February 2020

President's Note

Dear Friends,

India is the world’s fastest-growing economy and in the next five years, it is expected to be the world’s fourth-largest economy, after Japan, with a GDP of $5 trillion from $2.7 trillion today. The country doing everything possible to make sure that its future growth is sustainable and inclusive, adjusting its policies regarding social protection and infrastructure development etc. It is hoped that there will be a dedicated execution of the policies to ensure that India achieves its cherished target of becoming a $5 trillion economy by 2024.

As China and the world grapple with the Coronavirus, the economic damage is mounting around the world. Businesses are dealing with lost revenue and disrupted supply chains due to China’s factory shutdowns with tens of millions of people remaining in lockdown in dozens of cities and foreign countries extending travel restrictions.

While coronavirus may not have impacted India directly till date the Indian economy, which is just about showing some signs of recovery, may not escape unscathed. India’s annual trade with China is approximately $90 billion–India imports goods worth $75 billion and exports goods worth $15 billion. On account of factory closures in China, supply chains will get disrupted and this could result in shortages, especially of electronic goods and medicines.
Let us hope and pray that the scourge of the Coronavirus will die down sooner than later.

In February our activities commenced with the CEO Forum Breakfast Meeting on the 3rd of February 2020. Mr. Dinesh Daga, Partner, Corporate and International Tax, PwC India and Ms. Nisha Menon, Director – Taxes, PwC India were the Speakers at the meeting which was an analysis of the Union Budget 2020-21. The Session was well appreciated by all the attendees.

As is the practice each year, we conducted the Annual Post Budget Analysis on the 6th of February 2020 immediately after the Union Budget was presented in Parliament. Mr. Homi P Ranina, eminent lawyer and Tax Consultant was the Speaker at the Session. In his address, Mr. Ranina said that the emphasis of the Budget has been on growth and development with special mention with regard to the infrastructure and agriculture sector. The Chamber has, by and large, welcomed the proposals put forward by the Government and hopes that its implementation will ensure that the desired results are achieved. The gist of Mr. Ranina’s talk is given in this issue of Newsletter for your information.

On the 26th of February, the Chamber organized a full day Session on “Decoding the Wage Code.”
Mr. Prashanth S Shivadass, Mr. Hari Prasad M S and Ms. Priyanka Yavagal from Shivadass & Shivadass (Law Chambers) Bangalore, were the Speakers at the session. The purpose of the session was to provide the participants with a brief update on the proposed changes under the Wage Code as it is important for the industry to understand the key points that the Code will impact. The programme was attended by 40 participants from various member and non member organizations.

International Women’s Day is round the corner. On March 8th we celebrate the social, economic, cultural, and political achievements of women around the world. I would like to wish all our women a very Happy Women’s Day in advance. Coincidently, at the next CEO Forum – Breakfast Meeting we have a lady Speaker, Ms. Reavthy Krishna, Executive Director/ Chief Communication Officer, Suyati Technologies, Infopark. She will be speaking on “Hiring Women and its Impact on a Company’s Bottom Line.”

There have been several updates on the Corporate Tax, Direct Tax and GST front in the Union Budget presented last month. In this regard, the Chamber is organizing a comprehensive session on these changes on the 13th of March 2020 at Hotel Park Central, Kaloor. The details of the same will be shared with you shortly. Do block this date and ensure your participation in this important programme.

I trust that you will make use of these opportunities to the fullest. Wishing you all the very best and assuring you of the Chamber’s best services at all times.

V Venugopal



Recent Events

CEO FORUM 2020 - 2nd Breakfast Meeting

Post Budget Analysis 2020-2021 | 03.02.2020

The Cochin Chamber of Commerce and Industry conducted the CEO Forum’s 2nd Breakfast Meeting on Monday, 3rd of February, 2020 at the Taj Gateway Hotel, Ernakulam.

Mr. V Venugopal, President of the Chamber, delivered the Welcome Address and introduced the Speakers for the meeting.

Mr. Dinesh Daga, Partner, Corporate and International Tax, PwC India and Ms. Nisha Menon, Director – Taxes, PwC India were the Speakers at the meeting and they presented an analysis of the Union Budget 2020-21.

Mr. Daga said that the budget aims to improve overall transport infrastructure such as railways, inland waterways, roads, highways, and airports. Infrastructure receives a boost, with 100 more airports by 2024 to support the Udaan Scheme; and operation of 150 passenger trains to be done through public-private partnership model.

It is proposed to introduce a new National Logistics Policy to augment the competitiveness of the domestic movement of goods and also intends to set up large solar power capacity alongside rail tracks on railway land. Mr. Daga added that in order to provide impetus, the RBI proposes to extend the debt restructuring window for MSMEs by a year to 31 March 2021.

To promote greater participation by foreign investors, the Government proposes to increase the investment limit for FPI to 15% of the outstanding stock of corporate bonds, he said. In the health sector, the Budget proposes more than 20,000 empanelled hospitals under the PM Jan Arogya Yojana for poor people; and expansion of Jan Aushadhi Kendra Scheme to all districts.

To provide significant relief to the individual taxpayers and to simplify the Income-Tax law, the budget proposes a new and simplified personal income tax regime, wherein income tax rates will be significantly reduced for the individual taxpayers who forego certain deductions and exemptions. He also said that to provide relief to a large class of investors, the Finance Minister has proposed to remove the Dividend Distribution Tax (DDT), and adopt the classical system of dividend taxation, under which the companies would not be required to pay DDT.

In her talk Ms. Menon said that the Union Budget 2020-21 emphasises the empowerment of the domestic manufacturing industry, to generate employment opportunities in labour intensive sectors. A simplified GST Return will be implemented from 1st April 2020 and it will make return filing simple with features like SMS based filing for nil return, return pre-filing, improved input tax credit flow, and overall simplification. The Government has proposed a plethora of measures, by imposing stringent penalties and punishments, to curb the availment of the fraudulent input tax credit. It is also proposed to levy a nominal health cess on the import of specified medical equipment to promote domestic manufacturing and to exempt certain products from the levy of customs duty, she said.

Mr. P M Veeramani, Executive Committee Member of the Chamber presented Mementos to the Speakers.

Mr. K Harikumar, Vice President of the Chamber proposed the Vote of Thanks.


Annual Post Budget Analysis - 2020-2021


Mr. Homi P Ranina, Senior Advocate and eminent Tax Expert was the Speaker at the Budget Analysis Programme. A gist of Mr. Ranina’s speech is given below.

This year’s Budget proposals have been formulated in the background of a difficult international environment, moderating growth scenario and decelerating exports. The strong linkage with international markets has imposed serious constraints on the calibration of domestic macro-economic policy instruments. Expectations from this Budget were running high in view of three disturbing trends in the economy-

  • steep fall in the rate of investments, particularly by the private sector;
  • perceptible slowdown in growth; and
  • a stressed financial system.

Attempts to decouple the Indian economy from the international environment have not succeeded, and will not. The recessionary environment globally has squeezed export demand. In this background, it has been necessary to continue austerity measures to check the fiscal deficit which has been ably done by the Finance Minister.

The fiscal deficit for 2019-20 is estimated at 3.8 % of the GDP, breaching the mandate of the Fiscal Responsibility and Budget Management Act. The next year’s deficit is projected to be 3.5% of the GDP which is estimated to be Rs. 7,96,337. However, it is doubtful whether this reduction will be accomplished next year. There is a build-up of large off-budget liabilities through food, fertilizer and oil sector subsidies.

Growth in government spending has fallen in 2019 and remains skewed towards revenue expenditure. The tax buoyancy is set to decline and remain flat in 2020-21. Public debt remains stubbornly high and the interest burden for this fiscal year will Rs.7,08,203. Defence spending, interest payments and transfer to State governments account for 60% of the total expenditure of the Central Government. With significant increase in spending on infrastructure projects, the 2020 Budget proposals will give the firepower to reignite the economy.

The corporate sector has been left untouched, apart from the reduction in tax rates announced in September, 2019; there is no reduction in surcharge as was generally expected. The only benefit given to the corporate sector is the removal of the dividend distribution tax.  Hence, companies from the financial year 2020-21 will declare a higher amount of dividend for shareholders and pass on the benefit of abolition of the dividend distribution tax.  This is expected to give a boost to share prices when financial results are declared from May this year.

Shareholders will also stand to gain.  Foreign investors will be able to claim credit for the tax which is paid in India; under section 194, tax will be deducted at source when dividends are paid.  In order to remove the cascading effect, a holding company will get deduction of the dividend received from its subsidiary, so that the holding company does not again have to pay tax on the dividend received from the subsidiary.

The shareholder or unit holder receiving dividends from companies or mutual funds will also stand to gain if he has borrowed money to buy the shares or units, because he will be entitled to claim a deduction of the interest paid on the money borrowed under section 57 of the Income-tax Act.  However, the deduction of interest will be limited to 20% of the amount of dividend from shares or income from units.

As far as individuals are concerned, a new personal income-tax regime is being introduced whereby the current tax rates and slabs of income are rationalized.  At present, the first slab of Rs.2.5 lakhs does not attract any tax; the next slab of Rs.2.5 lakhs to Rs.5 lakhs will continue to be taxable at the rate of 5% as at present.  For the current year ending on 31st March, 2020, income between Rs.5 lakhs and Rs.10 lakhs is taxable at the flat rate of 20%.  Under the new scheme, this slab is broken into two parts and income between Rs.5 lakhs and Rs.7.5 lakhs will be taxed at the rate of 10%, and income between Rs.7.5 lakhs and Rs.10 lakhs will be taxable at the rate of 15%.

Therefore, under the new scheme, the 20% rate will be applicable only in respect of income exceeding Rs.10 lakhs.  This will result in tax savings for the middle class tax payers.  Income between Rs.10 lakhs and Rs.12.5 lakhs will be taxable at the rate of 20% and income between Rs.12.5 lakhs and Rs.15 lakhs will be taxable at the rate of 25%.  The maximum marginal rate of 30% will from the next financial year be applicable only to income in excess of Rs.15 lakhs, whereas for the current financial year this maximum rate is applicable to income earned in excess of Rs.10 lakhs.

The new tax regime applicable from 1st April, 2020 is optional.  The reason is that the lower tax rates will apply only if the tax payer does not claim any deductions from his taxable income.  Such person can continue to be governed by the existing tax structure if he wishes to continue claiming the deductions and exemptions.  Therefore, those who are availing of the standard deduction from salary, exemption of certain allowances, or claiming deduction under section 80-C for certain investments like in provident fund, bank deposits, etc. may find it beneficial to pay tax under the existing scheme rather than opt for the new tax regime.

In short, the new tax regime will be beneficial for senior citizens and others who in any case are not claiming the deductions and exemptions which are available to salaried employees.  Even businessmen who do not claim deductions, where they have not made any investments qualifying under section 80-C, would find the new tax regime attractive.  To illustrate, if a person earning Rs.15 lakhs in a financial year and not eligible to claim any deductions will get a tax advantage of Rs.78,000 if he opts for the new scheme.

Non-resident Indians will be liable to pay tax in India on their foreign income if they spend more than 120 days in India during a financial year.  They will continue to get exemption from Indian taxes in respect of income earned outside India so long as they are residents of a foreign country.  Only those Indian citizens, who are not residents of any foreign country, would be deemed to be resident in India and would be liable to tax on their world income.  This proposed change is in conformity with recent international trends.  Persons in the Gulf who are resident in those countries will not be liable to tax in India because technically they are liable to tax under the laws of those countries though tax is not payable by them in view of exemptions granted.

If a resident Indian remits an amount of Rs.7 lakhs or more from the next financial year for any purpose under the liberalized remittance scheme, tax will be collected at source at the rate of 5% by the bank remitting the funds. However, he will get credit for such tax from his taxable income  The main purpose of this amendment is to gather information pertaining to persons who have remitted the funds and track the income earned thereon.

Start-ups in India will be entitled to the 100% tax exemption for three out of the initial ten years even if their turnover reaches Rs.100 crore as against Rs.25 crore at present. Taxability of Employees’ Stock Option Plans is sought to be rationalized by making the perquisite liable to tax only in the year in which the employee resigns from his company or sells his shares, or within five years of exercising his option.

Assessments and appeals will now be conducted in a faceless manner so that the scope for corruption is eliminated as the tax payer will not know which officer of the tax department is handling his assessment or appeal proceedings.  A Tax Payer’s Charter is to be introduced to set out the rights and duties of tax payers as well as tax officers.

A voluntary compliance scheme is proposed to be introduced which is meant for reducing direct tax litigation.  Tax payers in whose case appeals are pending at any level would be eligible to take benefit of the scheme which would require them to pay only the amount of the disputed tax.  If this is done by 31st March, 2020, there would be complete waiver of interest and penalty.  If the payment is made by 30th June, 2020, an additional amount of 10% of the disputed tax would need to be paid.  Where the pending litigation is for disputed penalty or interest, the tax payer would be required to pay only 25% of the same by 31st March, 2020 for settling the dispute, or 30% of such disputed penalty if payment is made by 30th June, 2020.

This budget removes structural bottlenecks which have been hampering investments.  It has given the right focus on moving towards the new world economy based on innovations in the fields of artificial intelligence, data storage, quantum computing, 3-D printing and internet-of-Things.  It has laid the foundation for setting up data centre parks throughout the country.  For the first time, the budget proposals have given an impetus to knowledge driven enterprises and intellectual property creation.  Knowledge translation clusters will be set up across different technology sectors, giving emphasis to quantum technology which is opening up new frontiers in computing, communications and cyber security.

The budget proposals should stimulate demand and raise the level of capital formation which has fallen by 6 percentage points over the last eight years. If the expenditure programmes are put through with dedication and commitment, it will have the desired result of putting India on the growth path.  India is on the brink of entering into the league of developed nations. Setting up of world class infrastructure by 2023 will help the country to leapfrog to a higher growth trajectory. Apart from triggering a higher rate of growth, this Budget is meant to propel India into the New World economy which will put the country in the top three amongst the developed nations by 2030.


One day Seminar on "Decoding the Wage Code"


The Cochin Chamber of Commerce and Industry organised a session on Decoding the Wage Code on 26th February 2020 at Hotel Park Central, Kaloor.

Mr. Prashanth S Shivadass, Advocate & Founder, Shivadass & Shivadass (Law Chambers), Mr. Hari Prasad M S, Advocate, Shivadass & Shivadass (Law Chambers), Ms. Priyanka Yavagal, Shivadass & Shivadass (Law Chambers) were the Speakers at the session.

Commencing the Session, Mr. Shivadass said that it is important for businesses everywhere to comprehend the key points that the Code will affect. Having brought together past enactments under a single umbrella, the Code has extended the meaning of employer as well as employee, resulting in a broad-based applicability of the guidelines and is currently pertinent to representatives in both the organised and unorganised sectors.

The definition of wages now has three parts to it- an inclusion part, specified exclusions, and conditions that limit the quantum of exclusions. The definition includes basic pay, dearness allowance and retaining allowance. It explicitly avoids components such as statutory bonus, value of house accommodation and utilities (light, water, medical, etc.), employer contribution to provident fund/ pension, conveyance allowance/traveling concession, sum paid to defray special work expenses, house rent allowance, remuneration payable under settlement, overtime allowance, commission, gratuity and retrenchment compensation.

Mr. Hari Prasad, when he spoke, said that the Central Government will set the national floor rate for wages after considering the minimum living standards of workers varying across geographical areas; where existing minimum wages are higher than the floor wages, the same shall be retained. State Governments will fix the minimum wages for their region which can’t be lower than the national floor rate for compensation.

Ms. Yavagal, in her Session, said that the provisions for identifying the equivalent compensation recommends that no separation is allowed based on the gender of the said workers. All workers whose wages do not surpass a particular month to month add up (to be advised by the Central or State Government) will be qualified for an annual bonus. Bonus is payable on higher of the lowest pay permitted by law or the pay roof fixed by the appropriate Government for the payment of bonus.

The Code provides for the appropriate Government to appoint Inspectors-cum-Facilitators (in the place of Inspectors), to carry out inspections. Such Inspectors-cum-Facilitators may advise employers and employees for better compliance. This has been done to remove the arbitrariness and malpractices in the inspection. The quantum of penalties specified under the code is also significantly high which varies depending on the nature of the offence, she said.

The session was attended by 40 participants from various organisations.



Achievements of our members'


Chairman and Managing Director of Amalgam Foods, Mr. A J Tharakan was awarded the First National Lifetime Achievement Award for Seafood from the Government of India, for his contribution to the Indian Seafood Industry by the Marine Products Export Development Authority, Ministry of Commerce, Government of India. The award was presented to Mr. A J Tharakan, by Shri. Som Prakash,  Hon’ble Union Minister of State for Commerce & Industry, Government of India, in the presence of Mrs. Mercykuttiamma, Hon’ble Minister of Fisheries & Ports, Government of Kerala. 


The Global Footprint of Data Protection

Priyanka Yavagal - Advocate Shivadass & Shivadass (Law Chambers)

The world is virtually undergoing its fourth industrial revolution that is largely driven by the convergence of digital innovations. In the wake of the data security breaches due to poor implementation or complete absence of security controls, largely by private companies as well as government organizations, personal data processing has become a top priority on many government agendas around the world. This article is a timely contribution to our understanding of the existing approaches to data protection in European Union (EU), China, and the United States.

In India, the Right to Privacy was recently recognized as a fundamental right, under Article 21 of the Constitution of India by way of a Supreme Court judgement in Justice K.S. Puttaswamy (Retd.) v. Union of India. India is now in the process of putting together a single – comprehensive, piece of legislation for data privacy, titled “Personal Data Protection Bill, 2019” (PDPB). An overview of the PDPB with a focus on the key aspects of the bill was examined by us in the previous issue of this Newsletter. This Article simply lists and compares data protection laws across major jurisdictions which will include EU, US and China.


The European Union, at the forefront of global data protection norms has recently enacted the European Union General Data Protection Regulation (EU GDPR) which came into effect from 25 May 2018. This replaces the Data Protection Directive of 1995. It is a comprehensive legal framework that deals with all kinds of processing of personal data while delineating rights and obligations of parties in detail. It is both technology and sector-agnostic and lays down the fundamental norms to protect the privacy of Europeans, in all its facets.

A gist of the EU GDPR has been examined below:

Upon the enactment of the PDPB in India, the question as to its enforceability, like any other law, will arise. The existing Information Technology Rules which govern many aspects of data protection and privacy, currently faces this issue as it has been abysmally unenforced. The current mechanism for enforcement of PDPB, is rather uncertain even as on this date.

Therefore, the EU’s GDPR may play a vital role here. Companies that operate in Europe, or which have customers in Europe, will have to abide by the GDPR. Indian companies that have branch offices or employees in Europe are also affected along with companies that want to provide back-office data processing services to European companies.

The GDPR generally prohibits the transfer of data from the EU to companies that are head quartered outside the EU. However, an exception will be made under the GDPR if such non-EU Countries (under their legislations) adequately provide for certification of such data. It is a high bar and currently only a handful of countries have been certified. The Indian government and industry have unsuccessfully lobbied for years to get India accredited under the existing regulations, but with GDPR thigs will be more difficult. In this regard, the Supreme Court ruling that privacy is a fundamental right will help, but a lot more needs to be done. A comprehensive data protection and privacy law with real enforcement mechanisms would benefit Indians in more ways than one.


The United States follows a laissez-faire approach and does not have an omnibus data protection framework. Given the inherent limitations in common law and constitutional protections, the US Congress has enacted several federal laws designed to provide statutory protections of individuals personal information. The scheme in the US is a patchwork of federal laws that govern companies’ data protection practices, rather than a single comprehensive law like the EU or other Countries.

These laws vary significantly in their objective and scope. Data protection obligations are mostly imposed on specific industry participants such as financial institutions, health care entities, and communications common carriers or specific types of data, such as children’s data. Other laws, however, supplement the Constitution’s limited privacy protections and apply similar principles to private entities. For instance, the Stored Communications Act generally prohibits the unauthorized access or disclosure of certain electronic communications stored by internet service providers. Some Laws also prohibit broad categories of conduct that, while not confined to data protection, limit how companies may handle personal data. Most notably, the Federal Trade Commission Act, prohibits unfair or deceptive acts or practices.


China too has multiple laws and regulations covering data protection. They provide individual protections such as requiring consent, protection of sensitive information, and limitation on use of data. These laws also highlight the state’s interest in knowing and controlling individual’s speech and activities on the Internet. A new Cybersecurity Law that took effect on May 1, 2017 forbids people from using information networks to violate the privacy of others, using illegal methods in acquiring personal information, and using their positions of access to acquire, leak, sell or share personal information. The law has also created confusion for foreign businesses by requiring providers of critical information infrastructure (CII) to store personal information and other important data on mainland China. The exact definitions of what constitutes a CII provider and what is important data remain unclear.

The contents and comments of this document do not necessarily reflect the views/position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s). For any further queries or follow up, please contact admin@sdlaw.co.in.

Tax and Regulatory Updates from PricewaterhouseCoopers

Direct Tax

ITR 1 and ITR 4 Forms for FY 2019-20 notified

The Central Board of Direct Taxes has notified new ITR 1 (Sahaj) and ITR 4 (Sugam) Forms for financial year (FY) 2019-20 which shall come into effect from 1 April 2020. The detailed instructions and utility are yet to be notified. The key changes are summarized below:

Details of changes in the notified ITR Forms relevant for individuals are as follows:

In addition to the above, the following additional details are required to be provided in ITR 4 (Sugam):

PwC comments: The changes reflect the continuing journey of the Government towards simplification and automation. It has already begun providing prefilled return Forms and these detailed disclosures will help capture the complete details of taxpayers and the validation of their financial information wherever such information is available from more than one source. Spouses usually own house property jointly, and such taxpayers will no longer be able to use Form ITR 1. They will now need to use other Forms; however, one may expect that these other Forms too will become simpler. Taxpayers should note these changes, use the right Form and ensure that they provide complete and accurate details when filing returns. This will help quickly process the returns and avoid questioning by tax authorities.

CBDT prescribes modes of electronic payment for section 269SU of the Income-tax Act, 1961

Section 269SU of the Income-tax Act, 1961 (the Act) provides that every person carrying on business and having total sales/ turnover/ gross receipts exceeding INR 500m in the immediate preceding year is required to provide facility for accepting payments in prescribed electronic modes in addition to any other facility of electronic mode being provided by him/ her.

The Central Board of Direct Taxes (CBDT), vide its notification has inserted Rule 119AA in the Income-tax Rules, 1962, with effect from 1 January 2020, to prescribe the following modes of payment for the purpose of section 269SU of the Act:

  • Debit Card powered by RuPay
  • Unified Payments Interface (UPI) (BHIM-UPI)
  • Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code)

The above are in addition to the facility for other electronic modes already being provided by such person. The Finance (No. 2) Act, 2019 also inserted section 271DB of the Act to provide for levy of penalty on failure to comply with provisions of section 269SU of the Act. Further, CBDT, vide its circular has expressed its view that such penalty under section 271DB of the Act shall not be levied where aforesaid electronic modes are installed and operationalized up to 31 January 2020. In case of failure, the person shall be liable to pay penalty of INR 5,000 per day from 1 February 2020 onwards.

Further, necessary amendments have been made under the Payment and Settlement Systems Act, 2007 to provide that no charge, including Merchant Discount Rates (MDR), shall be levied by banks on payments made through prescribed electronic modes from 1 January 2020 onwards.

PwC comments: Post insertion of section 269SU of the Act, companies were looking forward to knowing the prescribed modes of payments. Also, a clarification was being sought specifically for MDR charges. The notification and circular through light on both these aspects. The notification prescribes and includes various methods of payment that are required to be installed by the specified persons to encourage digital and a less-cash economy. The waiver of any fee/ charges by the bank envisages the motive to encourage every person to comply with the provisions.

Tribunal holds that capital gains arising under section 46A of the Act, on buyback of shares, not exempt under section 47(iv) of the Act

The Bangalore bench of the Income-tax Appellate Tribunal (Tribunal), in the case of the taxpayer, analysed the taxability of buyback of shares in the hands of shareholders. The Tribunal held that exemption under section 47(iv) of the Income-tax Act, 1961 (Act) is not available in cases of buyback of shares that are taxable under section 46A of the Act. Further, even otherwise, exemption under section 47(iv) of the Act is not available where one company or its nominees do not hold the entire shareholding.

PwC comments: Tribunal stressed that to be covered within the purview of section 47(iv) of the Act, strict compliance of the conditions prescribed in that section is required.

Compensation received in lieu of flat given to developer under development agreement taxed as “capital gains” and not “income from other sources”

Recently, the Mumbai bench of the Income-tax Appellate Tribunal (Tribunal) pronounced that compensation received by the taxpayer for handing over the old flat under a development agreement, is integrally connected with the transfer of the old flat to the developer for development. Hence, it is to be taxed as income under the head “capital gains” instead of “income from other sources”

PwC comments: This decision re-emphasizes the principle that compensation received by flat owners in exchange for a new flat under the scheme of redevelopment should be taxable under the head “capital gains” and not as “income from other sources.” In this case, given that the compensation paid by the developer is treated as an amount paid in connection with the transfer of the old flat, one may need to evaluate the withholding tax implications under section 194-IA of the Act, in the hands of the developer. However, the Tribunal is silent on whether the compensation received towards hardship or displacement should be treated as capital receipt, given that the co-ordinate bench has also confirmed this view in the past.

Transfer Pricing

Tribunal accepts operating profit/ value added expense as the profit level indicator for a freight forwarder

Recently, the Mumbai bench of the Income-tax Appellate Tribunal (Tribunal) in the case of the taxpayer, accepted operating profit (OP)/ value added expenses (VAE) [OP/ VAE = Berry Ratio – 1] as the profit level indicator (PLI) by treating the amounts paid by a freight forwarder to third-party service providers (airliners/ ship-liners/ transporters) as pass through, for benchmarking its international transactions pertaining to its freight forwarding segment. The Mumbai bench of the Tribunal disregarded the arguments of the revenue authorities that the element of freight could be considered as pass through only if no profit element or markup is earned on the same. It upheld the taxpayer’s contention that to characterize a particular item as pass through, an analysis of the functions, assets and risks (FAR) of the taxpayer qua such activity is necessary.

Key issues before the Tribunal

  • Whether the costs incurred by a freight forwarding company towards availing services from third-party airlines/ ship liners/ transporters could be regarded as pass through in nature, and consequently, OP/ VAE could be used as the PLI to benchmark its international transactions pertaining to its freight forwarding segment (applying the Transactional Net Margin Method as the most appropriate method)?
  • Whether the transfer pricing (TP) adjustment should be calculated using the total costs debited in the books of the taxpayer or only on the operating costs attributable to activities undertaken by the taxpayer?

Tribunal’s ruling

Acceptance of OP/ VAE as against OP/ total cost as the PLI

  • To characterize a particular item as pass through in nature, an analysis of the FAR of the taxpayer qua such activity is necessary.
  • There is no FAR performed/ assumed by the taxpayer for services availed from third parties, i.e., carrier (airlines/ shipping lines), clearing and forwarding agents, transport service providers, etc.
  • The net margin realized by the taxpayer pursuant to its international transactions with its associated enterprises is to be determined only with reference to the costs incurred by the taxpayer for its activities and on not on the costs incurred by third parties/ by the taxpayer on behalf of third parties.
  • The taxpayer was merely acting as an intermediary and had effectively delegated the FAR of third-party costs (liner/ transportation cost, etc.) to a third party through contracts/ agreements.
  • Based on the above, the Mumbai bench of the Tribunal upheld the use of OP/ VAE as PLI for benchmarking the results of the taxpayer.

Other issues before the Tribunal

  • The TP adjustment (if any) should be restricted only to the extent of the international transactions entered into by the taxpayer.
  • Selecting functionally comparable companies from the public domain, which were not listed in the search process would not tantamount to cherry picking.
  • The taxpayer cannot be barred in law to subsequently argue for the exclusion of its own comparables, i.e., comparables selected by the taxpayer in its TP Study Report.
  • Companies owning significant assets such as vehicles, warehousing infrastructure, etc., cannot be compared with a freight forwarding company, which is “asset light.”

PwC comments: The Mumbai bench of the Tribunal examined the modus operandi of the taxpayer/ the industry and made a careful examination of various transaction scenarios and the underlying documentation submitted substantiating the actual conduct of the taxpayer. The Tribunal ruled that the taxpayer cannot be expected to earn a markup on payments made to third-party carriers owing to the absence of FAR qua such activities. The FAR analysis is the backbone of the TP analysis, and is thus, the basis of determining fair remuneration to the transacting parties. The Mumbai bench of the Tribunal has endorsed the principle by distinguishing the activities/ FAR/ return between (a) actual transportation and (b) facilitation of transportation. Treating an element of cost as “pass through” has been a contentious issue in the TP world and the verdict has upheld FAR documentation as the basis for determining the same. Interestingly, while this ruling has been pronounced for the freight forwarding business, the principles can be equally applied across scenarios, wherever no FAR is performed/ assumed on a given element of cost, although it may include a profit element/ markup.

Guidance Note on section 92E of the Income-tax Act, 1961 revised by the ICAI

The Institute of Chartered Accountants of India (ICAI) has endeavored to provide effective guidance to its members in discharging their reporting responsibility effectively. The recent revision (seventh edition) has made some notable amendments to the guidance note by taking cognizance of the evolving transfer pricing (TP) law and the related developments. The revised guidance note elaborates on the roles and responsibilities of the Accountant/ Company in the preparation and issuance of the accountant’s report in Form No. 3CEB, illustrating the applicability of TP methods, seeking guidance/ taking cognizance of global TP guidelines (e.g. Organization for Economic Cooperation and Development, United Nation – TP Manual). Thus, it provides a comprehensive guidance to ensure the effective discharge of the issuance function by the Accountant. Please click here to access the revised guidance note


The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016 – Amended

Recently, the Insolvency and Bankruptcy Board of India (IBBI/ Board) has amended the Insolvency and Bankruptcy Board of India (Liq­uidation Process) Regulations, 2016 (Liquidation Process Regulations).

The IBBI vide a recent notification has amended the Liquidation Process Regulations covering the following key amendments:

Compromise or arrangement (Regulation 2B)

  • The amendments prescribe that “a person who is not eligible under the Insolvency and Bankruptcy Code, 2016 (Code) to submit a resolution plan for insolvency of the corporate debtor, shall not be a party in any manner to a compromise or arrangement of the corporate debtor as stated under section 230 of the Companies Act, 2013.
  • Pursuant to this amendment, persons who are not eligible to be resolution applicants in the Corporate Insolvency Resolution Process can now not even propose a compromise or arrangement to acquire the corporate debtor or any of its assets under liquidation.

Sale of the asset by secured creditor (Regulation 37)

Similar to the restriction imposed under Regulation 2B, an asset cannot be sold or transferred by a secured creditor, to any person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor.

Security interest (Regulation 21A)

  • A secured creditor, who proceeds to realise its security interest, shall contribute its share of the insolvency resolution process cost, liquidation process cost and workmen’s dues, within 90 days of the liquidation commencement date.
  • The secured creditors shall also pay to the liquidator the excess of realised value of the asset, which is subject to security interest, over the amount of its claims admitted, within 180 days of the liquidation commencement date.
  • When the secured creditor fails to comply with the aforesaid requirements, the asset shall become a part of the liquidation estate.

Corporate Liquidation Account (Regulation 46)

  • The Board shall operate and maintain a “Corporate Liquidation Account”
  • A Liquidator shall deposit the amounts of unclaimed dividends, if any, and undistributed proceeds, if any, in a liquidation process, along with any income earned thereon into this account before an application is submitted for dissolution of the corporate debtor.
  • Any amount deposited into this account, which remains unclaimed or undistributed for a period of 15 years from the order of dissolution of the corporate debtor, shall be transferred to the consolidated fund of India.

PwC Comments: These amendments provide much needed clarity on the liquidation process and the manner in which the liquidators will deal with the liquidation cases.

Indirect Tax

Government mandates companies and importers to review imports under “Others” category

Recently, a business newspaper carried out the statement of the Commerce and Industry Minister, Mr. Piyush Goyal, about the Government scrutinizing import transactions in greater detail, where goods have been declared under the “Others” category although appropriate classification under specific tariff entry is available. It was indicated that imports under the “Others” category create an unsystematic classification of goods globally, besides resulting in incorrect duty payment. To address the issue, it was also mentioned that the Government may consider introduction of a separate tariff entry/ sub-category for the goods that are not covered under any of the existing tariff entries. In this regard, it was also mentioned that a timeline of 30 days may be prescribed for importers to seek clarification regarding specific tariff entry from the office of the Director General of Foreign Trade (DGFT).

In line with the recent news, the DGFT has now issued a Trade Notice reiterating that correct tariff entry at the eight-digit level should be used. In case of continued non-compliance on account of misclassification of the goods in the “Others” category, the Government may place all such goods under restricted category and impose licensing requirements. Therefore, the DGFT has advised the importers to seek clarification regarding classification/specific tariff entry on a need-basis.

Previously in October 2019, on the same issue, a Trade Notice was issued by the DGFT, stating that the use of “Others” category for import and export in an inaccurate manner may attract penal consequences under the Foreign Trade (Development & Regulation) Act, 1992.

Given the proposed measures, the following aspects merit consideration

Who should be concerned?

  • Companies importing/ classifying most of its goods under the “Others” category.
  • Importers paying lesser duty rate or availing exemptions by classifying products under the “Others” category, in case where specific tariff entry with higher duty rate may be applicable.

What you need to do?

  • Identify imported goods currently being classified under the “Others” category.
  • Validate the classification and substantiate with supporting documents such as technical literature, brochure, opinion from technical expert, and write-up on the functions and capabilities of the product.
  • Review the classification position of the company after the introduction of GST vis-à-vis past practice.
  • Examine if the classification-related declarations are being made by the Customs Broker after proper deliberation and consultation with the company representative based on functions and specifications.
  • Evaluate the necessity to represent before the DGFT for clarification on applicable tariff entry.

Gujarat High Court quashes the levy of Service Tax and GST on ocean freight under reverse charge on importers


The Central Government in 2017 had imposed service tax on a reverse charge basis on ocean freight incurred by an importer. This tax was payable (on a nominal basis) even if the importer did not directly pay the ocean freight charges to the shipping company/ freight forwarder. This proposition was continued into the GST regime as well.

The importers challenged the levy before the Gujarat High Court by inter alia arguing that there was:

  • A notional computation mechanism introduced to arrive at the freight cost in the hands of the importer
  • Double taxation on the value of freight (since it was taxed as a part of customs duty)
  • No legislative empowerment to introduce the tax in this form

The High Court dealt with the various writs in two separate judgements and examined the legality of this levy on ocean freight under the Finance Act, 1994 (Finance Act), The Central Goods and Service Tax Act, 2017 (CGST Act) and Integrated Goods and Service Tax Act, 2017 (IGST Act), mainly on the test of legislative competence. The observations made by the Gujarat High Court have been summarized below:

High Court’s decision

Service Tax

  • Ocean freight is paid by overseas suppliers to the shipping line. There is no contract or arrangement between the importer and the shipping lines for sea transportation, which was rendered and consumed outside the taxable territory. There was no power conferred upon the Central Government under section 94 of the Finance Act for charging and collecting tax on such extra-territorial activities.
  • Sections 68(1) and (2) or section 94 of the Finance Act permit the Central Government to collect tax only from a person providing the service or from a person receiving the service, and not from a third party, namely importers, who are neither service providers nor service recipients in respect of ocean freight.
  • Charging provisions for levy of tax must be strictly interpreted and should satisfy the burden of legislative competence. The impugned provisions of the Service Tax Rules, 1994 and levy of tax vide the reverse charge notification, are therefore ultra vires of the charging provisions contained in sections 64, 66B, 67 and 94 of the Finance Act.
  • Even assuming that such competence was available, it would still fail to be collected in the absence of machinery provisions to arrive at the taxable value of the services rendered to the importer.


  • Section 5(3) by the IGST Act, which deals with the discharge of tax by the recipient under reverse charge on supplies, does not include a person who is not the recipient of supply. The importer, when not being the recipient of ocean freight services, cannot be made liable to pay tax under the IGST Act.
  • Ocean freight services provided by a person in a non-taxable territory to another person in a non-taxable territory is neither an inter-state supply nor an intra-state supply. Such service is not covered under the scope of the IGST Act, and therefore, cannot be taxed without the authority of law.
  • The entire supply has taken place outside the taxable territory, i.e. outside India, as both the service provider and service recipient are located outside India. The IGST Act does not sanction extra territorial jurisdiction, and the mere fact that the transportation of goods terminates in India does not mean that the supply has taken place in India.
  • The value of a service is determined as a price actually paid or payable, and the importer, being neither the recipient nor the supplier, cannot correctly arrive at a taxable value to discharge tax. The levy of tax thus also fails in the absence of corresponding machinery provisions.
  • IGST cannot be imposed on the same freight amount by treating it as a supply of service since freight also suffers IGST as a part of the assessable value of imported goods. This is necessary to avoid the vice of double taxation.
  • The notification, being subordinate legislations, which act as to deem the importer to be liable to pay tax under reverse charge are ultra vires the provisions of the IGST Act. Consequently, imposition of IGST on ocean freight and deeming the importer as the person liable to pay tax are unconstitutional, given that there is no statutory sanction for levy and collection of such tax.

PwC Comments: The issues addressed and positively decided by the Gujarat High Court are also pending before other High Courts, on account of similar writs filed. Consequently, this may serve as a generic indicator of judicial outlook on the said writs. It remains to be seen if the Government appeals against the said ruling before the Supreme Court. The decisions also validate the position espoused by the industry in the said writs; as a result, there is a possibility that they may seek remedial measures for the tax paid for the past periods, especially in situations where input tax credit was not available.

Jharkhand High Court holds action to recover ITC cannot be taken against a bona fide purchaser due to seller’s default in paying VAT dues


The petitioner paid Value Added Tax (VAT) on certain purchases and claimed input tax credit (ITC) on the same. During scrutiny of the seller’s returns, the said transactions did not appear in the systemic reports, and it was discovered that the seller had not deposited the tax into the Government treasury. Thereafter, the Assessing Authority disallowed the ITC claim and imposed interest on the petitioner. Aggrieved by the order passed by the Assessing Authority, a writ petition was filed against the rejection of ITC in the hands of bona fide dealers that challenged the vires of section 18(8)(vii) of the Jharkhand Value Added Tax Act, 2005 (JVAT Act), which allowed conjoint recovery of ITC availed from purchaser and seller if tax on the transaction was unpaid by the seller.:

High Court’s decision

  • The petitioner had duly paid the VAT charged by the seller and acted in a bona fide manner.
  • The failure to file returns and not deposit tax on time was admittedly on the part of the selling dealer; also, the selling dealer was willing to pay the tax with interest, but was unable to do so, as the online VAT account was closed.
  • There is no mechanism under the JVAT Act by which the petitioner could compel the seller, nor was it within its competency to compel the seller, to file the returns within the stipulated time and deposit the tax collected into the Government treasury.
  • It’s improper that punitive action was taken against the petitioner, only for the reason that the JVAT Act provided for such action against both the dealers, when the authorities were already satisfied from the documents produced by the petitioner, that it was the selling dealer who had defaulted in filing its return or depositing the tax collected from the petitioner in the Government treasury.
  • The legislative intent cannot be to punish the purchaser acting in a bona fide manner. Therefore, availability of the alternative remedy cannot be treated as a bar for maintaining the writ petition.
  • The order issued by the Assistant Commissioner was quashed and was directed to refund the amount recovered from the petitioner, without entertaining the question on the vires of the provisions under the JVAT Act.

PwC Comments: This ruling follows a trend established by the Delhi High Court in Arise India Limited, which was about similar provisions under the Delhi Value Added Tax Act, 2004. Subsequently, the Supreme Court in appeal had declined to interfere with the Delhi High Court’s decision. While the above rulings are in the context of VAT, the underlying issue persists into the GST regime where the Calcutta High Court in the case of LGW Industries Limited had recently issued notice in a writ petition, challenging the denial of ITC to a buyer for non-payment of GST by the seller to the Government under section 16(2) of the Central Goods and Services Tax Act, 2017. It will be interesting to see the outcome of this case, considering the said precedents under the VAT regime.

Exemption from excise duty under incentive scheme does not automatically cover other types of duty or cess imposed by different legislations


The issue emerged from a new industrial policy introduced by the Government of India (GoI) on 17 February 2003, whereby fiscal incentives were made available to the industrial units set up in the State of Sikkim for 10 years from the date of commencement of production. The GoI, vide notification dated 9 September 2003, granted an exemption from excise duty on goods manufactured by such units.

A manufacturer of mouth fresheners who were availing this exemption contended that the exemption from excise duty would also extend to other excise duties such as the National Calamity Contingent Duty, education cess (EC) and secondary and higher education cess, as introduced by the Finance Acts of 2001, 2004 and 2007 (respectively), under its ambit.:

Supreme Court’s decision

  • The Supreme Court held that this issue was squarely covered by its coordinate bench judgment in the case of Modi Rubber Limited.
  • In the Modi Rubber Limited decision, it was held that the exemption notification applicable to a “duty of excise” did not bear an extended meaning to include special excise duty and auxiliary excise duty. The reason applied was that it is presumed that when the GoI issues a notification granting an exemption from payment of excise duty, (a) it would have considered whether the exemption should be granted and to what extent, and (b) it would be with reference to the duty of excise which was then leviable, and not a duty to be imposed in future.
  • The Supreme Court, in the case of Modi Rubber Limited, strongly repelled the argument that exemption notification would cover the duties [similar to excise] to be imposed in the future and not prevailing at the relevant time when the exemption notification was issued.
  • The circular dated 10 August 2004 stating that if goods are fully exempted from excise or customs duty, there is no collection of duty, thus no education cess would be leviable was issued by a customs officer and not the Central Board of Excise and Customs (CBEC). Further, the circular dated 8 April 2011 had been issued by the CBEC in the context of service tax. On this basis, both the beneficial circulars relied on by the applicant were ignored by the Supreme Court in its decision.
  • The rationale of the division bench of the Supreme Court in the case of SRD Nutrients Private Limited that additional duty cannot be charged where excise duty is nil was unacceptable, as computationally, there is no difficulty in the calculation of additional duties, simply because one kind of duty is exempted.
  • Since additional duty can always be determined and merely because an exemption has been granted in respect of a particular duty, it cannot come in the way of determination of another duty.
  • The decision in the case of SRD Nutrients Private Limited was therefore in ignorance of an existing and binding precedent (Modi Rubbers Limited) and was held to be per incuriam.

PwC Comments: This decision of the Supreme Court unsettles a position adopted by the industry that an exemption from excise duty should also apply to cess in such a fact pattern. It also raises question on the objective and implications of “incentive based” exemptions availed by the industry. The ruling provides an impetus to the Revenue to demand cess for taxpayers who were hitherto relying upon the decision in the cases of SRD Nutrients and Bajaj Auto. Due to this, since the industry had largely placed.


From the Research Wing....


1. The Chamber submitted a representation to the Parliamentary Joint Committee on the Personal Data Protection Bill, 2019.

2. The Chamber is preparing a representation to be submitted to the Union Labour Ministry to assist in the implementation of various policies under the Santusht implementation monitoring effort.

Policy Developments Corner

1. The Union Budget 2020-21 was tabled in the Parliament on 1st February 2020. The Budget documents are available at https://www.indiabudget.gov.in/ . the Budget summary is available at https://pib.gov.in/newsite/PrintRelease.aspx?relid=197837

2. The Kerala Budget 2020-21 was tabled in the Legislative Assembly on 7th February 2020. The Budget documents are available at http://www.finance.kerala.gov.in/bdgtDcs.jsp .

3. The Ministry of Corporate Affairs has invited public comments on the Draft Competition (Amendment) Bill, 2020. The deadline is 6th March 2020 (Notice date 20th Feb, 2020) Submission link : http://feedapp.mca.gov.in/

4. The Central Board of Indirect Taxes and Customs has invited comments on Concept paper on Faceless e-Assessment for imported goods. Deadline: 3rd March 2020 . Contact id: dircus@nic.in or uscus4.dor@gov.in

5. The Ministry of Corporate Affairs has invited opinions for formulating a National Action Plan on Business and Human Rights (NAP). The deadline is 10th March 2020. Contact id: csrcell@mca.gov.in

Publications of the Chamber!!

Chamber’s Souvenir commemorating 162 years of its Journey

1st Edition of the Chamber Voice – Print Version of the Newsletter

Pre-Budget Memorandum submitted to the Kerala State Finance Minster

Representation on Rebuild Kerala

Pre-Budget Memorandum submitted to the Union Finance Minster

Exclusive EXIM Statistics

Consolidated Annual Reports 2019 – Exports

All Commodities

Consolidated Annual Reports 2019 – Imports

All Commodities

Monthly Import Book

Monthly Exports – Coffee

Monthly Exports – Cotton

Monthly Exports – Spices

Monthly Exports – Cashew

Monthly Exports – Seafood

Monthly Exports – Tea

Monthly Exports – Coir Products

Monthly Exports – Miscellaneous

Contact the Chamber Secretariat to purchase any of these publications.

0484-2668650; 2668349

cochinchamber@bsnl.in; events@cochinchamber.org

Forthcoming Events

CEO FORUM 2020 - 3rd Breakfast Meeting

Hiring Women and its Impact on a Company's Bottom Line | 06.03.2020

The Third Breakfast Meeting of the 5th Edition of the CEO FORUM will be held on Friday, the 6th of March, 2020 at Taj Gateway Hotel, Marine Drive, Ernakulam from 8.00 a.m. to 10.00 a.m.

The meeting will be followed by a Networking Breakfast.

In connection with the International Women’s Day later that week, the Session will be on “Hiring Women & its Impact on a Company’s Bottom Line”.

The Speaker for the Session is Ms. Revathi Krishna, Executive Director and Chief Communication Officer, Suyati Technologies, Infopark, Cochin.

Click here to register

Highlights & Updates

PAN Card Not Linked with Aadhaar will become inoperative after 31st March – Income Tax Department

The Income Tax Department has said that any Permanent Account Number (PAN) card that is not linked with Aadhaar will become inoperative by after March 31, 2020. This comes after the IT Department issued fresh deadline for linking of PAN with Aadhaar.

As per  reports, as many as 17 crores + Aadhaar cards still need to be linked with PAN. The report adds that till January 27, 2020, over 30 crores PANs have been linked to Aadhaar.

“Where a person, who has been allotted the permanent account number as on July 1, 2017, and is required to intimate his Aadhaar number under sub-section (2) of section 139AA, has failed to intimate the same on or before March 31, 2020, the permanent account number of such person shall become inoperative immediately after the said date for the purposes of furnishing, intimating or quoting under the Act,” the Central Board of Direct Taxes (CBDT) said.

As per  reports, as many as 17 crores + Aadhaar cards still need to be linked with PAN. The report adds that till January 27, 2020, over 30 crores PANs have been linked to Aadhaar.

“Where a person, who has been allotted the permanent account number as on July 1, 2017 and is required to intimate his Aadhaar number under sub-section (2) of section 139AA, has failed to intimate the same on or before March 31, 2020, the permanent account number of such person shall become inoperative immediately after the said date for the purposes of furnishing, intimating or quoting under the Act,” the Central Board of Direct Taxes (CBDT) said.

The once who fail to link their PAN with Aadhaar before 31 March 2020 will come under the Income Tax Department’s scrutiny eyes. Also, they will be liable for charges under the I-T Act for not adhering to the national laws.

The linking of the two cards becomes necessary post the Supreme Court September 2018 judgment that upheld the validity of the Aadhaar Card and said that it would be mandatory for filing of income tax returns and allotment of PAN cards.


Exclusive EXIM Statistics

Statistical Reports on Exports and Imports through the Cochin Port.

The Cochin Chamber of Commerce and Industry publishes statistical reports on Exports and Imports through the Cochin Port on a monthly basis followed by a Consolidated Annual Report at the end of each calendar year. The reports on exports are classified as commodity wise and pertain to the following commodities:

  • Coffee
  • Tea
  • Spices
  • Cashews
  • Cotton Goods
  • Seafood and
  • Coir and coir products

Details on all other commodities that do not fall under the above-mentioned heads are carried as the ‘Miscellaneous Report’. Customized reports will also be available according to customers requirement.

We have several members in the export/import fraternity subscribing to these reports on a monthly basis and from the feedback received they are immensely benefited by the same.

We are confident that our reports will be of help to your Company in staying one step ahead of your competitors in business. A sample of the report is attached herewith for your reference. Also attached is the ‘Subscription Form’ to enable you to subscribe to the report should you want to do so.

Should you have any queries please feel free to contact Ms. Archana (7025738447).

For more details, visit Export-Import Statistics

Sample Reports