The taxation of services provided in situations where two or more people come together to do a business is always a tricky one, both for the tax authorities and the assessee. The revenue intends that there was a provision of service by constituent member to the joint venture and there would be tax on the said transaction. The assessee on the other hand would argue that the relation with the other co-venturer is on principal to principal basis and cannot be said to be of contractor-contractee to bring into the ambit of service tax law. Before getting into the crux of the article, an important trip to the ancient wisdom on the subject issue is mandatory and accordingly we picked up certain important judgments of Supreme Court in the matter of association of persons and joint ventures.

The Supreme Court in the matter of G Murugesan and Brothers[1] has held that for forming an ‘association of persons’, the members of association must join together for the purpose of producing income. An ‘association of persons’ can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, the Court held that volition on the part of the member of the association is an essential ingredient. The mere fact that the members jointly own one or more assets and share the income does not show that they acted as an ‘association of persons’.

Read more: Taxation of Services – Joint Ventures/Joint Operation Agreements/Revenue Sharing Arrangements

In this 93^rd edition of ours, we bring you an important ruling of Mumbai ITAT in the matter of Balaji Trust which dealt with taxation of brand ‘Essar’ received as gift. The Tribunal opined that the receipt of brand ‘Essar’ is on a capital account and cannot be included in ‘income’ as per Section 2(24) to bring the same to tax under Section 56(1) of Income Tax Act. The Tribunal also ruled out the possibility of taxing such receipt under old Section 56(2)(vii), stating that brand ‘Essar’ is not an artwork. Though there are other important aspects in the Tribunal judgment, our attention was given only to the taxation part. I urge everyone to read the entire judgment along with our article.

The next article is on another important ruling in the context of penalties under Black Money Act. The Assessing Officer tried to levy penalty under Section 43 of Black Money Act on assessee, since she has failed to disclose that she was a second signatory to a foreign bank account. The assesse pleaded on bonafides and requested to set aside the penalty. The Tribunal stated that the stringent provisions of Black Money Act cannot be attributed unless there is a malafide and no penalties should be slapped for genuine bonafide issues.

The final article is on the taxation of revenue sharing arrangements under Indirect Tax laws. One of the grey areas in indirect taxation is to how the revenue sharing arrangements would be taxable. The demands were being proposed only based on Circulars issued by CBIC without going into the facts whether there exists a service provider – service receiver relationship. The said task is left to the courts and tribunals, which have come to rescue of the assessees and stated that all such transactions are on principal to principal and does not attract tax. The said aspects would catch more fire in the GST era and the CBIC has to step in to provide a detailed guidance to avoid unnecessary litigation.

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

Read more: SBS Wiki E Journal April 2022

In this edition, we bring you, the second part of the article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act.

The next article is on the changes to the existing faceless assessment scheme thereby clearing ambiguities and providing more clarity.

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

Key Topics

GST

• AMBIT OF ‘AGREEING TO OBLIGATION TO REFRAIN FROM ACT OR TOLERATE AN ACT OR TO DO AN ACT’ - PART II

DIRECT TAXES

• REPLACEMENT OF FACELESS ASSESSMENT SCHEME

Jurisdiction in ‘Work From Home’ Situations:

• In Mangala A G vs. HIL (India) Limited [Kerala HC WP(C) No. 2342/2021 26.11.2021], the question that has arisen for consideration is, what would be the jurisdiction of court in the case of employee who is working from home. The court stated that the question that now boils down to whether mere permission to work from home is sufficient to confer jurisdiction on the court, within whose jurisdiction the employee was working.
• The Court further stated that, if each person who works from home is permitted to raise their objection from his territorial jurisdiction, definitely, it may confer jurisdiction on umpteen number of Courts and may call upon the employer to face litigation in different jurisdictions.
• However, as the situation changes and telecommuting or work from home becomes a permanent feature, unlike the temporary phase that has arisen at present, wherein, as a part of contract of employment, persons who are freshly recruited are permitted to remain in different stations and work from there, with facilities being provided by the employer or where the employer pro-actively encourage the employee to improve the business there and/or provides facilities, in that jurisdiction, the situation may be different. The employer, in such cases will be free to include appropriate clause relating to jurisdiction in the contract of employment.
• In the above circumstances, the legal position seems to be very clear that, when a person is permitted to work from home merely as a concession or a convenience, place from where the person so work is not sufficient to confer any jurisdiction.

  Read more: Updates in Labour Laws

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