A lot has been said about reforms and the committee reports on the retrospective amendment on indirect transfer and general anti-avoidance regulations popularly known as GAAR. It is also well understood that the recommendations of the committee are not entirely pro-revenue, therefore, obviously, it faces resistance from the tax administration. In this backdrop, the battle is interestingly poised between the expectations of taxpayers and the tax administration, and closely watched by all stakeholders to see how the Government will balance the conflicting objectives. Amidst all this, the Central Board of Direct Taxes has released a report issued by another committee for formulating tax accounting standards. The purpose of separate accounting standards is to bring certainty and consistency in tax treatment and reduce litigation. The next few months would be interesting and one hopes these developments can boost investment and bring more certainty to the tax environment.

Is DRP getting taxpayer-friendly?

Till last year, the Dispute Resolution Panel was criticised for routinely passing non-speaking orders confirming most of the ‘transfer pricing’ additions. After a not-so-happy experience of two years, recently there were a few speaking directions wherein substantial tax relief was provided to taxpayers, significantly reducing TP adjustments. It is heartening to see that, finally, DRP is emerging as a successful alternative mechanism for speedy dispute resolution. However, it may not end litigation, especially in the light of the amendment that provides tax authorities the right to appeal against DRP directions. Despite this, if taxpayers get some relief at the DRP level, it may emerge a preferable option for faster resolution — that is, direct appeal to tax appellate tribunal and postponement of tax demand until receipt of assessment order pursuant to DRP directions.

Software taxation still a thorny issue

Until June 30, 2012, transfer of right to use of information technology software was liable to service tax and VAT/ CST.

From July 1, service tax is applicable on all services (including declared services) other than those in the negative list. The term ‘service’ has been defined to exclude deemed sales. Accordingly, transfer of right to use software is considered deemed sales and not liable to service tax.

The Central Board of Excise and Customs has in its education guide recently sought to make a distinction between licences with restriction on ‘transfer of software’ and those without such restriction.

The board, without assigning any plausible reason, has concluded that licences with restrictions would fall short of deemed sale and attract service tax.

It is a well-settled position that ‘transfer of right to use goods’ should involve transfer of the effective control and possession. Thus, it follows that supply of software with a mere restriction of sub-licensing by the licensee would continue to be deemed sale and not liable to service tax. Accordingly, the CBEC should clarify this.

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