Q 7 & Q 26 | Supply between AOP to Member or Firm to Partners | GST practical faq series by ICAI

#icaigstseries #taxbykk #cskkagrawal Q 7 & Q 26 | Supply between AOP to Member or Firm to Partners | GST practical faq series by ICAI Please ♥Like ♥ Share ♥Subscribe ♥♥TELEGRAM CHANNEL LINK♥♥ I am practitioner (CA, CMA, CS, Lawyers, Accountants): https://t.me/taxbykk I am CA final student: https://t.me/cafinalgstkk I am CA inter student: https://t.me/cainterkk I am CMA inter student: https://t.me/cmainterkk I am CMA final student: https://t.me/cmafinalbykk I am CS Exe student: https://t.me/csexekk I am CS Profs student: https://t.me/csprofkk I am Law student: https://t.me/taxlawbykk ♥♥OUR STORE LINK♥♥ www.taxbykk.com ♥♥WHAT'S APP LINK♥♥ https://wa.me/919999227381 QUESTION 7 Is there a supply between member of an AOP and the AOP? Ans. As per Section 2(17)(e) of the CGST Act, the term “business” includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. As per Entry No. 7 of Schedule II of the CGST Act, supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods. Circular No. 35/9/2018 -GST dated 5.03.2018, provides that supply of services by an unincorporated association or body of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration, shall be treated as supply of services. On the basis of the above, supply of goods / services between AOP and its members would be treated as supply and liable to GST. QUESTION 26 Whether salary of ` 50 lakhs a year and share of profit of ` 75 lakhs received by the working partner of a partnership firm constitute a supply and exigible to GST? Ans. A Partnership firm is governed by the provisions of the Indian Partnership Act, 1932 and the partnership firm has no separate legal entity distinct from its partners. The liability of the partners of the firm is joint and several. Accordingly, the remuneration and profits are distributed among the partners as per the partnership deed. As per section 7 (1) (a) of the CGST Act, the scope of ‘supply’ includes “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”. Hence, it is relevant to understand that the activity will qualify as “supply” only if it is in relation to goods or services. Entry No. 6 of Schedule III of the CGST Act enumerates ‘actionable claims’ as an activity which is neither supply of goods, nor services. Further, sub-section (1) of section 2 of the CGST Act defines the term “actionable claim” which refers to section 3 of the Transfer of Property Act, 1882. Accordingly, as per section 3 of the Transfer of Property Act, 1882, actionable claims means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which, the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. In the instant case, there is an obligation on the part of the partners of the firm to pay such amounts as per the partnership deed signed by them. Therefore, each partner has a claim to the specified amounts in the profits earned by the firm. Each partner’s claim is contingent on the happening of such event. Thus, it can be inferred that the profit earned by the partner is an 'actionable claim'. Therefore, the share of profit, being an appropriation of profits will not be liable to GST. Similar view has also been taken in the FAQs published by the CBIC on their website cbic-gst.gov.in as mentioned below: “79. Salary by partnership firm to Partners as per Income-tax Act liable to GST? Answer: Salary will not be liable to GST. 92. Salary by partnership firm to partners as per Income-tax Act liable to GST? Partners are not employees of the firm. Answer: Salary will not be leviable of GST.” Partners’ salary and share of profit do not constitute a “supply” as it is an appropriation of profits by a partnership firm, which does not have a separate legal entity. Besides the above, in Union of India v. Sarada Mills [(1972) 2 SCC 877, 880], the Apex Court has held that, “an actionable claim would include a right to recover insurance money or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability”. ♥♥ABOUT CS K K AGRAWAL♥♥ GST Consultant | Trainer | Speaker | Faculty He is a company secretary and is a consultant, author, speaker, trainer and faculty of both Direct Tax and Indirect Tax having an experience of more than 20 years.