TIOL-DDT 2754
30 12 2015
Wednesday

THIS was a question answered recently by the Authority for Advance Rulings.

The question posed was:

"The Advance Ruling is being sought with respect to the levy of service tax on the proposed car lease scheme (of providing vehicles to employees) under Section 66B of the Finance Act, 1994, i.e. whether the scheme proposed to be introduced by the Applicant would be regarded as a ‘service' under the Finance Act, 1994 and thus, being subject to service tax."

The Scheme: Under the scheme, the applicant (employer) was to provide vehicles to its employees during the employment. The applicant was to hire the cars from the car leasing companies and under the scheme those cars would be made available to such employees who are firstly continuing to be the employees of the applicant and secondly who accept the option to have the car for their personal as well as official use and in lieu of this, the company was to charge the said employees the same amount which the applicant would be paying to the car leasing company from whom they hire the car.

Taxability: It is an admitted position that the service which is provided by the car leasing company to the applicant is being taxed under the regime of the service tax. There is no dispute over this. The question posed is as to whether the amount which the applicant charges to its employees for this use of the vehicles is subject to service tax.

Section 65B(44) (b) reads as:-

Service means "any activity carried out by a person, for another person for consideration, and includes a declared service, but shall not include a provision of service by an employee to the employer in the course of or in relation to his employment."

The Authority for Advance Rulings noted that the above definition stipulates two conditions for the exception:-

1. in the course of employment.

2. in relation to employment.

The AAR noted that there can be no dispute that the service of "making available" a car to the employee is being rendered by the applicant.

The AAR found that,both the conditions in clause (b) of Section 65B (44)are fulfilled. Firstly, it is in the course of the employment because the agreement between the applicant and employee clearly suggests that this will be during the course of his employment only. Second condition is also satisfied that it is only because the employee is in service and in that sense the service becomes in relation to his employment.

Since, both these conditions are fulfilled, the Authority had no doubts that this will not amount to ‘service'.

The Departmental representative made a plea that this task of ‘making available' a car for personal and official use as well would invite the service tax.

The AAR did not agree with this contention. In its opinion, whether the car given for official use, for personal use or use for both will not be making any difference.

Isn't the exception under Section 65B(44)(b) for service provided by an employee to the employer? Does it cover the service provided by the employer to the employee?

But why should an employer get a car on lease and give it to its employee and then collect the same lease charges from the employee? Well, that's not a Service Tax problem, it's an Income Tax problem.

Netizens may remember, recently the DGCEI had issued a Modus Operandi Circular that the forfeiture of the security deposit by the employee when leaving his job, would amount to providing service by the employer and is taxable. Please see DDT 2740- 08 12 2015

Please see 2015-TIOL-12-ARA-ST

Income Tax - Questionnaire in cases selected for scrutiny

INSTANCES have come to the notice of the CBDT that in cases selected under scrutiny, while issuing the first notice, Assessing Officers do not convey the specific compliance requirements like production of accounts, furnishing of documents, information, evidences, submission of other requisite particulars etc. Since the taxpayers or their authorized representatives are required to comply with the statutory notice issued by the Assessing Officer, they remain clueless about the information required to be submitted and their appearance before the Assessing Officer does not serve any fruitful purpose except recording of their presence. This causes undue hardship to the taxpayers and unnecessary wastage of their time.

So, the CBDT directs that in cases selected for scrutiny, it should be the endeavour of the Assessing Officer that the initial notice issued under section 143(2) of the Income-tax Act, 1961 is accompanied by a notice under section 142(1) along with the questionnaire containing details of specific documents/information/evidences etc. that are required to be furnished by the taxpayer in connection with scrutiny assessment proceeding in their respective case.

The Board emphasizes that all the Assessing Officers are required to comply with the above directions. Please note that the Board only suggests that it should be the endeavour of the Assessing Officer, not a mandatory requirement.

CBDT Instruction No. 19/2015., Dated: December 29, 2015

Income Tax - Assessment - scrutiny in cases selected through CASS - CBDT Instructions

TWO types of cases have been selected for scrutiny in the current Financial Year under Computer Aided Scrutiny Selection (CASS-2015).

One is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act').

The procedure for handling 'Limited Scrutiny' cases shall be:

a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned.

b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues.

c. These cases shall be completed expeditiously in a limited number of hearings.

d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).

The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice.

Board directs:

a. The Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same.

b. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice.

It is a little surprising that the Board should teach the Assessing Officers, principles of natural justice! A Commissioner who gave an order without hearing observed, "even after a hearing, I would have passed the same order."

CBDT Instruction No. 20/2015., Dated: December 29, 2015

Until Tomorrow with more DDT

Have a nice day.

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