Enwisen TRA updates – 46/2020-21

REGULATORY UPDATES

Companies (Indian Accounting standards) Amendment Rules, 2020

MCA vide notification dated July 24, 2020 has notified Companies (Indian Accounting standards)
Amendment Rules, 2020. The same shall come into force on the date of their publication in the Official
Gazette i.e. July 24, 2020.
Various amendment has been introduced to the Indian Accounting Standards, some of them are as follows:

 Ind AS-116 Leases: Additional paragraphs with regard to accounting for ‘Covid-19 related rent
concessions for lessees’ has been inserted. The amendment allows a lessee to elect to account for any
change in lease payments resulting from the rent concession the same way it would account for the
change applying this Standard if the change were not a lease modification.

 Ind AS-109 Financial Instruments & Ind AS-107 Financial Instruments: Disclosures :-Additional
paragraphs with regard to ‘Temporary exceptions from applying specific hedge accounting requirements’
for hedging relationships directly affected by interest rate benchmark reform and related disclosure
requirements have been inserted. Due to COVID-19, there is risk of change in the fair value of Assets
because of frequent change in the interest rate is prevalent. Hence in the current amendment the entity
has on option to apply the fair value as per the change in the interest rate.

 Ind AS 1 Presentation of Financial Statements, Ind AS 8 Accounting Policies, Changes in

Accounting Estimates and Errors, Ind AS 34 Interim Financial Reporting:-Amendments have been
made to the definition of the term ‘Material’. The term and its relevance for the primary users of general-
purpose financial statements has been explained in further detail.
 Ind AS-10 Events after the Reporting Period: Amendments have been made to clarify that the
disclosure requirements for non-adjusting events are applicable to primary users of general-purpose
financial statements.

 Ind AS 103 Business Combinations: The term “business” and the elements of businesses is defined in
more detail to assist in evaluation of a business.
 TAX UPDATES

Changes in Form 26AS

Form 26AS contained information about tax deducted at source (TDS) and tax collected at source (TCS),
details of other taxes paid, refunds etc.

The Central Board of Direct Taxes (CBDT) has replaced this Form 26AS with new Form 26AS by
introducing new Rule 114-I with effect from 1 June 2020 (Notification No. 30 of 2020 dated 28 May 2020).

The new Form 26AS to show additional details about taxpayer’s financial transactions such as:

 cash deposit / withdrawal from saving bank accounts,

 sale / purchase of immovable property,
 time deposits,
 credit card payments,
 purchase of shares, debentures, foreign currency, mutual funds,
 buy back of shares,
 Cash payment for goods and services, etc.

This information is received by the Revenue Authorities under section 285BA of the Income Tax Act,
1961 (IT Act) through Specified Financial Transactions (SFTs) reports being filed by specified
persons. Now all such information under different SFTs will be shown in new Form 26AS which
would enable the taxpayers to e-file their tax returns quickly and correctly by calculating the correct
tax liability in a feel-good environment.
 CASE LAW ANALYSIS
[AAR-Andhra Pradesh-M/s Lakshmi Tulasi Quality Fuels, AAR No.12/AP/GST/2020 dated 05 May
2020]

Leasing of property/building to a lessee engaged in commercial activity of letting out

rooms are liable to GST at 18%

Facts of the case

 M/S. Lakshmi Tulasi Quality Fuels (‘Taxpayer’) or (‘Lessor’) is engaged in supply of petroleum
oils and lubricants through a petrol bunk in Andhra Pradesh. In addition to that the taxpayer is
the absolute and sole owner of a building in Telangana.
 Taxpayer has entered into a lease agreement with D-Twelve Spaces Private Limited ('Lessee') a
company incorporated under the provisions of the Companies Act, 2013 which is inter-alia
engaged in the business of running, managing and operating the day to day affairs of residential
premises and sub-lease of such residential premises to individuals (including students) for the
purpose of long stay accommodation. As per the terms of the lease agreement, in consideration
of grant of lease to use and possess the aforesaid property, the lessee is required to pay to the
taxpayer a monthly rent of INR 0.72 Mn and all operational costs such as electricity, telecom and
water charges as per the actual meter reading or based on the invoice or the bill issued by the
relevant authorities.

Question before the Advance Ruling Authority (AAR)

Whether the taxpayer is eligible for exemption from payment of GST on the monthly rentals
received on lease of residential building, as per entry no:13 of notification no.9/2017-CT dated
28 June 2017?

Submissions made by the taxpayer

 The taxpayer submitted that they are eligible for exemption from payment of GST under entry
no. 13 of notification no.9/2017-CT dated 28 June 2017 which is ‘Services by way of renting of
residential dwelling for use as residence’.
 Taxpayer further stated that on perusal of the aforesaid entry no:13 of exemption notification, it
can be inferred that the exemption would be applicable, if the following conditions are
cumulatively fulfilled and they fulfil the conditions:
−The service should be by way of renting of residential dwelling;
−The residential dwelling should be for used for residential purpose.
Observations & ruling by the AAR

 AAR observed from the agreement between the lessor and lessee that there are 73 rooms in the
building with all amenities like exhaust fans, geysers, lights and fittings, curtain rods, sanitary
fittings etc., provided by the lessor.
 On perusal of the lease agreement and "Residents Enrolment Form" together and taking note of
the submissions made, AAR observed that apart from renting of the rooms, the inmates are also
being provided with food and hospitality services.
 Considering the number of rooms and amenities provided in it, boarding and hospitality services
extended to the inmates and from all the clauses of the agreements, it appears that the building
was constructed for the purpose of running as a lodge house.
 Though the taxpayer claimed that they have rented-out residential dwelling for use as residence,
it appears that the premise is a non-residential property and further lessee is primarily engaged in
commercial activity of renting of rooms in the dwelling and providing boarding and hospitality
services to the inmates.
 On combined perusal of the arrangement, it was clear that the lessor has rented-out their
dwelling for commercial activity and supply of such services, in the facts and circumstances of
the case, are classifiable as ‘Rental or leasing services involving own or leased non-residential
property’ under Service Code (Tariff) 997212 [notification no: 8/2017-IGST (R) dated 28 June
2017].
 Therefore, AAR held that the said supply in the hands of the lessor is liable to GST at the rate of
18%.

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