Facts of the Case
On 4th May 2020, an Advance Ruling has been passed by “The Authority for Advance Ruling in Karnataka” vide Advance Ruling No. KAR ADRG 30/2020 passed by Dr. Ravi Prasad M.P. (Member, State Tax) and Sri Mashhood Ur Rehman Farooqui (Member, Central Tax) in the case of Mr. Anil Kumar Agrawal, an unregistered person having User ID - 291900000213ART represented by CA Abhimanyu Kumar and Authorised Representative. The applicant has discharged the fee of Rs. 5,000/- uder CGST Act and Rs. 5,000/- under KGST Act.
The Applicant is in receipt of various types of Income / Revenue, mentioned as under:-
Partnership remuneration from partnership firm
Salary as Director from Private Limited Company
Interest income on partner fixed capital credited to partner’s capital account
Interest income on partner variable capital credited to partner’s capital account
Interest received on loan given
Interest received on advance given
Interest accumulated along with deposit / fixed deposit
Interest income received on deposit / fixed deposit
Interest received on debentures
Interest accumulated on debentures
Interest on Post Office deposits
Interest income on NSCs
Interest income credited on PF account
Accumulated interest (along with principal) received on closure of PF account
Interest income on PPF
Interest income on National Pension Scheme (NPS)
Receipt of maturity proceeds of life insurance policies
Dividend on shares
Rent on commercial property
Residential rent
Capital gain / loss on sale of shares
Now the question arises for which the Advance Ruling has been sought by the Applicant:-
Out of the given sources of Income/ Revenue 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?
Applicant’s Interpretation of Law
The applicant furnishes his understanding / interpretation of law issue / point wise as under:-
Type of Income | Includible in Aggregate Turnover |
Remuneration of Partner for Partnership remuneration | No. Since any type of salary is not includible in the purview of GST as the same needs to be treated neither as supply of goods nor as supply of services. |
Director’s salary from Private Limited Company | |
Rent on commercial property | Yes |
Rent on residential property | No. Although it is an exempted service. |
Remaining cases | No. Since all the 15 cases have been outside the purview of GST. |
Discussion and Findings
The AAR has been filed to ascertain whether the aforesaid Incomes are eligible while computing the Aggregate turnover to meet the criteria for the Registration by the Applicant. The definition of “Aggregate Turnover” in terms of section 2(6) of CGST Act 2017 are as under:
“Aggregate Turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, export of goods or services or both and inter state supplies of persons having the same permanent account number, to be computed on all India basis but excludes central tax, state tax, union territory tax, integrated tax and cess”.
From the definition it can be understood that for the purpose of aggregate turnover, it includes sum of value of all taxable supplies, value of exempt supplies, value of supplies towards export of goods or services or both and value of inter state supplies of persons having same PAN excluding the value of supplies on which RCM is applicable and excluding the IGST, CGST, SGST / UTGST and Cess.
Also to qualify any transaction to be Supply, it has to pass the conditions specified in the section 7(1)(a) of CGST Act 2017 which are as follows:-
The transaction must involve a supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made,
The transaction must be for a consideration by a person.
The transaction must be in the course or furtherance of business.
In views of the above definition, the different types of Income specified in the Question has to be analysed exclusively.
Clause in the Question | Particulars | Remarks |
(a) | Partnership remuneration from Partnership firm | The said Partnership remuneration being received by the Applicant as well as the share of profit received from the Firm shall not be covered within the purview of GST as it is not considered as supply of goods or services under clause 1 of Schedule III of CGST Act 2017. Hence, the said Partnership remuneration as well as the share of profit shall not be covered within the definition of Aggregate Turnover for the purpose of Registration.
|
(b) | Director Remuneration from a Private Limited Company
| For the said income, the same has to be differentiated between Executive Director and Non-Executive Director’s salary. In the case of the Executive Director salary, the same has been in the nature of the employment of the company, in which there is an employer-employee relationship between the company and the Director which is not considered as supply of goods or services or both. In the case of non-executive director’s salary, the same is exigible in the hand of the company under the Reverse Charge Mechanism under entry no. 6 of Notification No. 13/2017-Central Tax dated 28-6-2017. In the said question, it is no where mentioned as whether the salary is being received as an Executive Director or Non-Executive Director. Hence, the Ruling has mentioned that salary as Executive Director is not includible in the Aggregate Turnover. However, the salary as non-executive director shall be includible in the Aggregate turnover even though it is taxable in the hands of company under RCM. |
(c) | Interest income on partner fixed capital credited to partner’s capital account
| The interest income are out of the deposits loans extended by the 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 Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017. Therefore, in these items, the amount of loans and advances are nothing but the value of services and is an exempted service. Therefore, the said items should fall within the purview of Aggregate Turnover for the purpose of Registration.
|
(d) | Interest income on partner variable capital credited to partner’s capital account
| |
(e) | Interest received on loan given
| |
(f) | Interest received on advance given
| |
(g) | Interest accumulated along with deposit / fixed deposit
| |
(h) | Interest income received on deposit / fixed deposit
| |
(i) | Interest received on debentures
| |
(j) | Interest accumulated on debentures
| |
(k) | Interest on Post Office deposits
| |
(l) | Interest income on NSCs
| |
(m) | Interest income credited on PF account | |
(n) | Accumulated interest (along with principal) received on closure of PF account
| |
(o) | Interest income on PPF
| |
(p) | Interest income on National Pension Scheme (NPS)
| |
(q) | Receipt of maturity proceeds of life insurance policies | Although the premiums paid are taken as services being provided by the Insurance companies to the insured. After the completion of the maturity period, there shall be no services involved. Hence, the maturity proceeds shall not be includible in the aggregate turnover for the purpose of registration. |
(r) | Dividend on shares | The income earned from securities are nothing but the application of income. Therefore, in this case, the shares are excluded from the definition of goods or services and henceforth, the income derived from the shares and securities shall also be excluded from Aggregate turnover for the purpose of registration under the Act. |
(s) | Rent on commercial property | The said service is supply in terms of section 7(1)(a) of the CGST Act 2017 which is taxable. Hence, the value of supply shall be includible in the Aggregate turnover for the purpose of registration. |
(t) | Residential Rent | The same has been considered as exempted supply under the CGST Act 2017 which shall be includible in the Aggregate turnover for the purpose of Registration. |
(u) | Capital gain / Loss on sale of shares | The income earned from securities are nothing but the application of income. Therefore, in this case, the shares are excluded from the definition of goods or services and henceforth, the income derived from the shares and securities shall also be excluded from Aggregate turnover for the purpose of registration under the Act. |
Ruling
The incomes received towards
(i) salary / remuneration as a Non Executive Director of a Pvt Ltd Company
(ii) renting of commercial property
(iii) renting of residential property
(iv) the value of amounts extended as deposits/loans/advances out of which interest is being received are to be included in the aggregate turnover for registration
The income received from renting of residential property is to be includible in the aggregate turnover even though it is an exempted supply.
To download the Karnataka AAR, click here Karnataka AAR – Aggregate Turnover – Director Salary – Anil Kumar Agrawal
To join our whatsapp group, click here
https://chat.whatsapp.com/DzCDCWWui4l4gMsBqCQqHZ
