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Advance Ruling for type of income/revenue shall be considered for Aggregate Turnover for registration

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Court :

Brief :
Income/Revenue from Interest received from different sources, Partner's salary, received as partner, Salary received as Director from a Pvt. Ltd. Company, Rental income on Commercial Property Residential Property, of income out of maturity proceeds of life insurance policies, dividend on shares and capital gain/loss on sale of shares , which all revenue income shall be considered for Aggregate Turnover for registration? Out of given nature of income / revenue, when the supply, even if exempted, need to be considered?

Citation :

Case Law Details

   

Legal Name of Applicant

ANIL KUMAR AGRAWAL

Details of Application

Advance Ruling No. KAR ADRG 30/2020

Members of Bench

  1. Sri. Mashhood ur Rehman Farooqui,, Joint Commissioner of Central Tax
  2. Dr. Ravi Prasad M.P., Joint Commissioner of State Tax

Date of Judgement /Order

04.05.2020

Advance Ruling required for

  1. Income/Revenue from Interest received from different sources, Partner's salary, received as partner, Salary received as Director from a Pvt. Ltd. Company, Rental income on Commercial Property Residential Property, of income out of maturity proceeds of life insurance policies, dividend on shares and capital gain/loss on sale of shares , which all revenue income shall be considered for Aggregate Turnover for registration?
  2. Out of given nature of income / revenue, when the supply, even if exempted, need to be considered?

Brief about Applicant:

Mr. Anil Kumar Agrawal (Applicant) is an unregistered person and is in receipt of various types of income /revenue i.e. Partner's salary as partner from my partnership firm, Salary as director from Pvt. Ltd company, Interest income from various sources ,Receipt of maturity proceeds of life insurance policies, Dividend on shares, Rent on Commercial Property, Residential Rent ,Capital gain /loss on sale of shares etc.

Brief about the Transaction

Applicant furnishes his understanding / interpretation of law issue /point wise which is as under:

a) Income received towards partner's salary, as a partner, from the partnership firm and also the income received towards salary as Director from a Private Limited Company are not includable in the Aggregate Turnover for the reason that any type of salary is not in the purview of GST as the same needs to be treated neither as supply of goods nor as supply of services.

b) Income received towards rent on commercial property is includable in the Aggregate Turnover as renting of immovable commercial property is a taxable service and whenever rent falls due, on the basis of rental agreement, either monthly or quarterly, the supply of service is deemed to have been done.

c) Income received towards residential rent is includable in the Aggregate Turnover, for registration, though the renting of residential property is an exempted service.

d) Income received towards all remaining 15 types / categories is not includable in the Aggregate Turnover, as the said all 15 cases are not under the purview of GST and hence do not amount to supply under GST law.

OBSERVATIONS

  • Applicant, an unregistered person, is in receipt of various types of income and intend to know whether the income so received in each type is includable in the Aggregate Turnover, for the purpose of registration, under the provisions of GST Act.
  • Interest income received from different sources :

Applicant is in receipt of interest income from different sources. All these interest income are out of deposits/loans extended by applicant. The services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services), falling under SAC 9971, are exempted under Entry No.27(a) of N. No.12/2017-CT(Rate) dt 28.06.2017 .

Thus the interest earned by applicant, out of the deposits/loans/advances extended, amounts to consideration and is exempted by virtue of entry number mentioned supra.

Therefore in the instant case extending the deposits/loans/advances by the applicant is nothing but exempted service and the actual amounts of deposits / loans / advances become the value of the service.

Thus these amounts are to be included in the aggregate turnover for registration, under the provisions of GST Act.

Partner's salary, received as partner, from applicant's partnership firm:

Applicant is in receipt of certain amount termed as partner's salary from the firm where applicant is also a partner. Applicant has not furnished any documents relevant to the issue, such as copy of agreement, appointment order etc., so as to decide whether the applicant is an employee of the partnership firm or not.

In case, if applicant is a working partner and is getting salary then the said salary is neither supply of goods nor supply of service in terms of clause 1 of Schedule III of CGST Act 2017.

Further, in case if applicant is in receipt of the amount towards his share of profit from the said partnership firm, then also the said income is not under the purview of GST as the share of profit is nothing but application of money and hence the said salary is not required to be included in the aggregate turnover for registration under the provisions of GST Act.

Salary received as Director from a Pvt. Limited Company:

Applicant is in receipt of certain amount termed as salary as Director of a private limited company.

Two possibilities may arise with regard to the instant issue of amount received by the applicant.

first possibility that applicant is the employee of said company (Executive Director), in which case the services of applicant as an employee to employer are neither treated as supply of goods nor as supply of services, in terms of Schedule III of CGST Act 2017.

Second possibility that the applicant is the nominated director (non Executive Director) of company and provides the services to the said company. In this case the remuneration paid by company is exigible to GST in the hands of the company under RCM u/s-9(3) of CGST Act 2017, in the hands of the company, under entry no. 6 of N.No. 13/2017-CT (Rate) dt 28.06.2017.

In the instant case , applicant has not furnished any documentary evidence such as copy of agreement between the applicant and the said private company, copy of appointment order, details of ESI, PF deductions etc.,

So as to decide whether applicant is in receipt of salary as an employee or as an independent director. Thus in the absence of any documentary evidence, it is not possible to decide whether the amount received by applicant is towards his services as an Executive Director or a Non-Executive Director.

In view of the above , the remuneration received by applicant as Executive Director is not includable in the aggregate turnover, as it is the value of the services supplied by applicant being an employee.

Further if applicant receives the remuneration as a Non-Executive Director, such remuneration is liable to tax under RCM u/s- 9(3) of CGST Act 2017, in the hands of the company, under entry no. 6 of N.No. 13/2017-CT(Rate) dt 28.06.2017.

Thus the value of said services of applicant being a Non- Executive Director are includable in aggregate turnover, as it is the value of taxable services supplied by applicant , though the tax is discharged by private limited company, under RCM.

Rental income on Commercial Property:

Applicant receives periodical income towards the impugned supply of service & the same is in the course or furtherance of business and hence the said transaction amounts to supply in terms of Section 7(1)(a) of CGST Act 2017.

Thus it is a taxable supply of service having SAC 997212 and therefore the value of such supply is to be included in aggregate turnover, for registration.

Rental income on Residential Property:

Applicant receives periodical income towards the impugned supply of service & the same is in the course or furtherance of business and hence the said transaction amounts to supply in terms of Section 7(1)(a) of CGST Act 2017.

However "Services by way of renting of residential dwelling for use as residence, classified under SAC 997211" are exempted from the tax (GST) in terms of entry number 12 of the N. No. 12/2017 dated 28.06.2017.

Thus supply of service of renting of residential property becomes an exempted supply . Aggregate Turnover includes the value of the exempted supplies also .

Therefor e income received by applicant towards rent of residential property is to be included in the aggregate turnover.

Income out of dividend on shares and capital gain/loss on sale of shares:

Applicant is also in receipt of income out of dividend on shares and capital gain/loss on sale of shares.

Term 'Securities', which has the same meaning assigned to it in clause 2(h) of Securities Contracts (Regulation) Act 1956, in terms of Section 2(101) of CGST Act 2017, includes shares, scrips, stocks, bonds, derivative instruments etc., that have been explicitly excluded from the purview of GST, by virtue of its exclusion from the definition of 'goods' and `services', as contained in Section 2(52) and 2(102) of CGST Act respectively.

In the instant case, dividend on shares, capital gains/losses on sale of shares are relevant to shares (securities) and income earned in this relation is nothing but application of money.

Therefore this income earned out of shares, which are excluded from the definition of goods or services, also gets excluded from the said definition of goods / services.

Therefore they are not relevant to the aggregate turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act.

Income out of maturity proceeds of life insurance policies

Applicant is also in receipt of income out of maturity proceeds of life insurance policies. The impugned income would be received on maturity of the insurance policies i.e. on closure of the insurance contract consequent on maturity of the said policies. Insurance premium of policies is taxable under GST, being the consideration for the services provided by the insurance companies.

Therefore on completion of the said contract / maturity of the policy, there would not be any service involved between the policy holder and the insurance company.

Therefore the amounts received on maturity of insurance policies are not relevant to the aggregate turnover and hence are not required to be added to the aggregate turnover for registration under the provisions of GST Act.

Ruling

  1. The incomes received towards (i) salary/remuneration as a Non-Executive Director of a private limited company, (ii) renting of commercial property and (iii) renting of residential property and (iv) the values of amounts extended as deposits/loans/advances out of which interest is being received are to be included in the aggregate turnover, for registration.
  2. The income received from renting of residential property is to be included in the aggregate turnover, though it is an exempted supply.

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without express written permission of the author.

 

Kusum Gandhi
on 11 May 2020
Published in GST
Views : 246
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