Income earned from providing IT services to Indian customers is taxable in India due to use of service in India: ITAT

The Income Tax Appellate Tribunal (ITAT ) Kolkata held that Income earned from providing IT services to Indian Customers is taxable in India because the service is used in india.

Assessee, Metso Outotec OYJ filed its return of income electronically and declared income of Rs.4,05,940/- and Rs.2,33,61,680/- in A.Y. 2018-19 and 2020-21 respectively. Thereafter, the case of the assessee was selected for scrutiny assessment in both the years and accordingly notice under Section 143(2) was issued and served upon the assessee.

The assessee has provided IT Services to Indian customers during the relevant financial year. During the assessment proceedings assessee contended that income from IT Services in pursuance of a Service Agreement with Outotec India Private Limited.

However, the Assessing Officer was not satisfied with the contention of the assessee and he proposed the addition.

The assessee filed objections before the Dispute Resolution Panel (DRP) and the DRP has rejected the contention of the assessee and upheld the levy of taxation on the alleged receipt for sale of IT Services as FTS.

During the proceedings before the bench KM. Gupta, counsel for assessee submitted that Assessee has no permanent establishment in India and the services were performed outside India in Finland. Therefore, these receipts in lieu of IT Services are not taxable as FTS in the hands of the assessee.

Guru Bhashyam, Counsel for the revenue supported the decision of the lower authorities.

After considering the facts submitted by both parties, the two member bench of Rajesh Kumar (Accountant Member) and Rajpal Yadav (Vice President) observed that assessee has no permanent establishment in India and these services were also rendered outside India but the services has been used in India and, therefore, it is taxable in India.

case : Metso Outotec OYJ vs Deputy Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 2254

Counsel for Appellant: Shri KM. Gupta, & Shri R. Malhotra Counsel for Respondent: Sri Guru Bhashyam

Link :  https://www.taxscan.in/income-earned-from-providing-it-services-to-indian-customers-is-taxable-in-india-due-to-use-of-service-in-india-itat/323483/

Additional Effect : TDS is a MUST in this case / Such cases by the Indian company

TDS : tax deduction at source, is a must, note the DTAA, none the less.

With Regards, Puneet Gupta and Sangeet Gupta, and all MLG Team membersIf you have doubts you can contact us … this will let you know your Risks, your clarity, your safety, what is right, and what is not right, in your kind of business situation, Contact us

Our main site is www.mlgassociates.in , and and other site is : www.mlgassociates.org,

Diwali Expenses – Allowed in Income tax or not ? ITC or not ? What is the Correct accounting SOP ?

this question comes up in accountants mind from time to time, also in minds of entrepreneurs

So, all aspects and practical aspects, covered in this circular… at your service.

 

Questions we have answered in the circular below

Can I Debit Diwali Gifts in My books ? All ok ? Will it be disallowed ? Will I get the ITC ? Will I face problem in Income tax ? E Circular.

• Do you know that if you purchase sweets for workers and pay cash to the sweetshop over Rs 10000, it will be disallowed ?
• Do you know that if you pay Bonus to workers and pay cash over Rs 10000, it will be disallowed ?
• Do you know that you can get GST modvat (ITC ) in some cases and some not.
• Do you know there is a possibility of TDS as big as 25% effective (Grossing up u/s 194R ) in case of large gifts without PAN.

for our E-Circular in Nice Presentable PDF format

IMSME ECircular –Diwali expenses GST and Income tax dt 6-11-2023

Dont worry, Laws are good, for Clarity, for safety, for standards. Just follow them properly. You can get the Income tax expense, you can get the ITC credit in some situations, you dont have to worry, if you are complying with the law properly.

With Fond regards, Puneet Gupta and Sangeet Gupta, and all MLG Team members

 

If you have doubts you can Contact us … this will let you know your Risks, your clarity, your safety, what is right, and what is not right, in your kind of business situation, Contact us

Our main site is www.mlgassociates.in

and other site is : www.mlgassociates.org,

AS-7 Construction related Contracts How to do the Costing provisions

We Created this new page to help people who face the problem of
a) Retention Money by customer
b) Long Term Contracts
c) Income and Expense does not happen in same month/Quarter or even same year.

What does the law say ? and how to Follow the correct Accounting Standard. ( AS-7)

 

This is Useful for all companies in Engineering Construction,
companies in Manufacture of Large Machines,
companies in Delivery of Larger Projects

We all know that Engineering Contract companies face this problem. They always have Retention Money coming after months or years.

How to Follow AS-7 ?

Retention Money cases…

How to make  Provision for Service Costs and Warranty Claim Costs ?

 

	Example 1
	Recognition of Contract Revenue and Expense
	purpose : Profit for this year, as per AS-7
					Project A	Project B
					Amount	Amount
	Estimated Contract Price				85,00,000	1,50,00,000
A.	Total Cost Incurred				64,99,000	64,99,000
B.	Expected Cost to be incured				32,01,000	32,01,000
			Total		97,00,000	97,00,000
C.	Percentage of Completion				67.00%	67.00%
D.	Revenue for the year				56,95,000	1,00,50,000
	( this is above percent of total contract)
E.	Less Cost incurred in current Year				64,99,000	64,99,000
F.	Profit or loss for the year				Loss Rs (-) 8,04,000	Profit Rs 35,51,000

( Example on Future loss, provision… in the excel file attached … link at the bottom of this post )

Decision in short

As per Accounting Standard AS-7, you have to accrue the loss for the financial year, as per percent of completion method

As per Accounting Standard AS-7, you have to accrue the loss future years also , during this financial year, as per percent of completion method

 

The Income tax authority is also required to allow “all expenses”
that are normal and shall be incurred
There is no requirement that it must be incurred right now

The provision for future expense is allowed

In case your buyer has already asked for and you have made the Tax invoice for any part of the Contract … ( example 100% billing done), or 50% billing done case,
if the income is already booked

there is no doubt what so ever, that all the connected expenses
both already incurred
and yet to be incurred
must be booked in the books

Please note that if you do not follow the AS-7
your Balance Sheet is not True and Fair
your Auditor Report is also incomplete without the mention of this non compliance

 

Apprehension of Unascertained Expense / Unascertained Liability will not be allowed ??

This doubt or apprehension is not correct. See the link below

Link : https://taxguru.in/income-tax/unascertained-liability-claimed-expense-estimated-mercantile-system-accounting.html

Brief of the Case Delhi High Court held In the case of M/s. Aggarwal And Modi Enterprises (Cinema Project) Co. Pvt. Ltd Vs. CIT that whether a liability is ascertained or contingent is dependent on the facts of each case. Merely because a liability may be contractual or non-statutory would not make it incapable of being ascertained. Where an Assessee follows the mercantile system of accounting it is not necessary that the liability must have actually been incurred during the AY in question to enable the Assessee to claim it as an expense or deduction as the case may be. The crux of the matter is the reasonable certainty with which the liability can be ascertained.

Read more at: https://taxguru.in/income-tax/unascertained-liability-claimed-expense-estimated-mercantile-system-accounting.html
Copyright © Taxguru.in

 

Want an Excel format to do this properly ? download from the link below

Excel link : AS-7 Construction related Contracts How to do the Costing provisions

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We Created this new page to help people who face the problem of
a) Retention Money by customer
b) Long Term Contracts
c) Income and Expense does not happen in same month/Quarter or even same year.

What does the law say ? and how to Follow the correct Accounting Standard. ( AS-7)

 

This is Useful for all companies in Engineering Construction,
companies in Manufacture of Large Machines,
companies in Delivery of Larger Projects

 

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

 

What is the Change in GST ?  vs from 1-Oct-2023 ? , what to do. ? Mix up on the social media,

If you are a  MMTO ( Multi Modal Transport Operator), a C and F, and you want to send Quotes to your customers, what do do on GST. ?  Decision of GST on the old orders, already in pipeline ?

and for the normal Manufacturer / Trader / Importer ?

Query in your mind ? What to do ?

So, You have this Question ?  Good.. means you are in active business

and want to do the right thing ? Legally right ? Good. Means you are at the right page

So Let us Start ? Idea ? Very good

Advantage and Disadvantage

What  are the Advantages for the Normal Importer .. ?

You may say … Looks Great. It is exempt… blah blah .. as the media makes it sometimes… without going into the merits

Short Answer : Double GST is gone for the Import Freight portion. from 2017 to 2023, due to the Notification 8/2017 ( details below)…. importers were being forced to pay GST on both (a) product imported on CIF value (b) Freight again on RCM… whereas Freight was included in CIF Value

for details : https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html 

read details below, if required, else skip to next section below

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Earlier, Sl. No. 9(ii) of Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017 (“the IGST Service Rate Notification”) provided that on the inter-state supply of services of “Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India” was leviable to Integrated Tax @5%.

Further, SI. No. 10 of Notification No. 10/2017-Integrated Tax (rate) dated June 28, 2017 (“the Reverse Charge Service Notification”) states that services supplied by a person located in non-taxable territory to a person located in non-taxable territory of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, is taxable under reverse charge basis.

Accordingly, the importer was liable to pay IGST on ocean freight paid on imported goods under the reverse charge mechanism (“RCM”) in terms of the Reverse Charge Service Notification and the IGST Service Rate Notification irrespective of the fact that ocean freight component having been part of CIF value of imported goods, on which Customs Duty including IGST was leviable.

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

This leads to double taxation in the hands of the importer on the same component of ocean freight. This issue was debated and litigated in the past and had divergent rulings.

This aspect was challenged before the Gujarat High Court in Mohit Minerals Pvt. Ltd. & Ors. v. Union of India & Ors. [C/SCA/726/2018 dated January 23, 2020] wherein the High Court in a batch of petitions has declared the Sl. No. 9(ii) of the IGST Service Rate Notification and SI. No. 10 of the Reverse Charge Service Notification as ultra vires to the IGST Act, as the notifications lack legislative competence. However, the Revenue Department challenged the decision of the Hon’ble Gujarat High Court before the Hon’ble Supreme Court. The Hon’ble Supreme Court, in the case of Union of India v Mohit Minerals Pvt. Ltd. [2022 (61) G.STL 25 (SC)], held that:

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

Held favourable on the following aspects: The Importer of goods will be considered the recipient as he is the ultimate beneficiary even though the shipping service is provided by the foreign shipping line to the foreign exporter in the CIF contract. The supply of services provided by the foreign shipping line to the foreign exporter in a CIF contract, would necessarily be “made” to the Indian importer who would then be considered a “recipient” under the definition of Section 2(93)(c) of the CGST Act. With regard to the validity of the said entry of the Reverse Charge Service Notification it was held that it clearly specifies a taxable person who is liable to pay a reverse charge that is envisaged in the statute. Thus, the impugned notifications in the case cannot be invalidated for an alleged failure to identify a taxable person.

Held in favour of the Taxpayers and concluded that:

The assessee is liable to pay IGST on the ‘composite supply’, comprising the supply of goods and supply of services of transportation, insurance, etc., in a CIF contract.

If there is a separate levy on the assessee for the supply of services’ by the shipping line, then, it would be in violation of Section 8 of the CGST Act and would amount to double taxation. Hence, there cannot be a separate levy of IGST on the component of ocean freight paid by the foreign exporter to the foreign shipping line in the CIF contract.

Therefore, in order to end the dispute on taxation on ocean freight in the CIF contract, the CBIC vide Notification Nos. 11/2023, 12/2023, 13/2023-Integrated Tax (Rate), all dated September 26, 2023 made the following changes:

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

Very important

The whole focus of this case, and also the amendment was towards the double GST on the Import Freight , if already in the CIF value of the import

There is no change in the GST on the Direct Import Freight

There is no change in the GST on the Direct Sea Freight, also called Ocean Freight.. paid directly to a C & F Agent , a Shipping line, or MTO ( Multi Modal Transport Operator )

What are the Disadvantages ? Did you think about “incomplete” news coverage ? The importers are arguing with their C & F agents / Shipping lines / MTO that… Ocean Freight is now “Exempt” ?????? ….

But that is NOT CORRECT.

 

You must read this before you go ahead

The whole of this Supreme Court Decision & the changes in the law are pertaining to “double tax situation in CIF only”

What if, the business is IMPORTING on FOB basis, and….. He is paying to the Shipping line seperately — whether directly, or via an agent of Shipping line or to a C & F / MMTO / Freight Forwarder ?

No Change in payment of GST if Freight Forwarder is an Indian Registered entity .. and is charging GST on ocean freight, or Rail Road, IHC etc

No Change in payment of RCM if paid to outsider

Want evidence ? see this …

Source 1 : https://taxguru.in/goods-and-service-tax/amendment-implement-50th-gst-council-decisions-notification-no-11-2023.html

Source 2 : https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html

Source 3 : https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html

Source 4: https://www.taxmanagementindia.com/web/View_discussions_detail.asp?ID=118780

Source 5 : https://taxguru.in/goods-and-service-tax/place-supply-provisions-gst.html

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Can you afford this Risk ?

The supply of services under RCM has been notified vide Notification No- 13/2017 Central Tax (Rate) dated 28-06-2017 as amended from time to time under Section 9(3) of the CGST Act. The list of services covered under this notification is very wide. Further, two additional supply of services has been notified for RCM under section 5(3) of IGST Act vide Notification No- 10/2017 Integrated Tax (Rate) dated 28-06-2017 as under-

Read more at: https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html
Copyright © Taxguru.in

First Serial number

Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.

to : –Any person located in a non-taxable territory

by : –Any person located in the taxable territory other than non-taxable online recipient.

So, the clauses 13(2) comes in picture

seperate clause 13(3) to 13(12) apply for specific cases.. and if a clause is removed, then it reverts back to 13(2) master clause

and this means that

Normal RCM applies in case of direct “foreign party” vendor

and Forward charge in case of Indian vendor

Read more at: https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html
Copyright © Taxguru.in

for risk reduction

So, again, Watch this area carefully… Do not jump to conclusions that are not true.

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

Ocean Freight is taxable or not ? GST ? RCM ? 1st October 2023 ?

What is the situation now ? GST or RCM on Ocean Freight Mohit Minerals case exempt or taxable

Note 1 : These are the comments  and suggestions as on 30th Sept 2023. ~ 6 pm. We will continue updating this as more information comes to our knowledge.

Note 2 : The views are for information dissemination only. And for benefit of society at large. Please contact your CA / Consultant first before taking any action on the same.

Tax ALERT

 

This is normal yearly Quarterly SOP. Nothing new. But sending this reminder only for ready reference.

We all know that we must pay advance tax before the financial year ends in 4 instalments: 15th June, 15th September, 15th December and 15th March.

This is not applicable if your Tax due is nil, of Tax due is less than the TDS already deducted by your customers etc.

Points to remember

1. Is this on estimate basis ? Yes, make your best estimate .
2. For September month, the amount is calculated as follows: (a) Calculate 45% of the Annual Tax payable . And reduce the Advance tax, you have already paid in the instalment of 15th June.
3. This is not applicable if your Tax due is nil, of Tax due is less than the TDS already deducted by your customers etc.
4. What will happen if you don’t pay in time ? Govt will charge a bit of interest… this is approx 1% p.a. ( for a block of 3 months, in 1 go ). And Note, that interest is “disallowed”. Hence effective interest comes to 15% p.a. And comes to 3 months at a go. So, miss the date by just 2-3 days and pay interest for full next 3 months.
5. How to pay  ? Online only.
6. Site name = either your Bank account will have a link, or
7. Official sites are : https://incometaxindia.gov.in/ and https://incometaxindia.gov.in/Pages/tax-services/pay-tax-online.aspx

Benefits of Paying Advance Tax
1. Avoidance of interest cost
2. Better cash flow management
3. Avoidance of last-minute stress in March ( end of the year )
4. Avoidance of default notice by the tax department

SO
PLS AVOID LAST DATE. and pay in time, as per normal annual SOP.

 

 

Advance tax Due date Sept 2023 – Income Tax India

Have you paid your Advance tax for FY 23-24 ( AY 24-25 ). Do you know you can pay monthly also. Yes, try it.

 

So, again, Make your company more “marketable” in Banking Industry.

A Tax paying company is of course better “loan-worthy” .  and if you pay advance taxes in time.,,. you actually end up paying lower taxes… since you save the interest costs

Start go Ahead. And Enjoy the new way of doing business.

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in