techno Power Enterprises Private Limited Vs. Commissioner of CGST & Excise5, held that a limitation period prescribed under Section 11B of Central Excise Act, 1944 will not be applicable to the refund claim of mistakenly paid service tax. While upholding the appellant's appeal against the decision of Commissioner, CESTAT observed that when once there is lack of authority to collect such service tax by the appellant, it would not give them the department the authority to retain the amount paid by the appellant, which was initially not payable by them.

The CESTAT – CAL held that when the money has been paid by mistake, the person in receipt of such money becomes at common law a trustee with an obligation to repay the sum received and such sum cannot be retained by revenue.

Registration of premises not a necessary prerequisite for claiming a refund under Cenvat Credit Rules, 2004

The Delhi bench of Customs, Excise and Service Appellate Tribunal (CESTAT - DEL), in the matter of M/s. Selling Simplified India Private Limited vs. Commissioner of CGST, East Delhi6, held that registration of premises is a not a necessary prerequisite for claiming a refund under Rule 5 of the Cenvat Credit Rules, 2004.

The bench observed Rule 4 and 5 provide that where a service provider, provides an output service, which is exported, without payment of service tax under a bond, he would be entitled to refund of cenvat credit and that that registration of each premise is not necessary requirement in claiming refund of cenvat credit.

The CESTAT – DEL also observed that conditions prescribed under export of Service Tax Rules, 2005 for the services to qualify to export are: a) the service should be provided from India and used outside India; and b) that payment for such service is received in convertible foreign exchange.

Industrial units cannot be kept in limbo by denying promised incentives under state industrial policy due to change in law

The Calcutta High Court, in the case of Emami Agrotech Ltd vs. The State of West Bengal & Ors7, held that industrial units cannot be kept in limbo by denying promised incentives due to change in taxation regime from VAT to GST. The refund of VAT was promised to them under West Bengal State Support for Industries Scheme, 2008 (Scheme). Further, the Scheme very clearly stipulated continuance of the incentives under the Scheme, in the event VAT was replaced by any other law.

The Court observed that introduction of GST regime should not deprive the units from their incentives as they were promised to them through the earlier scheme. Further, the Calcutta High Court held that, there is a definite case of legitimate expectation and thus the petitioner was entitled to be provided with clarity. The court directed the state authorities to take expeditious steps to make the Scheme compliant with GST laws for the benefit of industrial units.

Refund of Integrated Goods and Services Tax IGST allowed on exported goods after deduction of drawback duty

The Delhi High Court, in the case of Kishan Lal Kuria Mal International v. Union of India8, allowed the writ petition and directed the assessing authority to grant refund of IGST paid on the goods exported by the assessee during the transitional period (July- September, 2017), after deducting the differential amount of duty drawback, if the said differential amount has not already been returned by the assessee.

The Bench observed that the Jurisdictional Commissionerate shall be entitled to verify the extent of duty drawback availed by the petitioners and also whether they have availed duty drawback/ CENVAT credit of central excise & service tax component in respect of the exports made by them. If any adjustment is to be made, it shall be made by the jurisdictional commissionerate.

There can be no estoppel against the legislature in 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,
observed that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, even in such cases, the doctrine of promissory estoppel could not be invoked.

The SC while interpreting the proviso clause of Section 174(2)(c) noted that legislature in its wisdom has specifically incorporated the proviso providing therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded and thus the appellant will not be given 100% tax exemption as provided by the earlier notification since the tax regime has changed now with introduction of GST.

The SC further noted that though the appellants may not have a claim in law, but they do have a legitimate expectation that their claim deserves due consideration. Thus, the Court permitted the appellants to make representations to the respective State Governments as well as to the GST Council.

Footnotes

1 ITA No. 1023/Del/2022

2.https://incometaxindia.gov.in/Communications/Circular/910110000000000483.htm

3 Please refer to our newsletter for the month of July – August, 2022 for a brief summary of the notification https://www.mondaq.com/india/tax-authorities/1231158/bi-monthly-tax-newsletter--july-2022-august-2022

4.https://incometaxindia.gov.in/communications/notification/notification-e-filing.pdf

5. 2022 SCC OnLine CESTAT 625

6. Service Tax Appeal No. 51165 of 2022 [SM]

7. TS-402-HC-2022(CAL)

8. 2022 LiveLaw (Del) 949

9. 2022 SCC OnLine SC 1436

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