Taxation Law

[By Harshita Agrawal] The author is a student at the Ms. Ramaiah College of Law, Bangalore. Background In the current tech world, most companies share data online with their stakeholders to provide details of the company’s performance or in some cases to provide research reports in exchange for consideration. Post globalization, the supply of data is not bound to one territory but has widened to worldwide. These data or reports being copyrighted has created ambivalence between the tax authorities in India, for the royalty tax on the consideration received by the non-resident company in exchange for database used by customers in India. This created a lot of uncertainty on consideration received by these non-residents in the form of subscription fees and has prolonged since the advent of subscription fees started in India. This article will strive to give an outline of the current dispute between the tax authorities and non-residents relating to royalty tax on the sharing of an online database with the Indian customer. The article derives its contemporary relevance in light of the recent order of the Income Tax Appellate Tribunal (“ITAT”), Mumbai Bench in the case of IMS Ag, vDcit (Intl.Tax) Range 2(2)(1) (“IMS Ag case”). Factual Matrix of IMS Ag Case For better understanding, it is pertinent to delve into the facts of the case. IMS Ag (hereinafter referred to as “Assessee”) is a company incorporated and lodged in Switzerland. The Assessee’s primary business is providing subscription-based marketing research report of the pharmaceutical sector to its customers worldwide. The company delivers the data collected and processed by it through an online IMS knowledge link. For providing the review reports (“IMS reports”), the company enters into a service agreement with its customers to set out the details of the required modules to be accessed by the customers and the consideration received for these services. The dispute, in this case, was on the consideration received allowing the non-transferable and non-exclusive access to the IMS reports which was before the ITAT Mumbai. The learned Assessing Officer passed an order commanding the assessee to pay royalty tax on the above-disputed sum under Section 9(1)(vi) of the Income Tax Act, 1961 (“IT Act, 1961”) read with Article 12(3) of the Indo-Swiss Double Taxation Avoidance Agreement (“DTAA”). Aggrieved by the above order, the assessee approached the Mumbai ITAT to challenge the impugned order. The Mumbai ITAT while dealing with the aforesaid case has answered the two issues but our discussion will be limited to the issue of the requirement of payment of Royalty tax for the subscription fees paid by the Indian customer under Section 9(1)(vi) of the IT Act, 1961 read with Article 12(3) of India-Swiss DTAA. Judicial Advancements before IMG Ag Case Royalty tax on subscription fees has sprouted in the legal industry since the means of delivery of research reports shifted from physical mode to online mode. The tax authorities passed different views on this issue. At the outset, the ITAT Bangalore bench in the case of Wipro Limited v. ITO(2005), wherein the appellant had subscribed for the business data of Gartner Group.  The Tribunal while discussing the amplitude of both domestic laws and DTAA observed that the database was copyrighted and hence do not form royalty under Section 9(1)(vi) of the Act. In addition to this, the services were provided outside India and payment was also received outside India through banking channels, therefore, no tax would be levied in India.  This business income cannot be taxed in India as there is no business connection or Permanent Establishment (“PE”) of the non-resident, hence DTAA will also be not applicable. The Tribunal, in this case, have narrowed down the scope of royalty by connoting that web-based database is not included under Section 9(1)(vi) of the Act. On appeal, the Hon’ble High Court of Karnataka decried the dicta of ITAT Bangalore in the case of The Commissioner Of Income Tax(CIT) v. M/S Wipro Ltd (2011) wherein it reversed the order of ITAT. It was observed by the CIT that the subscription fees would be treated as royalty tax under Section 9(1)(vi) of the IT Act, 1961 read with Article 12 of India- Ireland Double Taxation Avoidance Agreement (DTAA).  According to the Hon’ble High Court, the payment of subscription grants the user a right over the data, thereby giving them royalty over the online database. . In the above case, the Hon’ble High court did not take into consideration Section 90(2) of the Act, which provides that in case of conflict between domestic laws and DTAA, whichever is more beneficial to the assessee will apply. In this case, DTAA will supersede the domestic laws as DTAA is more favorable to the respondent as it was not having PE in India. Arguments Advanced In IMS Ag Case The Revenue placed reliance on the ruling of the Karnataka High Court by claiming the taxability of subscription fees as royalty tax as per the domestic laws and India-Swiss DTAA. The Mumbai ITAT dissented from this view of the Revenue and placed reliance in the matter of DIT v. Dun and Bradstreet Information Services (DBIS) India Pvt Ltd[(2012)][i] (“DBIS Case”). In this case, the taxpayer imported business information reports (“BIRs”) from DBIS and made remittances without deducting tax at source under Section 195 of the IT Act, 1961.  The Advance Ruling (“AAR”) distinguished this case on the parameter that the payment made by the DBIS for the purchase of BIRs does not constitute a case of royalty as defined under Article 13(3) of the India-Spain DTAA. There was an illustration drawn in this case that right to use BIRs is similar to buying a copyrighted book in which the person has no right to change it. In the above facts, the AAR was of the view that such payment for the availing BIRs would not constitute royalty under Article 13(3) of the Indian-Spain Treaty. The same was upheld by the Mumbai High Court in DBIS Case. Order Passed by Mumbai ITAT in IMS Ag Case The ITAT of Mumbai per-curiam upheld

[By Aditya Bhayal] The author is a student at the NALSAR University of Law, Hyderabad          Introduction The Goods and Service Tax (GST) was introduced with ease of doing business as one of its main objectives. In its 3 year journey to date, the regime has faced quite a few roadblocks towards achieving that goal, one of them being the controversy surrounding the payment of interest on delayed payment of GST.  Section 50 of the CGST Act mandates such payment of interest. The moot point surrounding the quandary which marred the regime was whether the interest was to be paid on the gross-tax liability or the net-tax liability i.e. amount left after setting-off the Input Tax Credit (ITC), which was the case in the erstwhile regime. After shuttling back-and-forth for 3 years, the dust was finally settled when the amendment, which specified that interest is to be paid on net liability, was finally notified. This post seeks to reflect on the hue & cry surrounding this issue and discusses how the amendment, and its subsequent notification, leaves things to be desired for the taxpayers. Background Section 50 of the CGST Act, which imposes interest on delayed payment of GST, doesn’t specify the amount on which such interest is to be levied. GST Council, in its 31st meeting, took cognizance of the matter and suggested that the interest on such deferred payment is to be levied after setting-off ITC. Input Tax Credit allows the taxpayer to deduct the tax paid on its inputs for business from the tax collected on its output supply, thereby reducing the overall tax liability. Honoring the GST Council’s recommendations, the Government introduced the Finance Act (No.2) 2019, which amended  Section 50 to include a proviso clarifying that the interest is to be paid on the net-tax liability. As the amendment was never notified, the benefit never really reached the taxpayers. To the dismay of the taxpayers, the Telangana High Court in “Megha Industries and Infrastructure ltd. v. CCT”, held that the interest is to be levied on the gross-tax liability, which would exclude the deductions under ITC. The GST Council, in its 39th meeting, reiterated that the amendment would be notified with retrospective effect from 1st July, 2017. The Amendment was finally notified on 25th August, 2020 with a prospective effect given to the proviso. The Central Board of Indirect Taxes and Customs (‘CBIC’), on the very next day, came up with a clarification that although the amendment is being given a prospective effect due to technical reasons, but the authorities won’t be making any recoveries so as to give a retrospective effect to the amendment in essence. Prospective or Retrospective? Although CBIC had clarified that the authorities won’t be recovering any dues to give a retrospective effect to the amendment, but the Ministry did not give any indication as to what will happen to the taxpayers who, in light of the ambiguity which was prevalent until very recently, had deposited interest on the gross tax liability. As no guidance was given for such taxpayers, the law remains prospective in nature for these assesses. The Supreme Court, in the case of “Allied Motors v. CIT”, had held that “a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give it a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole”. With regards to section 50, the proviso was included to provide a beneficial reading for the taxpayers and avoid the unintended interpretation which goes against their interests, and thus, there is a need for uniform retrospective application of the proviso. The Apex Court, in the case of “Vijay v. State of Maharashtra”, also held that “It is now well-settled that when a literal reading of the provision giving retrospective effect does not produce absurdity or anomaly, the same would not be construed to be only prospective. The negation is not a rigid rule and varies with the intention and purport of the legislature, but to apply it in such a case is a doctrine of fairness”. Imparting a retrospective reading to the beneficial provisions, like the one added by this amendment, would be exigent to avoid multiple litigations and provide hassle-free application of the section. Scope of Section 50 Section 50 is applicable to make good the deprival of the state and not when the state is retaining money to the credit of the assessee. ITC reflects the GST already deposited with the authorities. ITC is a book-entry and section 50 doesn’t envisage levying interest on something which is merely a book-entry. The section monitors cases of delayed payment of taxes for which the assessee is liable. It represents that part of tax which is unpaid. ITC is amassed to the taxpayer on the tax already paid. A right is accrued to the taxpayer when they pay tax on inputs. Moreover, the Supreme Court has previously ruled that interest is the payment to compensate the exchequer for delayed payment of tax. Taking a cue from the reasoning adopted by the Apex Court, it is only fair to hold that no such interest should be paid on loss that the government didn’t suffer in the first place. In such a scenario, it will be manifestly unjust on some taxpayers if the authorities fail to reimburse that amount of interest which was levied on the gross tax liability. Such views have also been upheld in the Madras HC ruling in “M/s. Refex Industries Limited v. Assistant Commissioner of CGST”, wherein it was noted that “The amendment introduced to section 50 is clarificatory in nature and therefore, retrospective”. The Delhi & Orissa High Courts also fortified this line of argument when they stayed a recovery of interest on the gross tax liability. These rulings call

[By Shubham Gupta and Jayesh Advani] The authors are students at the National Law University, Odisha. Introduction Section 50(1) of the Central Goods and Service Tax (CSGT) Act, 2017, imposes interest on the tax liability occurred in accordance with the provisions of the CGST Act on the person who fails to pay the whole tax or any part of the tax, in the prescribed time. The interest is added to the original tax liability until the period the whole tax liability is settled by the defaulter. The interest rate notified by the government on the defaulted amount is 18 %. Although Section 50(2) provided for the method of calculation of interest, the Act was silent on the question of whether the interest has to be calculated on the gross amount of tax liability or the net amount. For instance, assume the Gross amount of tax that is not paid to be Rs. 1,00,000 and the amount of Input Tax Credit (ITC) to be 60,000. The question of law was whether the interest should be charged on Rs. 1,00,000 or on the Net amount which is calculated by deducting the ITC from the Gross amount i.e. Rs. 40,000. To solve this dilemma, the Central Board of Indirect Taxes has given effect to Section 100 of the Finance Act, 2019 from 1st September 2020 to amend Section 50 of the CGST Act. According to the Amendment, the interest is applied to the net amount i.e. Rs. 40,000 which is calculated by deducting the ITC from the gross tax liability. The inserted proviso to Section 50(1) has explicitly mandated to pay the interest in accordance with Section 39 of the CGST Act. However, in situations where initially no tax is paid by the defaulter and he is paying tax only after the notice is served, under Section 73 or 74 of the CGST, the interest is to be calculated on the gross amount. Exception to the Proviso There seems to be a major issue with the provision that has been added to Section 50 of the Act. It mentions two exceptional scenarios in which the benefit will not be available. The bare text uses the words “except where such return is furnished after the commencement of any proceedings under Section 73 or Section 74 in respect of the said period…”. The use of these words implies that when Section 73 and Section 74 come into play, the interest will be calculated on the gross liability. Both these Sections talk about the procedure that is followed to determine the tax liability in cases when the “tax is not paid, or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized”. The difference lies in the applicability conditions of both sections. Section 74 is attracted specifically when an element of fraud, wilful misstatement, or suppression of facts is present with an intention to evade tax. On the other hand, Section 73 is attracted in the case where the events occur for any other reason than the ones covered in Section 74. It is pertinent to note here, that both these Sections determine the amount of penalty which shall be applied on such person chargeable with tax. When these sections specifically mention certain percentages of tax liability to be imposed as a penalty in different situations, then why an additional penalty is being imposed by charging an additional interest under the veil of these exceptions? In the author’s view, the reason for charging the interest on gross liability, even in these exceptional scenarios is unfounded. Moreover, charging a higher interest in these cases makes the ‘interest’ punitive in nature. This goes contrary to the judgments delivered by the courts. One of the initial cases in this regard is M/s Pratibha Processors v. Union of India. In this case, the Supreme Court held that interest is compensatory in nature and should be payable only when the cenvat (now known as ITC) is actually utilized. It has been repeatedly adjudicated by the Supreme Court that “interest is a mere accessory to the principal and if the principle is not payable, consequently, no interest is payable”. The approach of the courts has remained the same in the post GST era as well. In the case of State of Karnataka v. Karnataka Pawn Brokers Association, the Supreme Court sustained the approach adopted in the Pratibha Processors’ case. This issue was further discussed in the latest case of Reflex Industries v. Sherisha Technologies dated 6 January 2020. In this case, the Madras High Court articulated the purpose of imposing the interest on the default amount and elaborated why in all scenarios the interest must be calculated only on the net amount. The court also held that the purpose of imposing interest is to compensate the state, for the loss of funds; they were entitled to receive. The interest imposed is in no sense a punishment. Hence, in a scenario where the interest is calculated on the gross amount, it will lead to the enrichment of the state, which is contradictory to the very purpose of this provision. These judicial decisions suggest that different treatment of the cases where proceedings related to Section 73 and Section 74 has commenced is not a correct approach. The amount of ITC had been effectively paid to the department, thus, reducing the amount of principal that is payable. Considering the fact that interest is only an accessory to the principle, the amount of ITC shall always be deducted to charge interest. The same should be the case when proceedings are commenced under Section 73 and Section 74. Moreover, if interest is charged on the gross value in these cases, then it would not be compensatory in nature. Instead, it would turn into a method of penalizing and punishing the person chargeable with tax.   The Unfilled Gap The above-mentioned judgments highlight the fact that the concerned amendment is a mere articulation and addition to the approach of the judiciary. It is brought into force to remove the

[By Shikha Mohini] The author is a student at Symbiosis Law School, Pune. Introduction In sync with international standards, India follows two types of taxation mechanisms- residence-based and source-based. In case of residence-based taxation, the tax is levied on the global income whereas in source-based, the tax procured is only on the income generated from the source country. In order to avoid double taxation on the same income in a particular time period in two different jurisdictions, countries usually enter into a Double Tax Avoidance Agreement (DTAA). The different articles of the DTAA govern taxation in matters where two states have simultaneous right to tax a particular income. Article 7 of the DTAA concerning taxation of business profits settles that the profits of an enterprise of one contracting state shall be taxable in the other contracting states only when a ‘Permanent Establishment (PE)’ is maintained in the latter. The source state shall tax the profits of the enterprise only to the extent attributable to the PE. In order to constitute a PE, there must be an existence of a fixed place of business where a foreign enterprise either partly/wholly carries out the business.[i] Due to the ongoing Covid-19 pandemic, countries have imposed lockdowns and international travel is banned. The employees of various multinational corporations have been stranded in different jurisdictions or have returned back to their home state, both of which may be different from the residential or incorporating state of the corporation. The employees are contributing to the generation of profits for the foreign enterprise by working from their home in a different jurisdiction which can lead to the emergence of a PE and consequent taxation of the profits of the enterprise in the state where the employee is residing. The present article seeks to analyse the emergence of unintended PEs and tax liability arising out of the Covid-19 pandemic. It also sheds a light on the grey area existing in international taxation with respect to a permanent ‘Work from Home’ model. Analysing The Concept Of Permanent Establishment As mentioned above, a PE must fulfill three essential criteria which are the existence of a place of business, the place should be fixed and a part/whole of the business of the foreign enterprise must be carried through it.[ii] A place of business[iii] can cover any premise, facility, or installation which is used for carrying out the business of the foreign enterprise in the source state. Exclusivity in carrying out the business and a formal legal right[iv] on the place is not considered a requirement for a PE. It is however necessary that the place of business carries on the core functions of the enterprise and the same is not intermittent in nature. The term ‘fixed’ means that the PE must be located at a distinct place and there must essentially be a link between the place of business and a specific geographical point in the source state.[v] There must be an identifiable location that constitutes a “coherent whole-commercially and geographically with respect to that business.[vi]” In addition, there must be a degree of permanency, i.e., the place of business must fulfill the threshold limit enumerated in the DTAA to constitute a PE. The threshold limit usually varies between 6 months and 1 year. The two exceptions to the ‘fixed place’ criteria is when the activities are of recurrent nature or when activities are wholly carried out in the source state for a short period of time. In the former scenario, all the periods of time during which the PE is in use is calculated in combination, and in the latter case, since the connection with the source country is exceptionally strong, the place may constitute a PE despite not crossing the threshold period. A third criteria mandates the PE to carry out the business of the foreign enterprise, in part or whole. It is necessary to note that interruptions in the operations will not lead to the ceasing of a PE status. A PE begins to exist at the commencement of the business activity of the foreign enterprise through it and ceases with the cessation of activity or disposal of the fixed place.[vii] Establishment Of Home Office As Fixed Place PE In India A complete lockdown was announced in India on 25th March, 2020 with international travel still majorly suspended. Due to the lockdown, either the employees of multinational companies were stranded in India or Indian employees of foreign enterprises returned back to their country. In either situation, provided they resumed their operation from their home, it could be argued that a possible PE is constituted. India will then have a right to tax the foreign enterprise on the income arisen or accrued here due to the operations of the employee. If such a home office operates, it satisfies the condition of ‘place of business’ and ‘fixed place’. The criteria of the foreign enterprise running its business ‘wholly or partly’ through the PE will depend on the facts and circumstances of each case.[viii] It is also necessary that such a home PE must carry out functions that are not preparatory or auxiliary in nature but constitute the core functions of the foreign enterprise.[ix] This again is a factual exercise and a subjective test.[x] The OECD commentary also mandates that for PE’s constitution, the foreign enterprise must require its employee to use the location for carrying out its business either by not providing an office when the nature of employment requires it or otherwise.[xi] It further goes on to give an example of a cross-border worker working from his home office in one State rather than the office made available to him in the other State. The commentary states that this scenario would not constitute a PE as the home office was not a requirement of the foreign enterprise. India in its observation however disagrees with the above example holding the stated situation to constitute a PE.[xii] Hence, when Indian nationals working in foreign companies returned back to India and

[By Sridattha Charan] The author is a student of Symbiosis Law School, Pune. Introduction With the development of information and communication technology, the procurement and the supply of goods and services through electronic commerce (“e-commerce”) platforms have undergone a multi-faceted expansion all around the globe, including and especially in India.[i] Considering the growth of these e-commerce transactions, the Government of India has recently introduced Section 194-O in the Income Tax Act through the Finance Act, 2020.[ii]  Section 194-O of the Act states that an e-commerce operator shall deduct tax at the time of credit to the e-commerce participant at the rate of 1 percent on the gross amount of the sale of goods or services or both. This deduction would be made at the time of credit of the amount to the account of the e-commerce participant.[iii] Section 194-O was introduced to pave the way for digital taxation in India. It seeks to widen and deepen the tax net on e-commerce transactions. However, the provision suffers from various discrepancies and inconsistencies with the pre-existing regulatory and taxation mechanisms. The author seeks to analyze and examine three such complications that arise with the introduction of the provision. Firstly, the effect of the Central Goods and Services Act, 2017 on Section 194-O since both the taxation frameworks seek to levy a tax on e-commerce transactions; secondly, the burden placed on the e-commerce operators due to the mandatory nature of the provision with respect to the concept of “direct payment”; and lastly, the inconsistency between Section 194-O and the “Guidelines on Regulation of Payment Aggregators and Payment Gateways” issued by the Reserve Bank of India (“RBI”). These inconsistencies would create complications in the compliance of the e-commerce operators and give rise to a multitude of implementation hardships for the Revenue Department. Therefore, the question of the dispensability of the provision itself should be examined beginning with the legislative intent behind it. Legislative Intent behind the Introduction of Section 194-O Section 194-O of the Act mandates the e-commerce operator to deduct tax at source from the gross amount of sales consideration payable to the seller. The legislative intent behind this provision was explicitly mentioned in the Explanatory Memorandum.[iv] The provision was introduced in order to “widen and deepen” the tax net by bringing the e-commerce transactions under ambit of the Tax deduction at source (“TDS”) provisions under Chapter XVII-B of the Act.[v]  The existing provisions of Chapter XVII-B are not applicable when a resident sells his goods through an e-commerce platform. The rationale behind placing the withholding obligation on the e-commerce operators could be that the sales proceeds for such transactions are routed through such operators. Accordingly, they possess the ability to access and control the sale proceeds and consequently possess the ability to withhold tax.[vi] Further, in e-commerce transactions, the purchasers could largely be individuals, and placing the responsibility of withholding tax on these individuals would not be consistent with the general approach adopted under Chapter XVII of the Act.  Therefore the responsibility of withholding tax is not given to the purchasers but rather to the e-commerce operators. Implications of the Central Goods and Services Act, 2017 Under the Central Goods and Services Act, 2017, a seller or an e-commerce participant is required to charge Goods and Services Tax on the sales consideration received.[vii] The amount received from the purchaser or the customer includes the Goods and Services Tax (“GST”) and the sales consideration together. The issue that arises in this situation is, whether the tax which would be withheld under Section 194-O would be levied on the total amount including the GST or excluding the GST. To illustrate, assuming that the sales consideration for a particular product or service is INR 1000 and the GST on the transaction amounts to INR 50. The issue would be the value of the ‘gross amount’, whether it would be INR 1000 or INR 1050. If the ‘gross amount’ is taken as INR 1050, it would result in the deduction of the TDS amount from the GST amount. However, it has been the general observation of the Central Board of Direct Taxes (“CBDT”) that TDS from tax is avoided. The CBDT has issued various circulars in pursuance of the same.[viii]  A striking example would be the clarification provided by the CBDT that the TDS provisions under Section 194-I of the Act will be applicable on the net rental amount payable which is exclusive of the service tax levied. [ix] The High Court of Rajasthan has adopted a similar view in the case of Commissioner of Income-Tax v. Rajasthan Urban Infrastructure.[x] The CBDT circular dated January 1st, 2014 clarified as follows; “3. The Service tax paid by the tenant doesn’t partake the nature of the “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under Sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.”[xi] While the circular dealt with the issue of TDS under Section 194-I, its rationale can be used to infer that the seller or the e-commerce participant only act as agents for the Government for the collection of GST. Therefore, the TDS provision under Section194-O would be applicable to the sales consideration excluding the GST amount. Further, it is important to note that the deduction of tax under Section 194-O will be in addition to the tax being collected under the Central and Goods and Services Act, 2017 which levies a tax on the goods and services being supplied through e-commerce platforms. [xii]       Therefore, the additional 1% under Section 194-O would result in the generation of an acute cash-flow crunch for e-commerce participants. Moreover, the participants of such an e-commerce transaction are required to be mandatorily registered under the Central Goods and Services Act to claim Tax Collection Credit.[xiii] This mandatory registration would inherently achieve the proposed purpose of

[By Shubham Gupta] The author is a student at National Law University, Odisha. It is a renowned, articulated and explicitly provided fact that selling of land does not attract any kind of tax as per the Goods and Services Tax. The reason provided for non-imposition of tax in case of sale and purchase of land is that they neither come under the purview of services nor under the definition of goods under Schedule III of the CGST Act, 2017. The fact that land is an immovable property, only stamp duty is required to be paid on its purchase. However, there has been a consistent doubt regarding taxation of those plots which are sold after their development. The definition of development of land includes “levelling the land, construction of roads, laying underground cables and water pipelines, development of landscaped gardens, drainage system, demarcation of individual plots, and other infrastructure works”.  In this article, the author has tried to highlight various legal frameworks and judicial perspectives to reach out to an exact picture regarding the imposition of tax on such developed plots. The ‘Popular Meaning’ Approach The solution to this enigma can be reached by analyzing the definition of land and benefit arising out of the land. The absence of any definition of immovable property and land in the CGST Act, 2017 leads us to fall back on various other enactments and judgments. It is a well-known fact that in case of the absence of a definition in a statue, it has to be construed in its popular sense. Hence, the interpretational solace can be drawn from the Land Acquisition Act to interpret the word “Land” in Clause 5 of Schedule III. The definition of land provided by the “Section 3(a) of Land Acquisition Act, 1894” mentions that the expression “land” includes things attached to the earth or permanently fastened to something attached to the earth and also the benefits arising out of the land. Similar is the definition of land in “Section 3(4) of the Bombay Land Revenue Code, 1879”. The definition of immovable property provided in “Section 3(26) of the General Clauses Act (GCA)”, “Section 2(z) of the Real Estate (Regulation and Development) Act, 2016” and “Section 2(1)(6) of the Registration Act” have mentioned that land also includes benefits arising out of the land. In the case of “State of Maharashtra v. Reliance Industries Ltd.”, the Supreme Court, through various legal dictionaries and the maxim of “Cuius est solum, eiuses tusquead coelum et ad inferos”, attempted to define land and briefly held it to include all fixtures, structures and benefits arising out of the land. Thus, the judgment further gave an indefinite extent to land upwards and downwards. The Bombay High Court, in the case of “Sadoday Builders Private Limited v. The Jt. Charity Commissioner”, held that the benefit arising from the land is also an immovable property. Further, it also elaborated that an agreement for the use of Transferable Development Rights can especially be enforced unless it is established that compensation in money would be adequate relief. Similar was mentioned in the recent case of “DLF Commercial Projects Corporations v. Commissioner of Service Tax, Gurugram”, where the tribunal provided that transfer of development rights comes under the definition of immovable property as per the “Section 3(26) of the GCA”. Hence, it can be concluded that no service tax defined under “Section 65B(44) of the Finance Act,1994” has to be paid in the development activities because of the exemption provided on taxation of land.   Analysis of the Law In view of the above discussion, it can be very well concluded that the development of land should consequently fall within Clause 5 of Schedule III and hence, should not be taxable. The fact that it is raw land or developed land does not change the fact that it is still a land. The sale of these plots is akin to the sale of developed lands and activities like drainage works, electricity supplies, and such are incidental to land and hence, does not change the characteristics of these plots. The fact which should be taken into consideration is that parks, roads, and other such utilities are not supplied to the purchaser of a plot but belongs to the Public Authority or Municipal Corporations. The sale and purchase of plots do not change the vested powers of the authorities in such utilities. The differentiation, hence, between the open undeveloped land and developed plot should only be in terms of compensation as the value addition will be part of the total consideration. The addition might be highlighted in the sale deed registered under Section 17 of the Indian Registration Act. The Flawed Rulings The Authority of Advance Ruling (AAR) of Karnataka, Gujarat and Madhya Pradesh have held contrary and imposed service taxes on such transactions. The reasoning provided by the above-mentioned bodies is that the development of land is a supply of service and hence should be taxed. Recently, the Gujarat AAR on 19th May 2020in the case of Sh. Dipesh Kumar Naik, while taking a similar approach as that taken by the AAR of Karnataka and Madhya Pradesh, explained its decision by mentioning that the amount charged by the seller is on the “super-built basis” and not as per the measurement of the plot. The “Super built-up” area includes the area of basic amenities like water tanks, parks, roads, etc. Thus, the seller charges the price which includes the price of the land and these provided amenities. In other words, according to the AAR, these amenities are the extrinsic part of the land purchased by the buyer. Ultimately based on such reasoning, it was held by the authority that the purchase of land and developed plot are two different transactions and hence tax should be imposed on such a developed plot. The decision taken is prejudicial and biased on the very face as the authority has imposed a tax on the entire consideration of the plot. The AARignored the fact that