How to Incorporate / Register Limited Liability Partnership (LLP) in India

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CA Chirag Chauhan

Step wise Registration Process for Limited Liability Partnership (LLP)

Recently most entrepreneurs have started opting for Limited Liability Partnership, considering it has most positive features of Partnership and Companies. It is hybrid form which incorporates benefits of both partnership and companies. It has the following features:

The liability of each partner is limited to the contribution mention in agreement.
The cost of formation is limited.
Less restriction and compliance.
Separate Legal Entity

Following is Step wise Registration process for incorporation of Limited Liability Partnership (LLP)

Step 1) Obtain Designated Identification Number (DIN)

Every individual intending to be appointed as designated partner of a limited liability partnership has to make an application for allotment of Director Identification Number. MCA has vide its notification amended the limited liability partnership rules, 2009. Now instead of DPIN, everypartner who will be appointed as designated partner , will need to apply for DIN and not DPIN.

There is a fixed fee of Rs 100 for this eForm and it can only be paid through online mode (credit card/ internet banking). There shall be no requirement for physical submission of the documents at the DIN cell. All the necessary documents shall need to be scanned and attached in the eForm and submitted online.

While filing DIN form ensure following:

Single alphabet is not allowed in field 'first name' and 'last name'.
Prefixes like Mr. / Ms. / Kumari / Shri etc. are not acceptable.
The name should be filled exactly as given in the identity proof, including the spelling.
It is mandatory to attach photograph giving front view of the full face of the applicant.
Income tax PAN is mandatory for Indian nationals. Applicant's name (first, middle and last name), applicant father's name (first, middle and last name) and date of birth should be as per the income-tax PAN details.
Passport number is mandatory for foreign nationals.
Proof of Identity of applicant – In case of Indian nationals, Income-tax PAN is a mandatory requirement for proof of identity. In case of foreign nationals, passport is a mandatory requirement for proof of identity.
Proof of residence of applicant – Address proofs like passport, election (voter identity) card, ration card, driving license, electricity bill, telephone bill or bank account statement shall be attached and should be in the name of applicant only.
In case of Indian applicant, documents should not be older than 2 months from the date of filing of the form
In case of foreign applicant, address proof should not be older than 1 year from the date of filing of the eForm.
Affidavit need to made by the applicant as per Annexure – 1 of the DIN Rules on Stamp paper which shall be notarized
DIN application needs to be by signed professional

Submit the application form online. The system will generate a provisional DIN.

Step 2) Register Digital Signature of Designated Partner

Partner/Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency. Register Digital Signature of Designated Partner on the website of Ministry of Corporate Affairs. Fill in the registration form. Fields marked * in the form are to be mandatorily filled. Upload digital signature certificate. On successful registration, system will give a message that you have been registered successfully.

Step 3) Filing of Form 1 for Name Availability

Free name search facility (of existing companies / LLPs) is available on MCA portal. The system will provide the list of similar/closely resembling names of existing companies/LLPs based on the search criteria filled up. Download and fill Form-1 for reservation of name and fill in the details. Select name of the proposed LLP (upto 6 choices can be indicated). State the significance of the key or coined word in the proposed name in brief

Enter the details of the applicant. Select whether applicant is an 'Individual as partner' or 'Nominee of a body corporate'. Enter DIN of the applicant. DIN should be an approved DIN. On clicking the Pre-Fill button, system will automatically display the name, present residential address, phone, mobile, fax and e-mail ID of the applicant. Any partner or designated partner in the proposed LLP may submit Form-1.

In case the Designated Partner is nominee of a body corporate, select the type of body corporate. Enter the corporate identity number (CIN) or foreign company registration number (FCRN) or Limited Liability Partnership Identification number (LLPIN) or Foreign Limited Liability Partnership Identification number (FLLPIN) or any other identification number, as applicable.

Details of minimum two designated partners of the proposed LLP, one of them must be a resident of India, is required to be filled in the application for reservation of name. Only individuals or nominees on behalf of the bodies corporate as partners can act as designated partners.

Ensure that correct details have been provided as the same shall be automatically pre-filled in Form 2 for incorporation of LLP. Append digital signatures and submit the e-form. Pay the necessary fee of Rs 200/- by credit card (master/visa).

Once the name is reserved by the Registrar, log on to the portal and fill up Form-2

Step 4) Filing of Form 2 for Incorporation and Subscription Document

Mention Total Number of Partners and Designated Partners. Fill up details of same. Enter the amount of proposed monetary value of partner's contribution in figures and system will automatically display the amount in words. Attach details in respect of names of partners/ nominees/ witnesses and their signatures in the format as Subscribers' sheet attachment. Attach proof of register office address of LLP. An individual has to give prior consent to become a designated partner and LLP to file consent in format prescribed. Select the state and office of registrar in which registered office of the proposed LLP is to be situated.

In case the name includes banking, insurance, venture capital, mutual fund, stock exchange, Chartered Accountant, Company Secretary, Cost Accountant, Advocate, CA, CS, CWA, asset management, non banking financial, architect, merchant bankers, chit fund, securitization and reconstruction etc, a copy of the in-principle approval of the regulatory authority or council governing concerned profession should be attached with Form 2

Pay the prescribed registration fee as per LLP Rules, based on the total monetary value of contribution of partners in the proposed LLP

On submission of complete documents the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act will register the LLP and will issue a certificate of incorporation

Step 5) Drafting of LLP Agreement

LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days. Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft LLP agreement with professional help.

The following clauses are important to be incorporated in agreement:

Name, Object and Register Office of LLP
The initial Contribution of the LLP by Partners
Methodology of valuation of Non Monetary contribution
The net profits or losses sharing ratios
Detail of Designated Partners
Interest payable on Capital Loan prescribed u/s. 40(b) of the Income-tax Act, 1961
Remuneration payable to the working partners or as prescribed u/s. 40(b) of the Income-tax Act, 1961
Mode of operation of Bank Accounts
Maintenance of Book of Accounts
Appointment of arbitrator
Rights and Duties of Partners
Rights and Duties of Designated Partners
Indemnity clause
Goodwill clause
Procedure for change in name
Procedure to appoint Auditor
Admission of New Partner
Meeting
Cessation of Existing Partners
Winding up of LLP
Amendments of LLP
Extent of Liability of LLP
Liability of Partners in LLP
Ancillary or other business carried over by LLP

Step 6) Filing of Form 3 – LLP Agreement

The LLP agreement has to be uploaded. Once it gets approved all the formalities for registration gets completed.

For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor. Author do not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.

Immediate Compliance for Companies under Companies Act 2013–Part 2

Posted In Company Law | Articles | 5 Comments »

Companies Act, 2013 is out. Companies have to fulfill the requirements stated therein. Few provisions have already been published which can be found at:

Immediate Compliance for Companies under Companies Act, 2013 – PART 1

Some more provisions are stated hereunder:

1. Appointment of Company Secretary: Now, only a Public Limited Company whose paid up capital is more than 10 Crores needs to appoint whole time Company Secretary.

2. The company has to prepare its annual return in Form MGT 7.

3. The annual return, filed by a listed company or a company having paid up share capital of ten crores or more or turnover of fifty crore rupees or more shall be certified by a Company Secretary in practice and the same shall be in Form MGT8.

4. The extract of the annual return to be attached with the Board's report shall be in Form MGT 9.

5. Borrowings can be only from directors. If the same is taken from any other person, then the same will be treated as deposits

6. Unsecured loan can be taken from promoters only of any stipulation is imposed by the Financial Institution or Bank

7. Section 185 of companies act prohibits loan to Directors.

8. As per section 177, Audit Committee and as per section 178 Remuneration Committee and Nomination Committee is required to be constituted in case of Public Companies having paid up capital of Rs. 10 crores or more or the companies having turnover more than Rs. 100 crores or more or having outstanding loans/debentures/deposit exceeding Rs. 50 crores or more.

9. The companies having profit more than Rs. 5 crores, net worth of Rs. 500 crores or more, or turnover of Rs. 1000 crore or more in any of the end of Financial Year, the company is required to incur expenses on Corporate Social Responsibility.

10. Every Listed Company and a public company having paid up share capital of Rs. 100 crores or more or turnover of Rs. 300 crores need to appoint a Woman Director.

11. Every Listed company and a public company having paid up share capital of ten crore rupees or more or turnover of one hundred crores or more or have in aggregate, outstanding loans, debentures and deposits, exceeding fifty crores needs to appoint Independent Director on the board.

12. Unlisted public companies having paid up share capital of Rs. 10 crores or more or private companies having paid up share capital of Rs. 20 crores or more or all companies having paid up share capital of below threshold limited as specified above but having public borrowings need to retire their auditors as per time period specified in the act in this behalf.

Author: Sagar Gupta, Email: casgrgupta@gmail.com

Tax dues couldn't be recovered from director if AO didn't make any efforts to recover it from company

April 17, 2014[2014] 43 taxmann.com 420 (Gujarat)

IT : Provisions of section 179 can be invoked when any tax due from private company cannot be recovered from such company and, therefore, where Assessing Officer did not make any efforts for recovery of tax dues from company, question of inquiring with petitioner as a director of company to pay up said amount would not arise

IT : Applicability of section 179 cannot be ruled out merely on ground that director was a technical director of company having no involvement in day to day affairs of company

IT : Assessing Officer could not ask petitioner to pay amount of tax due from company in his capacity of director under section 179 without considering petitioner's objection that said company having crossed maximum threshold turnover limit, had become a deemed public company

New Companies Act 'draconian', feel auditors; officials if found guilty of fraud then liable to pay 3 times of amount involved

By Shubham Batra, ET Bureau | 18 Apr, 2014, 04.04AM IST

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IT : Applicability of section 179 cannot be ruled out merely on ground that director was a technical director of company having no involvement in day to day affairs of company

■■■

[2014] 43 taxmann.com 420 (Gujarat)

HIGH COURT OF GUJARAT

Suresh Narain Bhatnagar

Income Tax Officer*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NO. 18008 OF 2005

FEBRUARY 19, 2014

Section 179 of the Income-tax Act, 1961 - Company in liquidation - Liabilities of directors (Conditions precedent) - Assessment years 1996-97 to 1999-2000 and 2001-02 - Whether provisions of section 179 can be invoked when any tax due from private company cannot be recovered from such company and, therefore, where Assessing Officer did not make any efforts for recovery of tax dues from company, question of inquiring with petitioner as a director of company to pay up said amount, would not arise - Held, yes [Para 5] [In favour of assessee]

Section 179 of the Income-tax Act, 1961 - Company in liquidation - Liabilities of directors (Conditions precedent) - Assessment year 2000-01 - Whether applicability of section 179 cannot be ruled out merely on ground that director was a technical director of company having no involvement in day to day affairs of company - Held, yes - Petitioner was a director of 'S' Ltd. - For relevant assessment year, Assessing Officer issued a notice to petitioner asking him that in view of failure of 'S' Ltd. to pay tax demand, why he should not be held personally liable for such recovery under section 179 - Petitioner raised an objection to applicability of section 179 contending that 'S' Ltd. having crossed maximum threshold turnover limit and also by virtue of 25 per cent of its share capital being held by another company, had become a deemed public company - Assessing Officer, without dealing with said contention held petitioner liable to pay tax demand in question personally - Whether since Assessing Officer did not examine merits of objection raised by petitioner, impugned order passed by him was not sustainable - Held, yes [Para 7] [In favour of assessee]

FACTS

■		The petitioner was a director of 'S' Ltd.. For the assessment year 2000-01, the Assessing Officer passed order of assessment, raising tax demand. Five more separate orders of assessment were also passed in case of the same company for the assessment years 1996-1997 to 1999-2000 and 2001-2002 raising different tax demands.
■		On 22.3.2004, the Income Tax officer issued a notice to the assessee indicating that a tax demand of the said company for the assessment year 2000-2001 was still outstanding. He was the director of the company during the relevant period. He was asked to show cause why he should not be held personally liable for such recovery under section 179.
■		The petitioner submitted his replies contending that he was merely a technical director of the company having no involvement in day to day affairs of the company and, thus, provisions of section 179 would not apply to him. He further submitted that he had already resigned from 'S' Ltd. in year 1996 itself.
■		Another major objection raised by petitioner was that by virtue of section 43A of the Companies Act, 1956, since the company's turnover had crossed the threshold limit, the company would be a deemed public company.
■		The Assessing Officer rejected the objections raised by the assessee and held him liable to pay tax demand in terms of section 179.
■		On writ:

HELD

■

From a perusal of documents on record, following facts emerge :

(1)		Notice under section 179(1) was issued only for recovery of tax due pertaining to assessment year 2000-2001.
(2)		Without any further notice, the final order under section 179 was passed for recovery of dues of the company for all the years from 1996-1997 to 2001-2002. [Para 4]

■		The recovery demand therefore, for the assessment years1996-1997 to 1999-2000 and 2001-2002 must fail on two counts. Firstly, there was no notice for recovery of such amounts. More importantly, the only notice of show cause which was issued was dated 22.3.2004. The assessment orders of the said assessment years were passed on 27.2.2004. Thus within less than a month of passing of the assessment orders, the notice came to be issued.
■		The first requirement of application of section 179 is that any tax due from a private company cannot be recovered from such company. When the Assessing Officer had and could not have made any efforts for recovery of such tax dues, question of inquiring with the petitioner as a director of the company to pay up the same amount or else be held liable under section 179, would not arise. [Para 5]
■		The inquiry therefore, regarding the impugned order of the Assessing Officer would be confined to the demand for the assessment year 2000-2001.In this context one is unable to hold that the petitioner having already resigned from the position of a director in the year 1996, could no longer be held responsible under section 179. The undisputed facts which have come on record are that in the year 2003, the petitioner signed the return of the company as its director. In the year 2004, the petitioner filed appeals against the orders of assessment passed by the Assessing Officer for the assessment year 1995-1996 and onwards. Thus, even if one believes that the petitioner had tendered his resignation as a director, he continued to act as one. Neither the company nor the petitioner acted on such resignation. [Para 6]
■		The crucial question however, is of the status of the company. As noted, the petitioner time and again contended before the Assessing Officer that the company had ceased to be a private company by virtue of provisions of section 43A of the Companies Act, 1956 the company having crossed the maximum threshold turnover limit and also by virtue of 25 per cent of its share capital being held by another company.
■		It was open for the Assessing Officer to inquire into these aspects. The question raised by the petitioner was a mixed question of fact and law. If the facts as asserted by the petitioner were established, the legal implications flowing thereof must follow. The Assessing Officer however, brushed aside this contention and held that whatever be the status of the company for the purpose of the Companies Act, section179 would continue to apply.
■		It was not a case of the Assessing Officer that the facts asserted by the petitioner were not correct or that for any other reason, the company had not become a deemed public company under section 46A of the Companies Act. [Para 7]
■		Under the circumstances on this count, the petition is required to be allowed. However, it may be clarified that the petitioner's contention that merely being a technical director, section 179 would not apply to him cannot be accepted. Further, the view of the Assessing Officer is acceptable that duty is cast on the directors to establish that non-recovery was not due to any gross neglect, misfeasance or breach of duty on his part and in the present case, he produced no material to establish such facts. Nevertheless, when section 179 itself does not apply, question of seeking any recovery personally from the director would not arise. [Para 9]
■		In the result, impugned order is quashed. [Para 10]

CASES REFERRED TO

Bhagwandas J. Patel v. Dy. CIT [1999] 238 ITR 127 (Guj.) (para 5) and M. Rajamoni Amma v. Dy. CIT [1992] 195 ITR 873 (SC) (para 7).

Manish J. Shah for the Petitioner. K.M. Parikh for the Respondent.

JUDGMENT

Akil Kureshi, J. - The petitioner had challenged an order dated 3.1.2005 passed by the Income Tax officer under section 179 of the Income Tax Act, 1961 ("the said Act" for short).

2. Brief facts are as under:

'2.1 The petitioner was a director of one M/s. Sirs Engineering Private Limited ("the company" for short). For the assessment year 2000-2001, the Assessing Officer passed order of assessment on 28.3.2003, raising tax demand of Rs.40,99,967/-. With penalty, it came to Rs.41,09,967/-. Five more separate orders of assessment dated 27.2.2004 were also passed in case of the same company for the assessment year 1996-1997 to 1999-2000 and 2001-2002 raising different tax demands.

2.2 On 22.3.2004, the Income Tax officer issued a notice to the petitioner indicating that a tax demand of the said company of Rs. 41,11,967/- for the assessment year 2000-2001 was still outstanding. He was the director of the company during the relevant period. He was asked to show cause why he should not be held personally liable for such recovery under section 179 of the said Act.

2.3 The petitioner filed several replies to said notice. In his first reply dated 30.3.2004, he conveyed that records of the company were lost; that he himself was suffering from heart problem. During the assessment years 2002-2003, he was totally immobile and was not able to attend any of the meetings or day to day business of the company. He was therefore, not responsible for negligence, misfeasance or breach of duty in connection with the affairs of the company. Yet another reply came to be filed on 28.9.2004 in which he contended that he was only supplying technical support to the company. He was rendering such service for various other companies. He was never engaged in the day to day business of the company. In yet another reply dated 13.10.2004, he contended that he had already resigned from the company on 25.2.1996. He also contended that by virtue of section 43-A of the Companies Act, 1956, since the company's turn over had crossed the threshold limit, the company would be a deemed public company. In his further reply dated 26.10.2004, he reiterated this aspect and stated thus :

"Further by the virtue of the provisions of section 43A of the company's act Sirs Engineering Pvt. Ltd. has became a public company by crossing the turnover criterion and the same has also been certified by the assessment order passed for the AY 1996-97."

2.4 In his further reply which is produced at Annexure-L, he elaborated the question of company having become a deemed public company and contended as under :

"(c) I am advised by my Chartered Accountant that this company falls in category of deemed Public Limited in view of its turnover being more than Rs.1 crores as estimated by the Department under section 144 of the IT Act, therefore section relating to personal liability of Director does not arise in this case if the assessment of income is correct by the department. This issue has been raised by me in my first submission itself. A copy of the said section 43A of the companies Act is attached herewith."

2.5 In his last reply dated 1.1.2005, he once again asserted that :

"5. Further it has also brought to the notice of the learned ITO that u/s. 43A of the company's act states that where one of the share holder of the company is a body corporate holding more than 25% of its paid up capital it should be treated as public limited company. I have also provided the copy of annual return for the FY 94-95 along with the copy of shareholders register, which I could found from the factory premises of the company after so many efforts. They are provided along with the letter dated 30.12.2004, which is also enclosed herewith."'

3. The Assessing Officer passed his impugned order dated 3.1.2005. Regarding the petitioner's resignation, he observed that he had signed and verified the return of the income of the company for the assessment year 2001-2002 on 23.3.2003. He had also filed appeals before the Commissioner(Appeals) for the assessment year 1996-1997 to 2001-2002 which prove that he continued to be the director of the company even after submission of his resignation.

3.1 With respect to his involvement in the company, the Income Tax officer held that he failed to prove that non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to affairs of the company. His contention that he was only a technical director was negated observing that section 179 includes every person who is a director of a private company and the onus is on such director to prove non-negligence, non-misfeasance or non-breach of duty on his part. In the present case, the petitioner failed to produce any evidence to prove such facts.

3.2 With respect to the status of the company being a deemed public company, the Assessing Officer observed as under :

"Another argument raised by him is M/s. Sirs Engg. Pvt. Ltd. is a deemed public company under 43A of the Companies Act, 1956, in view of its turnover being more than Rs.1 crore as estimated by the department in the assessment order. The section 179 specifically overrides the provisions of the Companies Act, 1956. The section 179 deals with only private limited companies. Hence this contention is not tenable."

4. Having heard learned counsel for the parties and having perused the documents on record, following facts emerge :

(1)		Notice under section 179(1) of the Act was issued only for recovery of tax due pertaining to assessment year 2000-2001.
(2)		Without any further notice, the final order under section 179 was passed for recovery of dues of the company for all the years from 1996-1997 to 2001-2002.

5. The recovery demand therefore, for the assessment years 1996-1997 to 1999-2000 and 2001-2002 must fail on two counts. Firstly, there was no notice for recovery of such amounts. More importantly, the only notice of show cause which was issued was dated 22.3.2004. The assessment orders of the said assessment years were passed on 27.2.2004. Thus within less than a month of passing of the assessment orders, the notice came to be issued. The first requirement of application of section 179 is that any tax due from a private company cannot be recovered from such company. When obviously thus Assessing Officer had and could not have made any efforts for recovery of such tax dues, question of inquiring with the petitioner as a director of the company to pay up the same amount or else be held liable under section 179 of the Act, would not arise. In case of Bhagwandas J. Patel v.Dy. CIT [1999] 238 ITR 127 (Guj.), the Court had held that before recovery in respect of dues from the private company can be initiated against the directors, it is necessary for the Revenue to establish that such recovery cannot be made against the company and then and then alone it can reach the directors who were responsible for conduct of the business during the previous year in relation to which liability existed.

6. Our inquiry therefore, regarding the impugned order of Assessing Officer would be confined to the demands for the assessment years 2000-2001. In this context we are unable to hold that the petitioner having already resigned from the position of a director in the year 1996, could no longer be held responsible under section 179 of the Act. The undisputed facts which have come on record are that in the year 2003, the petitioner signed the returned of the company as its director. In the year 2004, the petitioner filed appeals against the orders of assessment passed by the Assessing Officer for the assessment years 1995-1996 and onwards. Thus, even if we believe that the petitioner had tendered his resignation as a director, he continued to act as one. Neither the company nor the petitioner acted on such resignation.

7. The crucial question however, is of the status of the company. As noted, the petitioner time and again contended before the Assessing Officer that the company had ceased to be a private company by virtue of provisions of section 43-A of the Companies Act, the company having crossed the maximum threshold turnover limit and also by virtue of 25% of its share capital being held by another company, had become a deemed public company. It was open for the Assessing Officer to inquire into these aspects. The question raised by the petitioner was a mixed question of fact and law. If the facts as asserted by the petitioner were established, the legal implications flowing thereof must follow. The Assessing Officer however, brushed aside this contention and held that whatever be the status of the company for the purpose of the Companies Act, section 179 of the Income Tax Act would continue to apply. It was not a case of the Assessing Officer that the facts asserted by the petitioner were not correct or that for any other reason, the company had not become a deemed public company under section 46-A of the Companies Act, 1956. This being the position, the decision of the Supreme Court in case of M. Rajamoni Amma v. Dy. CIT [1992] 195 ITR 873, would apply. In the said decision, it was held and observed as under :

"Before us, learned counsel for the appellants relied upon the above communication from the Registrar of Companies but since the genuineness of this letter was doubted we issued notice to the Registrar of Companies, Kerala. An affidavit has now been filed on behalf of the Registrar. It clearly shows that the company had become a public limited company by virtue of Section 43-A of the Companies Act w.e.f. 1st October, 1975. As already mentioned, the arrears sought to be recovered from the appellants relate to the assessment years 1977-78 to 1982-83. Obviously, the Company being a public limited company, proceedings against the directors for recovery of the tax due from the company cannot be taken, and certainly not proceeded with, under Sec 179 of the Income Tax Act, 1961. We need hardly say Article 265 of the Constitution clearly prohibits any attempt to recover taxes except under the authority of law. It is, therefore, clear that further proceedings against the appellants for recovery of the tax due from the company have to be stayed."

8. Learned counsel for the Revenue however, contended that in a given case, if a private company is a closely held company, it would still be open for the Revenue to contend that despite being converted into a deemed public company by virtue of operation of statute, section 179 would apply. Such are not the facts here raised by the Revenue. In absence of any such foundation, we would not answer such a question in this petition.

9. Under the circumstances on this count, the petition is required to be allowed. We may briefly state that we are not influenced by the petitioner's contention that merely being a technical director, section 179 of the Act would not apply to him. We are also broadly in agreement with the view of the Assessing Officer that duty is cast on the directors to establish that non-recovery was not due to any gross neglect, misfeasance or breach of duty on his part and in the present case, he produced no material to establish such facts. Nevertheless, when section 179 of the Act itself does not apply, question of seeking any recovery personally from the director would not arise.

10. In the result, impugned order dated 3.1.2005 is quashed. Rule made absolute. Petition is disposed of.

S. 234E: High Court issues notice on challenge to notices for levy of fee for failure to file TDS statement. Recovery of fee is subject to outcome of Petition

S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day's delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Jodhpur Bench of the Rajasthan High Court. Vide an order dated 15.04.2014 the High Court has directed that notice should be issued to the CBDT and the UOI as to why the Petition should not be accepted. It has also been held that in the meanwhile, if any recovery is made from the Petitioner, that shall be subject to the final decision of the Writ Petition.

ST - in case of Mandap Keeper Services, catering service is incidental and ancillary and, therefore, charges for catering services would be includable in taxable value of Mandap keeper Services: CESTAT

By TIOL News Service

MUMBAI, APR 18, 2014: THE appellantis registered with the department under the category of 'Mandap Keeper Service'.

While rendering 'Mandap Keeper Services' they were also providing catering services. However, they split the charges received for the services rendered into two parts; one towards 'hall charges' for the temporary usage of the banquet hall for conducting the functions and the other for supply of food. They discharged service tax liability on the 'hall charges' collected from the customers. However, they did not pay service tax on the food charges collected from the customers. It was their contention that, as regards supply of food, the transaction is one of sale and therefore, no service tax is leviable. They also claimed that food is exempt from sales tax.

Two show cause notices were issued to the appellant for the period 2005-06 to 2009-10 and 01/04/2010 to 30/09/2011 and demanding ST of Rs.1.11 crores and Rs.44.15 lakhs respectively. There is also another demand contained in the first SCN of service tax towards renting of immovable property to the extent of Rs.1,76,197/-.

As the demands were confirmed by the CCE, Nagpur with penalties etc. the appellant is before the CESTAT.

It is submitted that as they charge separately for the catering done and on which they are discharging VAT liability and sale of food is not rendering of any service the said activity does not attract service tax liability. Reliance is placed on the decision in Daspalla Hotels Ltd. vs. Commissioner of Central Excise, Visakhapatnam 2010-TIOL-219-CESTAT-BANG and the decision of the High Court of Karnataka in the case of Sky Gourmet Catering Pvt. Ltd. .It is also submitted that in respect of another unit of the appellant the Jt. Commissioner of Central Excise had accepted this contention dropped the demand to the said extent; that the entire transaction was known to the department and hence the demand is hit by limitation; that there is an error in computation of the duty demand raised in the second SCN and hence the matter needs to be remanded.

The Revenue representative submitted that that the issue involved is covered by the decision of the Supreme Court in the case of Tamil Nadu KalyanaMandapam Assn. vs. Union of India 2004-TIOL-36-SC-ST wherein it was held that service tax on catering services does not amount to tax on sale and purchase of goods and the service tax on Mandap Keeper and outdoor caterers is in pith and substance a tax on services and not a tax on sale of goods or on hire purchase activities. Reliance is also placed on the decision in Sayaji Hotels Ltd. 2011-TIOL-226-CESTAT-DEL wherein an identical issue was considered by this Tribunal and it was held that in the case of Mandap Keeper Services, catering service is incidental and ancillary to the Mandap Keeper services and, therefore, the charges for catering services would be includable in the taxable value of Mandap keeper Services. It was also submitted that the benefit of notifications 1/2005-ST, 1/2006-ST cannot be allowed as the appellant had availed CENVAT credit on input services. As regards the appellant contention that identical demands in respect of another own unit were dropped, the Revenue representative mentioned the Supreme Court decisions in FuljitKaur Vs. State of Punjab – 2010 (262) ELT 40 (SC) and Chandigarh Administration Vs. Jagjit Singh – 1995 AIR 705 to submit that it is a settled position of law that a wrong decision or order cannot be perpetuated.

The Bench observed that the decisions cited by the Revenue representative of Tamil Nadu Kalyana Mandapam Assn. vs. Union of India 2004-TIOL-36-SC-ST & Sayaji Hotels Ltd. 2011-TIOL-226-CESTAT-DEL squarely applied to the facts of the case and, therefore, the demands were correctly raised against the appellant.

In the matter of the first SCN dated 15.11.2010, the Bench held that the same sought to demand ST for the period even beyond the extended period of 5 years and hence the demand for the period 1.4.2005 to 30.9.2005 is not legally sustainable.

As regards the question whether extended period of time could be invoked at all in this case since the department had knowledge about the other unit against whom demand was dropped, the Bench held that each premises of the appellant from where business is carried out is a separate assessee and is separately registered for the purpose of Service Tax. Therefore, the Service Tax assessee is separate for each of the premises registered and they have to be treated independently and separately and hence the submission had no merits. Furthermore, prior to April, 2005, the appellant had been discharging Service Tax on Mandap Keeper Services on the combined receipt of Food/Banquet Hall charges and only w.e.f. April, 2005, they started splitting the bills, one for the food and other for the Banquet Hall charges, so as to evade payment of Service Tax on catering charges.

The plea of bonafide belief was also held to be devoid of merits in view of the SC decision inTamil Nadu KalyanMandapam – 2004-TIOL-36-SC-ST. The reliance placed by the Revenue representative on the decisions in FuljitKaur and Chandigarh Administration (supra) were also held apt to negate the claim of the appellant in the matter of adopting the ratio of the dropped identical demands in respect of their other unit.

The Bench also held that in view of the Gujarat HC decision in Neminath Fabrics Pvt. Ltd. –2011-TIOL-10-HC-AHM-CX the extended period of limitation was rightly invoked to confirm the Service Tax demands.

In the matter of claim made for abatement, the Bench held that the fact whether the appellant had availed CENVAT credit on inputs/input services was needed to be verified by adjudicating authority. As the computation of the second demand was also held to be in error, the Bench held that the matter needed to be remanded on the said count too.

In fine, the Bench concluded thus –

"6. …, we are of the considered view that the matter has to go back to the adjudicating authority for re-computation of the Service tax demand and re-determination of consequential interest and penal liabilities. We make it very clear that remand is only for re-computation of Service Tax demand and consequential interest and penal liabilities; otherwise the liability of the appellant to pay Service Tax on the whole of the consideration received i.e. both banquet hall charges and catering charges is confirmed. We also uphold the invocation of extended period of time and imposition of penalties under Sections 76, 77 and 78 subject to re-quantification of the penalty amounts after re-computing the Service Tax demand."

The appeal was allowed by way of remand.

(See 2014-TIOL-589-CESTAT-MUM)

NEW DELHI, APR 17, 2014: IN a newsy move, the CBDT has issued detailed directions to all AOs laying down a Standard Operating Procedure (SOP) for verification and correction of demand by the AOs. As per this SOP, the taxpayers can get their outstanding tax demand reduced/deleted by applying for rectification along with the requisite documentary evidence of tax/demand already paid. The SOP also makes special provisions for dealing with the tax demand upto Rs. 1,00,000/- in the case of Individuals and HUFs in order to accommodate certain extraordinary situations. The SOP is expected to mitigate the long standing grievances of taxpayers by way of reduction/deletion of tax demands.

The CBDT has further noted that many taxpayers are committing mistakes while furnishing their tax credit claims in the return of income. Such mistakes include quoting of invalid/incorrect TAN; quoting of only one TAN against more than one TAN tax credit; furnishing information in wrong TDS Schedules in the Return Form; furnishing wrong challan particulars in respect of Advance tax, Self-assessment tax payments etc. As a result of these mistakes, the tax credit cannot be allowed to the taxpayers while processing returns despite the tax credit being there in 26 AS statement. The CBDT, therefore, desires the taxpayers to verify if the demand in their case is due to tax credit mismatch on account of such incorrect particulars and submit rectification requests with correct particulars of TDS/tax claims for correction of these demands. The rectification requests have to be submitted to the jurisdictional assessing officer in case the return was processed by such officer, or the taxpayer is informed by CPC, Bangalore that such rectification is to be carried out by Jurisdictional assessing officer. In all other cases of processing by CPC, Bangalore, an online rectification request can be made.

Om Prakash Dhoot vs. UOI (Rajashthan High Court)

S. 234E: High Court issues notice on challenge to notices for levy of fee for failure to file TDS statement. Recovery of fee is subject to outcome of Petition

See also Narath Mapila LP School vs. UOI (Ker) and Adithya Bizorp Solutions India vs. UOI (Kar) where similar interim orders of stay have been passed

Regards,

Pawan Singla , LLB

M. No. 9825829075

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