Wednesday, 29 February 2012

Routers and switches should be classified as part of computers and be eligible for 60% depreciation


In a recent decision Special Bench (SB) of the Mumbai Income Tax Appellate Tribunal   in the case of Datacraft India Ltd. (Taxpayer) [ITA No.7462 & 754/ Mum/ 2007]on the issue of whether routers and switches can be classified as computer entitled to depreciation at 60% or have to be classified as general plant and machinery entitled to depreciation at 25%, under the provisions of the Indian Tax Laws (ITL) held that the definition of computer should not be restricted to the central processing unit (CPU) of computer, but should also extend to all the input and output devices which support computer in the receipt of input and outflow of output to and from computer. In view of the broader definition given to computers, routers and switches, which form part and parcel of computer, also qualify for depreciation at 60%.

Do not ignore the importance of filing annual wealth tax returns


The season to file income tax returns is on and most taxpayers will try to quickly wrap up the process. But most people ignore the importance of filing annual wealth tax returns. Govind Pathak, a certified financial planner, explains, “If you start paying wealth tax all of a sudden, officials can seek records of how you acquired this wealth. Filing wealth tax returns regularly helps you create evidence of ownership of assets and also how they have increased year-on-year.”
However, only a few are prepared for this. Reason: Valuation of wealth is often a tedious process. Take, for instance, valuation of land, where one has to get an approved valuer, either a civil engineer or an architect, to start the process. The problem arises when the land on the outskirts of a city or in some remote village. One has to travel there, find the market value, and so on…
Technically, wealth comprises six types of assets: Land and building; cars; yachts, boats and aircraft; jewellery and bullion; articles made of gold, silver or platinum; cash-in-hand in excess of Rs 50,000.
Transferring any of these assets or gifting to your spouse, minor children or even your daughter-in-law will still lead to taxation because they are considered “deemed assets”.
However, there are some exceptions. As far as land and building go, there may be some exemptions if these are being used for residential purposes. A commercial property being used for business purposes could also be excluded. Residential and commercial properties owned and rented out for more than 300 days in the assessment year can also be excluded.
Also, if you have availed of a loan to buy these assets, the amount will be reduced from your wealth while calculating the tax.
Taxation: Unlike income tax, there are no separate tax slabs for payment of wealth tax. The threshold of Rs 30 lakh is common for all. Anything in excess is taxable at one per cent. There is no surcharge or education cess.
For example, if your total wealth amounts to Rs 50 lakh, only Rs 20 lakh is taxable at one per cent — that is, wealth tax liability will be Rs 20,000.
Valuation: An income tax department-approved valuer can provide you a valuation report, termed as fair market value, of your jewellery, land and building. For motor cars, yachts, boats and aircraft, the insured declared value is considered.
There are a few benefits while valuing certain assets. Assets like cars, yachts and aircraft depreciate each year. “People can do a rough valuation of assets as long as they are not close to crossing the threshold of Rs 30 lakh. As and when they feel they are approaching the threshold, they must start getting their wealth formally valued,” says N C Hegde, tax partner, Deloitte.
Assets like land, building and jewellery are important and need to be valued regularly. The value of these assets is rising continuously, sometimes exponentially. Remember, even if you are out of the ambit of wealth tax, it is advisable to file wealth tax returns.
Exceptions: While filing wealth tax return is important, here are some interesting things one must know: While income tax is on income earned in a particular year, wealth tax is based on holdings on a particular date (March 31).
For example, if you owned a property or a car but sold it before March 31, the wealth goes down by that extent. The sale proceeds will become a part of your other income and taxed.

S. 143(2): “Issue” of notice is equivalent to its “service”

V.R.A. Cotton Mills (P) Ltd vs. UOI (P&H High Court)


In respect of AY 2009-10, the assessee filed a ROI on 29.09.2009. The last date for service of the s. 143(2) notice was 30.09.2010. A notice u/s 143 (2) was served by affixation at 11.20 pm on 30.09.2010. The assessee filed a Writ Petition claiming that u/s 282 (1), a notice or requisition had to be served either by post or as if it was a summons issued by a Court under the CPC and that service by affixture was invalid. The assessee relied on CIT vs. AVI-OIL India 323 ITR 242 (P&H) where it was held that a notice u/s 143(2) had not only to be issued, but had to be served before the expiry of 12 months (now 6M) from the end of the month in which the return was furnished. Hotel Blue Moon 321 ITR 362 (SC) was relied upon to contend that in the absence of a s. 143(2) notice, the assessment was invalid. HELD dismissing the Petition:

Income Tax Scrutiny Criteria for F.Y. 2011-12 / A.Y. 2012-13




For senior citizens above 60 years and small taxpayers with gross total income of less than Rs 10 lakh -Please read the Guideline  given below:-

No Income Tax Scrutiny of Senior Citizens and Small Tax payers Having Gross Income less then 10 Lakh

Others
1. Where value of international transaction as defined u/s. 92B exceeds Rs.15 Crore.
2. Cases where there was addition of Rs.10 Lacs or more in earlier assessment year and question of law or fact is confirmed in appeal or pending before appellate authority.
3. Cases in which addition of Rs.10 Crore or more was made in earlier assessment year on the issue of transfer pricing.
4. In case of survey carried out during the financial year, this criteria will not apply in the following cases.
  • there are no impounding books or documents
  • there is no retraction of disclosure if any made during survey
  • the income declared in the return excluding any amount of disclosure made during survey is not less than the declared income of the preceding assessment year.
5. Assessment in search and seizure cases
6. Assessments initiated u/s. 147 / 148 (Reassessment cases)
7. Cases of research organizations (in order to examine credibility of research and other activities as provided u/s. 35 of the I T Act).
8. After amendment to definition of “Charitable Purpose u/s. 2(15)” of the I T Act cases in which exemption is claimed u/s. 10 (23C) or u/s. 12AA are claimed.
9. Over and above the above stated criteria, the assessing officer may select maximum 25 cases in mofussil stations with the prior approval of Additional CIT / Joint CIT.In other areas i.e. metros and bigger cities the assessing officer may select maximum 10 cases after recording reasons for doing so. It is also directed to the approving authorities to monitor and ensure that, quality assessments are framed in these cases.
10. Officer dealing with company cases can select other cases over and above the above mentioned criteria which are in its initial years of operation and are infusing investment by introducing capital or are taking loan but the return filed shows loss.

I-T - Whether expression 'any other person' in Sec 269 excludes Directors of assessee company which accepts loans or deposits - NO; Penalty upheld: HC




 THE
issues before the HC are - Whether provisions of Sec 269SS do not get attracted when the deposits are in the nature of share application money; Whether the expression 'any other person' in Sec 269 excludes the Directors of the assessee company which accepts the loans or deposits and whether relief u/s 273B is available to the assessee only if it establishes the presence of reasonable cause for accepting the payment not by account payee cheque. And the verdict goes against the assessee.
Facts of the case

Amalgamation expenses are allowable deduction




The Gujarat High Court in CIT v. Akme Electronics & Control (P.) Ltd. (2004) 137TAX263 allowed deduction of legal expenses incurred by the transferor company for the purpose of amalgamation on the ground that the liability to pay such expenses arose in respect of the period when it still continued to exist no matter that the effective date of amalgamation may be prior to the date of sanction of the scheme by the High Court. Like in every case since the amalgamation is resorted to for the smooth and efficient conduct of the business of the transferee company the High Court held that the legal expenses were laid down wholly and exclusively for the purpose of the business of the assessee company.

Corporate guarantee fees- no tax withholding




The US Court of Appeals for the Fifth Circuit in container Corporation v. Commissioner of Internal Revenue decision dated 2.5.2011 held that guarantee fees paid to a foreign parent corporation is not subject to US withholding tax for the following reasons:

1) that such fees were compensation for the parent company’s promise to pay only in the event of any default by the subsidiary without any present risks or exposure at the time of signing the guarantee;

2) that the service was sourced or performed outside US.

There is every good reason not to withhold tax on the same premise in the context of Indian legislation and DTAAs.

On the other hand in the context of TP procedure the Economic Times dated 31st October –Mumbai edition quote Director-General (Transfer Pricing) commenting that the Government has identified corporate guarantee given to associated enterprises for acquiring companies abroad for TP assessment. So far it is considered as a loophole.

Thus even though it may get out of tax withholding yet it is likely to get into the ambit of TP assessment. It may thus be wise to build in a charge for issue of corporate guarantee close to the bank rate for issue of bank guarantee.

Tuesday, 28 February 2012

Tax Due Date for the Month of March 2012

Your kind attention is invited to the table given below which contains the due date for Tax compliance in respect of TDS/TCS, IT/WT, ST/VAT on different dates during the month  of   March 2012


Sr No
Due Date
Related to
Compliance to be made
1
05.03.2012
(Monday)
Service Tax
Payment of Service Tax for the Month of February 2012
2
07.03.2012
(Wednesday)
TDS/TCS
(Income Tax)
·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of February 2012.

·        Deposit TDS from Salaries  deducted during the month of February 2012

•   Deposit TCS for collections made under section 206C including sale of scrap during the month of February 2012, if any

•    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of February 2012, if any
3
15.03.2012
(Thursday)
Income Tax
Payment of second installment of advance tax (100%) for corporate
4
20.03.2012
(Tuesday)
VAT
Payment of VAT & filing of monthly return for the month of February 2012
5
31.03.2012
(Saturday)
Service Tax
Payment of Service Tax for the Month of March  2012

Undesirable haste in passing assessment order results in miscarriage of justice

Sak Industries Pvt Ltd vs. DCIT (Delhi High Court)


The AO issued a reopening notice u/s 148 and furnished the recorded reasons pursuant to which the assessee submitted its objections as required by GKN Driveshafts (India) Ltd. vs. ITO 259 ITR 19 (SC). The objections were filed on 26.10.2010 and were disposed of vide order dated 2.11.2010 by a non-speaking and cryptic order. Thereafter, without issuing any further notice or hearing the assessee, the AO passed an assessment order dated 19.11.2010 even though the limitation period for passing the order was to expire on 31.12.2010. The assessee filed a Writ Petition to challenge the reopening. HELD by the High Court quashing the reassessment order and passing strictures:

Bombay High Court Affirms Special Bench Law On Brokers’ Bad Debts


In DCIT vs. Shreyas S. Morakhia 40 SOT 432 the ITAT Mumbai Special Bench held that a broker was eligible to claim a deduction of the entire amount due to him from his client as a “bad debt” even though only the brokerage (and not the entire amount) had been offered as income. This judgement has been affirmed by the Bombay High Court today, 28.02.2012.

UNDERSTANDING TAXATION OF TRUST IN INDIA.

The posting had been move to another website. Please click the link below to get the access of the same.  




https://taxofindia.wordpress.com/2015/11/26/understanding-taxation-of-trust-in-india/  





Refund of Appeal Fee

The special bench of the Kolkata Tribunal in Bidyut Kumar Sett vs. Income-tax Officer (2005) 92ITR 148 S held that the Tribunal fee on an appeal against the order of penalty levied under section 271(1)(c) of the I.T. Act is governed by clauses (a) to(c) of section 253(6) of the Income-tax Act. Sub-section (6) of section 253 provide the following scale of fees for appeal to the Tribunal:-

“ (6) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner and shall, in the case of an appeal made, on or after the 1st day of October, 1998, irrespective of the date of initiation of the assessment proceedings relating thereto, be accompanied by a fee of,—

Investment in immovable property by NRI

The investment or sale of immovable property in India by a person resident outside India is subject to certain prohibitions and restrictions vide clause (i) of sub-section (3) of section 6 of the Foreign Exchange Management Act, 1999 ( hereinafter referred to as ‘FEMA’) reading as below :

“(3) Without prejudice to the generality of the provisions of sub-section (2) the Reserve Bank may, by regulations, prohibit, restrict or regulate the following –

(a) to (h)--------;
(i ) acquisition or transfer of immovable property in India , other than a lease not exceeding five years , by a person resident outside India;”

Further sub-section (2) of section 6 empowers the Reserve Bank of India (hereinafter referred to as ‘RBI’) to set limits for capital account transactions including property transactions.

Acquisition of immovable property in India

Under RBI Notification No. FEMA 21/2000-RB, dated 3.5.2000 the following category of persons has general permission for acquisition of residential or commercial property in India other than agricultural property/plantation/farm house:-

a) Non resident Indian i.e. a citizen of India residing outside India;
b) Foreign national ( citizen) of Indian Origin.

Person of Indian origin is further defined in section 2 (c) of the Notification as under:

“ ‘ a person of Indian origin ‘ means an individual ( not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan ) who

( i) at any time, held Indian passport; or

(ii) who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955(57 of 1955);”

Also the term ‘non-resident Indian’ is defined under section 115C of the Indian Income tax Act, 1961 to mean an individual, being a citizen of India or a person of Indian origin who is not a resident. Further it explains by way of explanation i.e. a person shall be deemed to be of Indian origin if he or either of his parents or any of his grant-parents was born in undivided India.

Furthermore there are no restrictions on the number of residential / commercial properties that can be purchased by NRI/PIO.
Further the payment for such acquisition shall be made out of (i) foreign inward remittances from any place outside India through normal banking channels or (ii) funds held in any non-resident account viz., NRE/FCNR (B)/NRO account maintained in accordance with the provisions of the Act and the regulations made by the RBI. Also there is prohibition on payment of consideration either by traveller’s cheque or by foreign currency notes. Also no payment can be made outside India.
Sale of immovable property

There is no restriction on the holding period of such property. (Notification No. FEMA. 65/202-RB dated 29.6.2002). Further any such property so acquired by a non resident Indian (NRI) can be transferred either to a person resident in India or to a Non resident Indian or to PIO. On the contrary the property acquired by a PIO can only be transferred to a resident in India. The proceeds of sale can be credited to NRE/FCNR account where the original investment is made out of inward remittances. On the other hand if the investment is made from NRO account the proceeds of sale are to be credited in NRO account only.

Repatriation of sale proceeds

There is a further cap on the amount of proceeds to be repatriated as not exceeding the amount paid for acquisition price in foreign exchange received through banking channels or out of moneys paid from NRE account. The Capital gains, if any, are to be credited to the NRO account from where the NRI/PIO may repatriate an amount up to USD one million, per calendar year. (A P (DIR Series) Circular No. 67 dated 13.1.2003)

However, there is a further restriction in the case of residential property where the repatriation of sale proceeds is limited to not more than two such properties.

Further NRIs/PIOs may repatriate funds out of balances held in their NRO accounts upto USD one million per calendar year including sale proceeds of immovable property for all bonafide purposes to the satisfaction of the authorized dealers, subject to tax compliance.

Further where such property is acquired out of moneys held in NRO account then any repatriation of moneys realized from its sale is possible only if either the subject property is held for more than ten years or otherwise after the sale proceeds have been held in the account for the balance period. (RBI Master Circular No. 5 of 1.7.2003 & Circular No. 62 of 31.1.2004.)
Any deviation from the above regulations would need a prior approval from the RBI.

Deferred Revenue Expenditure – Kopran case- Madras Industrial Investment Decision of SC completely misconstrued

The Supreme Court in Madras Industrial Investment Corpn. Ltd. v. Commissioner of Income-tax (1997) 225ITR802 held that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred and it cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year.

Call Center/BPO Operations-Engage ‘Call Agents’ as Retainers

Companies who run BPO or call center operations employ certain workers designated as ‘ call agents’ for overseas calls execution. In the course of their work such agents directly interact with the customer on telephone. The agents are expected to have good command over the language with appropriate accent. In addition the employer imparts necessary orientation and training including knowledge about product, target customer and target sales. The agents are expected to be polite in their talk as well as to work in accordance with the general orders and instructions given to them from time to time.

Monday, 27 February 2012

U.S.A. TAX RATES


US Individual Income Tax Rates

U.S. individual income tax rates are progressive up to 35%, but limited to a maximum of 15% for certain 2010 capital gains (see above). The applicable tax rate will depend on the amount of taxable income and the return filing status of the taxpayer. Present law provides for higher rates (to include a top rate of 39.6%) for income received in taxable years beginning after 2010.

US citizens and other resident individuals are subject to the same tax rules. Taxes are assessed on worldwide income reduced by certain adjustments, deductions and exemptions. Non-resident individuals are generally subject to tax on their income from US sources. Certain credits are available to reduce the tax computed.

Whether portfolio manger is agent who does trading of shares on behalf of client with motive to earn profit, and hence gains attributable to such transactions is business profit and not STCG even if client has shown same as investment - YES: ITAT



: THE issues before the Tribunal are - Whether a portfolio manger is an agent who does trading of shares on behalf of its client with a motive to earn profit, and hence the gain attributable to such transactions is a business profit and not STCG even if the client assessee has shown the transactions as investment in books and the transactions are delivery based - Whether investment in mutual funds is akin to investment made via Portfolio Manager. And the verdict goes against the assessee.
The facts of the case

Assessee firm is engaged in the business of providing technical, marketing and maintenance services for earth-movers tyres and trading in tyres. Assessee filed its ROI declaring LTCG and STCG. During the course of assessment proceedings the AO observed that the assessee entered into numerous purchases and sales of shares, and hence the profits of the assessee were taxable as business income and not STCG or LTCG. The CIT(A) affirmed the order of the AO. In appeal before the ITAT the assessee argued that all the transactions were delivery based transactions and STT was paid on these transactions.

Only way to prevent Dept from filing frivolous appeals is by imposing heavy costs

CIT vs. DSL DSoftware Ltd (Karnataka High Court)


The assessee set up a 100% EOU unit in AY 1993-94 and claimed 5 year deduction till AY 1997-98 as was then allowable u/s 10B. By the IT (SA) Act, 1998, s. 10B was amended w.e.f. 1.4.1999 to allow deduction for 10 years from the date the eligible unit started software development. Accordingly, the assessee claimed s. 10B deduction for AY 1999-2000 to 2001-02. The AO held that as the deduction under the amended provision was allowable only for the “unexpired period”, it was necessary that as on the date of the amendment, there was “unexpired period” and as the assessee’s entitlement had ended in AY 1997-98, it was not eligible for further relief. The CIT (A) & Tribunal allowed the claim on the ground that there was nothing in the Act to provide that the units which have fully availed the exemption u/s l0-B will not get the benefit of the amended provision. On appeal by the department, HELD dismissing the appeal while passing strictures and imposing heavy costs:

Payment for shrink-wrapped software taxable as royalty

Facts
 The taxpayers were either engaged in the business of development of computer software or were engaged in the distribution of computer software.
 These taxpayers imported shrink-wrap software from USA, France and Sweden and made payments to the non-resident suppliers, without deducting tax at source.
 The AO taxed these payments as royalty, which was also confirmed by the CIT(A).
 The Tribunal however held the payment towards shrink-wrap software did not amount to royalty and hence tax was not required to be withheld on the same.
 The Karnataka High Court had set aside the decision of Tribunal holding that on all payments made to non-residents, tax ought to be deducted at source unless a certificate for non-deduction of tax has been obtained from the tax authorities. The High Court had not decided the issue on taxability of shrink wrapped software.
 The Hon‟ble Supreme Court set aside the decision of the Karnataka High Court and remitted the matter back to the High Court for answering substantial questions of law on merits.
Issues before the Karnataka High Court
 Whether the payment for purchase of shrink-wrapped software is taxable as royalty?

Observations and Ruling of the Karnataka High Court
 On reading the agreement entered into between the parties, what is sought to be transferred is only a license to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement. Further the non-resident supplier continues to be the owner of the copyright and all other intellectual property rights in the software.
 Copyright could be construed as a negative right. It is an umbrella of many rights and license is granted for making use of the copyright in respect of shrink-wrapped software / off-the-shelf software.
 The customer makes use of the copyright contained in the said software purchased and the same would amount to transfer of part of the copyright.
 The intent of the legislature in imposing Sales Tax and Income Tax are entirely different and therefore, mere finding that the computer software would be included within the term „Sales Tax‟ would not preclude from holding that the said payments made by the taxpayers to non-resident would amount to royalty. Accordingly, the Supreme Court ruling in Tata Consultancy Services (271 ITR 401) could not be relied upon to determine whether software payment amounts to „royalty‟ under the Income-tax Act („Act‟) or Double Taxation Avoidance Agreement („DTAA‟).
 Right to make a copy of the software and use it for internal business by making copy of the same and storing in the hard disk of the computer and taking back up copy would amount to copyright work.
 The amount paid to the non-resident supplier towards supply of shrink-wrapped software is not for the price of the CD alone nor software alone nor the price of license granted, but was for combination of all aspects, which were granted under a license.
 The transfer of copyright including the right to make copy of software for internal business and payment made in that regard would constitute royalty for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill.
Conclusion
The Karnataka High Court has held that payment for shrink-wrapped software was for transfer of copyright including the right to make copy of software for internal business and payment made in that regard would constitute royalty.
It may be mentioned that the Mumbai Tribunal in a recent case of Novel Inc. v. DDIT (International Tax) 4(2), Mumbai (ITA No.4368/Mum/2010) has held that receipts by non-resident from sale of software to the Indian distributors for onward sale to its end customers was not taxable as royalty.
It may be observed that the controversy over the taxability of software under the Act or the relevant DTAA has still not been resolved and a ruling from the Supreme Court would set at rest the controversial aspects relating to software.
Source: CIT (International Tax), Bangalore v. Samsung Electronics Co Ltd (ITA No. 2808 of 2005) and others

Toll in the nature of ‘user charge’ or ‘access fee’ paid by roads users — regarding.

F.No.354/27/2012-TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
(Tax Research Unit)
New Delhi, 22nd February, 2012
Circular No. 152/3 /2012-ST
To

Chief Commissioner of Customs and Central Excise / Central Excise & Service Tax (All)
Director General of Service Tax /Central Excise Intelligence /Audit
Commissioner of Customs and Central Excise/ Central Excise and Service Tax/ Service Tax (All)


Madam/Sir,

Subject:  Toll in the nature of ‘user charge’ or ‘access fee’ paid by roads users — regarding.
           
            A representation has been received by the Board, seeking clarification regarding leviability of service tax on toll fee (hereinafter referred as ‘toll’) paid by users, for using the roads. The representation has been examined. 

All about Taxation of Partnership Firms


Rate of tax :-Flat rate of 30% on the total income after deduction of interest and remuneration to partners at the specified rates. (No surcharge for Asst. Yr. 2010-11) to be increased by education cess secondary and higher education cess @ 3% on Income-tax.
Interest to Partners:-(Simple interest) Not exceeding 12% p.a. from 1-6-2002 (18% p.a. up to 31-5-2002).
Remuneration to Partners

Income tax provisions related to ‘Income from House Property’ in brief


In case of all assessees, “Income from house property” shall be computed as under.
a. In the case of Let Out Property [Whether for residential purpose or for business purpose]
The annual value of any property shall be deemed to be
i.            The sum for which property might reasonably be expected to let from year to year or
ii.            When property or any part of property is let, the annual rent received/receivable less unrealised rent or the sum as above, whichever is higher.
iii.            Where property or part of it is let and was vacant for whole or part of year, and rent received/receivable less unrealised rent is less than the sum as per (i) above due to the vacancy, then the rent actually received/receivable.
Deduction shall be allowed as under:

Nature of DeductionSectionLimit/Condition
1 Municipal Tax, etc.23(1) First provisoOnly if borne and paid by the owner.
2 Standard deduction24 Clause (a)30% of Annual Value.
3 Interest on borrowed capital24 Clause (b)Interest payable on capital borrowed for the purpose of acquisition, construction, repair, renewals or reconstruction only.
Interest for the period prior to acquisition or construction would be deductible in five equal instalments from the year of
acquisition or construction.

B. In the case of oneself-occupied house property
The annual value of a self-occupied house or part of such house shall be nil. Further deduction shall be allowable as under:

Nature of DeductionSectionLimit/Condition
Interest on borrowed capital24 Clause (b)
Rs. 1,50,000/- from A.Y. 2002-03 onwards, provided,
i.  property is acquired or constructed on or after 1-4-1999 and such acquisition or construction is completed within 3 years from the end of the financial year in which capital was
borrowed.
ii. A certificate from the lender certifying interest payable to him
is furnished by the assessee.
In other cases, Rs. 30,000. Interest in excess of above may
qualify for rebate u/s. 80C(2)(xviii) (Re : Krishnan Kuppuswami vs.
ITO 74,
Taxman 289) (Pune Trib.). No other deduction allowed in
respect of oneself-occupied property whose value is taken at
Rs. NIL.

C. In the case of more than oneself-occupied house property
Only one house according to assessee’s choice is treated as self-occupied and deduction mentioned in B will be allowed. In respect of all other houses, even though self-occupied, notional income as A(i) above-mentioned will have to be computed. In such cases, all deductions mentioned in ‘A’ would be available.
D. For set off and carry forward of losses.

Sr. No.SectionTypes of LossSet off Against Income Can be carried forward for
In same Assessment YearIn subsequent Assessment Year
1.71BHouse Property:
a) Let out propertyIncome from House property head or any other headIncome from House property8 years
b) Self-occupied Property (On account of interest on borrowed capital)As aboveAs above8 years

E. Property owned by co-owners
Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an A.O.P. (Association of Persons) but the share of each person in the income from the property as computed u/ss. 22 to 25 (i.e., Income from house property) shall be included in his total income.
F. Arrear of Rent – S. 25B
Arrear of rent received in respect of let out property, if not charged to tax in earlier previous year, is taxable in the year of receipt after deducting 30% of such amount for repair etc.

NGOs receive shocks from tax notices

View quick summary Certain Non-Government Organisations (NGOs) have received notices from the Income Tax department. Several notices not only demand taxes to be paid but also press for revoking the NGOs’ registration under the I-T Act.

Helpage India, which renders assistance in setting up and running old-age homes, has received a scrutiny notice. Development Alternatives, an NGO that promotes sustainable development models, was punished with a notice demanding tax of Rs 5 crore. PRIYA, which encourages rural development through grassroots establishments, received a notice of Rs 42 lakh.

NGOs whose funds come from abroad are registered under the Foreign Contribution Regulation Act. Such NGOs started receiving tax notices since August after an Income Tax Law amendment in 2008.

The NGOs plan to chalk an action plan to address some anomalies in the Direct Taxes Code (DTC), which will come into effect from next year. The DTC requires that NGOs do not carry forward current year funds to the next year; else they are to pay 15% of the amount as tax.

Are you evading tax?



They may not be aware, but even honest individuals can end up evading tax. Find out if you also fall foul of tax laws and how to stop doing it.



   Do you know somebody who is guilty of evading taxes? Most people would, because the Income Tax Act has created more criminals than any other legislation in the country. Don’t think all tax evaders are suspiciouslooking characters with wads of unaccounted money stacked in lockers. Even seemingly honest and upright citizens could be underpaying tax. It’s a malaise more widespread than the common cold. From school teachers to engineers, from banker to sales executives, millions of Indians may be liable for penalties, even prosecution, for under-reporting their income or not paying the due tax. 

Sunday, 26 February 2012

A view on deductibility of TDS on service tax and other expenses included in Bill amount

There are 18 Sections in Income Tax Act, 1961 that provides for Deduction of Tax at Source. Out of these 18, only 3 sections [194C, 194J and 194L] use that phrase “on income comprised therein”. Further these words appear at the end of the taxing provision and naturally can not be ignored. All the other 15 do not contain this phrase.
Now the question that arises is WHY only for these 3 sections [194C, 194J and 194L] and not for other 15. It is very very simple, because in the case of the remaining 15 sections the question of “income and non income does not and can not arise.” In was only when Service Tax was introduced for Rent on commercial property the non income component namely the ST arose and the government promptly issued notification excluding the tax from TDS provision.
The very fact that this phrase “on income comprised therein” has been used naturally means that there can be non income component also being part of a payment. Further payments situation covered under these three sections alone can have both income and non-income component. [See the example given below]
If the legislatures’ intention was to tax on the whole payment this phrase “on income comprised therein” has no place in these sections / entire Income Tax Act, 1961.
The departmental circular “715 of 08-08-1995” makes this phrase “on income comprised therein” redundant [or unwanted; useless], and this can not be intention of the legislature. Otherwise they could have simply said “on such payment” instead of using the phrase “on income comprised therein”
SC decision on ACC will be dealt with appropriately in the end of this article.
Now the question is why only these 3 sections have this phrase “on income comprised therein”
Let us take an example (as amended by Finance Act 2010):
A CA raises a bill on his client Rs. 24,000 as Prof Fee + Rs. 4,000 towards hotel bill [bill produced as proof for reimbursement] + Rs. 2,472 towards service Tax Totalling to: Rs. 30,472.00. Then TDS is deductible. But the hotel bill which is a reimbursement and service tax can under no stretch of imagination be treated as income. Hence the TDS is to be made on Rs. 24,000.00 only (even though this alone does not exceed the threshold limit) which is the “income component” of the total bill.
Now the SC case: The detailed agreement of ACC has to be read before commenting on the SC judgement. How ever to a limited extent it can be said since the phrase “on income comprised therein” is used at the end of the taxing provision and, there are no punctuations between “…. deduct an amount equal to … of such sum as income-tax” and the phrase “on income comprised therein” the phrase can not excluded while reading or interpreting these three sections.
It is true that it is not the intention of the legislature to thrust on the deductor the task of finding the income component in general but any layman can say that a reimbursement that is supported with document and the indirect TAX component are not, repeat not, and can never constitute an income
I can see few professionals jumping on to their feet and question how I can hold SC wrong, quoting Article 141 of the Constitution that says that the Act defined by the SC is final.
Please read Article 137 also, that precedes Article 141:
137. Review of judgments or orders by the Supreme Court :— Subject to the provisions of any law made by Parliament or any rules made under article 145, the Supreme Court shall have power to review any judgment pronounced or order made by it.
After all they are human beings hence the “Lady Blindfolded” holding the Physical-Balance in hand is given as symbol for judiciary.
This amply means that even God can mistake and He and only He has the power to rectify it, either suo-moto or on appeal.
Please Note:- Currently Department insist on deduction of TDS on Gross amount which includes Service tax except in the case of Rent. In case of Rent Assessee need to deduct TDS only on Rent amount ,not on service tax component but in case of other expenses  Assessee need to deduct TDS on service tax component also.

Things to be kept in mind before selecting a business entity

 

Selection of business organization depends on factors which include nature of business, objective of such business, scale of operations, degree of control desired by the owner, amount of capital required and sources of funding, volume of risks and liabilities to be borne, tax implications etc. The following points should be noted in this regard:
Objective of the business:
If the owner desires to maintain a direct relationship between ownership and management of the business then limited liability partnerships (LLPs) are preferable. However if the objective is to maintain complete authority, then sole proprietorship form of business is best suited.
Scale of Operations:
It basically implies the geographical area that the owner is targeting to cover to market the product or render services. Sole proprietorship and partnership form of business is only suitable if the startup is planning to run a small scale concern covering a particular area.
Limit of Liability:
A business enterprise can be choosed on the basis of either limited or unlimited liability. From the point of view of risk, if the owner wants to maintain a separate legal entity with limited liability, then Limited Liability Partnerships (LLP) and Limited Liability Company (LLC) are preferable.
Adequacy of Capital:
The form of organization should facilitate the raising of the required amount of capital at a reasonable cost. Moreover, while making a choice, it is to be kept in mind that a balance should be maintained between own funding and funds generated from outsiders. Cost of formation of enterprise also plays an important role in calculating the adequate capital required for the smooth functioning of the business.
Tax Implication:
Tax implication forms a very important factor in the decision making process. For example, unlike Companies, LLPs are not required to pay Corporate Dividend Tax (CDT). Also, all the provisions of Income Tax Act, as applicable in case of partnership firm are applicable in case of LLPs in India

Saturday, 25 February 2012

Convergence between Transfer Pricing and Customs Valuation in the Indian context

Introduction
1. Transactions globally are increasingly between 'related persons' or 'associated enterprises'. Such transactions account for a significant component of global trade. Transactions between Multi National Enterprises ('MNE's) are estimated to account for about 60% of global trade as per the UNCTAD report of 1995.2 Post-liberalization of the Indian economy in 1991 and as a consequence of rapid globalization, there has been a significant inflow of Foreign Direct Investment (FDI) into India accompanied by a manifold increase in transactions between 'related persons' or 'associated enterprises'. Relevant to the levy and collection of direct and indirect taxes in India, the Transfer pricing regulations in the context of direct taxes and the Customs Valuation provisions in the context of indirect taxes have a bearing on such 'related person'/'associated enterprise' transactions, especially where an Indian entity and a foreign entity are involved. While the broader purpose of both the regulations in question is to arrive at an appropriate arm's length price/fair value for the levy of income-tax under the Income Tax Act, 1961 ('the IT Act') and customs duty under the Customs Act, 1962 ('the CA'), the higher the assessable value in India of goods imported the greater the customs duty which can be realized, and, lower the assessable import value, the greater will be the profit realization in India which can be subject to income-tax. Both, Transfer Pricing and Customs Valuation, significantly influence the level and quantum of taxes which the Central Government in the Indian context can collect.

Friday, 24 February 2012

I-T - Whether when assessee sells undertaking as going concern alongwith employees and licences, no capital gain tax can be levied on sum received in excess of written down value of assets transferred - YES: Bombay HC



THE issues before the HC are - Whether when the assessee sells the whole undertaking as a going concern alongwith the employees and various licenses and the cost of the assets cannot be determined separately, no capital gain can be taxed on the amount received in excess of the written down value of the assets transferred and whether prior to insertion of section 50B, the profit arising on the sale of the undertaking as a whole cannot be taxed. And the verdict goes against the Revenue.

Facts of the case
Assessee was engaged in the business of manufacture and sale of liquor. An agreement was entered into by the assessee with IDPL by which the assessee agreed to sell to the purchaser the undertaking / business together with its assets and liabilities as a running business / going concern on as is where is basis. AO noted that in the notes to account, it was mentioned that the written down value of the assets transferred was shown as a deduction for the purpose of computing depreciation from the block of assets. The excess of the cost of IMFL business was stated as not taxable and was not deducted from the respective block of assets. AO while framing the assessment deducted from the total sale price the written down value of the fixed assets and the value of the stores, raw materials and finished goods and observing that the difference was held to be chargeable under the head of capital gains. What was transferred by the assessee was the entire business as a slump sale but held that the profit arising on such transfer of business as a going concern would be chargeable to tax under the head of capital gains.

Robust FAR analysis and industry dynamics play a key role in substantiating Taxpayer’s position

Facts
Agility Logistics Pvt. Ltd. (“the Taxpayer”), an indirect subsidiary of Geologistics Corporation US, is engaged in the business of logistical services. The Taxpayer had adopted Comparable Uncontrolled Price (“CUP”) method wherein the contracts with Associated Enterprise (“AE”) and independent third parties were based on 50:50 net revenue split. This split was the difference between collections from customers and payments made to third party service providers. The Transactional Net Margin Method (“TNMM”) was applied as a secondary method with Operating Profit/ Value Added Expenses (“OP/VAE”) as the profit level indicator.
During TP audit, the Transfer Pricing Officer (“TPO”) rejected CUP method adopted by Taxpayer primarily on account of different geographical market - the AE “GeoUKMgt” was situated in UK whereas the Taxpayer operates in India. The TPO opined that CUP method did not provide realistic results due to differences in economic conditions and government policies which affect costs and profitability. While the Taxpayer explained that the Group TP policy was based upon equal sharing of net revenue between contracting AEs, the TPO maintained that the inter-company agreements were based on profit split as against a specific rate. Hence, the TPO applied the TNMM method on a different set of comparables including private limited companies. The PBIT/ Total Cost of comparables was determined at 18% vis-à-vis the Taxpayer at 2%. Accordingly, the TPO made an upward adjustment of INR 275,434,623 to the total income of the Taxpayer for AY 2004-05.
Aggrieved with the TP order, the Taxpayer filed an appeal before the Commissioner of Income Tax (Appeals) (“CIT(A)”) wherein the primary arguments of the Taxpayer were:

The application of CUP method was justified as the AE and independent third parties followed an approach of splitting residual profit on 50:50 basis, which is typical for logistics and freight forwarding service providers.
 Though differences in geographical locations exist, it did not influence profit sharing as contractual terms in agreements between AE and independent third parties remained identical.
 Both the origin company and destination company in the network performed comparable functions including coordination with third party service providers to provide logistical services to customers. Further, the composition of assets is office infrastructure whereas the risks assumed in case of loss or delay of cargo for both companies is similar. Therefore, in view of the integrated nature of operations, the sharing of risk and reward at 50:50 ratio is appropriate.
 That OP/VAE was an appropriate measure of profitability since operational efficiency is best measured in terms of whether the gross margin is adequate to cover costs associated with its functions and not those of airlines/ other freight carriers in respect of which the Taxpayer adds little value.
 In TP audit proceedings of AY 2002-03 and AY 2003-04, the TPO had accepted the CUP method based on 50:50 net revenue sharing. This pricing arrangement of the Taxpayer has remained unchanged over the years.
Based on the aforementioned arguments of the Taxpayer, the CIT(A) deleted the TP adjustment as the Taxpayer’s contentions regarding the CUP method were adequately supported by third party agreements and robust functional-asset-risk analysis. The CIT(A) also quoted the Tribunal Ruling of MSS India Pvt. Ltd. by the Pune bench which held TNMM to be a method of last resort which is to be presented only when the “traditional methods” cannot be reasonably applied.
The Revenue filed an appeal against the order of the CIT(A) before the Tribunal.
Ruling of the Tribunal
The salient aspects of the Ruling are as follows:
 The Tribunal accepted that the Taxpayer had previously adopted CUP method in AY 2002-03 and AY 2003-04 which had been accepted by the TPO. Further, as demonstrated by the Taxpayer, the revenue sharing was 50:50 in Pakistan, Bangladesh and Sri Lanka. Since the terms and conditions of various agency agreements between AE and independent third parties remained unchanged, it implied that geographical difference was not material to the logistics industry where revenue split was a typical phenomenon.
 It was held that the functional-asset-risk (“FAR”) profile of the origin company and destination company was similar with the activities being limited to coordination with nil inventory risk and minimal bad debt risk.
 In its capacity as an agent of the airline/ sealine, the Taxpayer merely issued bills to customers. Since it was not responsible for actually transporting the consignment, the exclusion of freight charges paid to independent service providers was reasonable. Therefore, the guideline under Para 7.36 of OECD was upheld that application of cost plus mark-up in performance of an agency function is more important than that of the service itself.
 Private limited companies that had been considered by the TPO as comparables despite non-availability of data in the public domain should have been excluded. Further, functionally comparable companies rejected by the TPO should have been included.

Conclusion
This Ruling highlights the importance of the following aspects:
 Comprehensive FAR analysis supported by industry characteristics strengthens the taxpayer’s position.
 The Tribunal accepted the consistency with which the CUP method had been adopted by the Taxpayer since AY 2002-03 till AY 2006-07, thereby emphasizing the uniformity in approach.
 The position of the OECD Guidelines on “pass-through costs” not being marked-up has been upheld with the rationale that these costs are not incurred for value-added activities.
 It was incorrect of the Revenue to include comparables whose data is not available in public domain for the TP analysis.
Source: Agility Logistics Pvt. Ltd. Vs. Dty. Commissioner of Income Tax (Mumbai, Bench), ITA No: 2000/Mum/2010

Annual Statement for providing information prescribed for non-resident having Liaison Office in India

The Finance Act, 2011 introduced section 285 in the Income Tax Act, 1961 with effect from 1 June 2011 to provide for filing of an annual statement by a non-resident having a Liaison Office (LO) in India with the jurisdictional Assessing Officer within 60 days from the end of a financial year in the prescribed form.
In connection with the above, the Central Board of Direct Taxes (CBDT) has provided for Rule 114DA in the Income Tax Rules 1962 and prescribed the annual statement, Form No. 49C, to provide for the information and particulars to be furnished by the non-resident having LO in India. The salient features of the said rule are:
 Signing of Annual statement: Annual statement is required to be verified by a Chartered Accountant or by a Signatory duly authorised in this behalf by the non-resident.
 Format for filing of annual statement: Annual statement is required to be furnished in electronic form along with the digital signature following the procedure to be prescribed by the Director General of Income-tax (Systems).
 Prescribed Information - The form prescribes information to be provided, amongst others on:
‒ India specific financial details for the financial year i.e., receipts, income and expenses of the non-resident person from or in India and not only of the LO;
‒ Details of all purchases, sales of material, and services from/to Indian parties during the year by the non-resident person (not limited to transactions made by LO.
‒ Details of any salary or compensation of any sort payable outside India to any employee working in India or for services rendered in India
‒ Total Number of employees working in the LO/LOs during the year
‒ Details of agents/representative/distributors of the non-resident person in India and names & addresses of the top five parties in India with whom the L.O. has been doing the liaisoning
‒ Details of Products or services for which liaisoning activity is done by the LO
‒ Details of any other entity for which liaisoning activity is done by the LO

‒ Details of Group entities present in India as Branch Office/Companies/LLPs etc., incorporated in India and nature their business activities
‒ Details of other LOs of the Group entities in India
‒ Other Group entities operating from the same premises as the office of the LO
The detailed procedure for filing of the annual statement in Form No 49C is yet to be notified.
It may also be noted that a LO is also required to furnish the Annual Activity Certificate to the designated Authorised Dealer (AD) Category – I bank

All about Taxation of Partnership Firms


Rate of tax :-Flat rate of 30% on the total income after deduction of interest and remuneration to partners at the specified rates. (No surcharge for Asst. Yr. 2010-11) to be increased by education cess secondary and higher education cess @ 3% on Income-tax.
Interest to Partners:-(Simple interest) Not exceeding 12% p.a. from 1-6-2002 (18% p.a. up to 31-5-2002).
Remuneration to Partners

Income tax provisions related to ‘Income from House Property’ in brief


In case of all assessees, “Income from house property” shall be computed as under.
a. In the case of Let Out Property [Whether for residential purpose or for business purpose]
The annual value of any property shall be deemed to be
i.            The sum for which property might reasonably be expected to let from year to year or
ii.            When property or any part of property is let, the annual rent received/receivable less unrealised rent or the sum as above, whichever is higher.
iii.            Where property or part of it is let and was vacant for whole or part of year, and rent received/receivable less unrealised rent is less than the sum as per (i) above due to the vacancy, then the rent actually received/receivable.

Thursday, 23 February 2012

Business auxiliary service - Section 65 (19) of the Finance Act, 1994 – marketing efforts

R.S. Financial Services Versus C.C.E., Jaipur I - Tribunal
Business auxiliary service - Section 65 (19) of the Finance Act, 1994 – marketing efforts - appellant promoted business of ICICI Bank providing the services of processing of loan application for commercial vehicle which resulted in promotion of business of the bank as well as the vehicle seller – Held that:- The nature of activity carried out falls within the ambit of Business Auxiliary Service. Further, Appellate order does not demonstrate any mala fide of the assessee to bring it to the fold of penalty u/s 76 and 78 of the Finance Act, 1994. However penalty u/s 77 is confirmed – Decided partly in favor of assessee.

Conversion of Partnership Firm into Limited Liability Partnership

 

The procedures to convert an existing partnership firm to limited liability partnership (LLP) are provided below:
Key Requirements:
  • The Partnership Firm should be registered under the Indian partnership Act 1932.
  • All the partners of existing firm should become the partners of LLP
  • Minimum 2 partners as Designated Partners and one of them should be Resident in India
  • Digital Signature Certificate for one of the Designated Partners
  • LLP (Limited Liability Partnership) Name
  • LLP (Limited Liability Partnership) Agreement
  • Registered Office for the existing partnership firm

Income tax provisions related to charitable trust in brief


Exemption :-Income derived from property held under trust or of an institution (‘trust’) wholly for charitable/religious purpose is exempt, if 85% of the income is spent on the objects of the trust, during the year. If the amount spent is less than 85% of the income, the shortfall is taxable, unless the trust has complied with the conditions mentioned in the table below.
‘Charitable purpose’ includes relief of the poor, education, medical relief, and the advancement of any object of general public utility. However, if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention, of the income from the said activity, the same will not be regarded as advancement of any object of general public utility. However, if the total receipts from such activities do not exceed Rs. 10,00,000/-, such activities of the trust will continue to be regarded as activities for charitable purpose. Preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be considered as “charitable purpose” other than “advancement of any object of general public utility”.

Circumstances for not spending 85% of incomeWritten appln. to be madeConditionsConsequences, if conditions not satisfied
Application in F. No. 10 to be made specifying purpose for accumulation of income for period of 5 years. Period for which unable to apply income for that purpose due to court order/injunction to be excludedBefore the expiry of time allowed
u/s. 139(1) for furnishing the return
To be spent within period of accumulation or immediately following year. Pending application of income, to be invested in manner as specified in S. 11(5). Cannot be spent by way of donation to another charitable trust or institution except if the Assessing Officer permits the same in the year in which the trust or institution is dissolved.
  • Such income deemed to be income of the previous year in which any of the conditions not satisfied.
  • If income not spent within stipulated time, for the purpose of accumulation, deemed to be income of the previous year immediately following period of accumulation, unless Assessing Officer’s permission obtained to spend it on other objects of the trust.
Whole/part of the income not received during previous yearAs aboveTo be spent in the year of receipt, or in the next yearSuch income deemed to be income of previous year immediately following year of receipt.
Any other reasonAs aboveTo be spent in the year of receipt, or in the next year.Such income deemed to be income of previous year

Voluntary Contribution received by any university or educational institution referred to in section 10(23C)(vi) or hospital or other institutions referred to in section 10(23C)(via) shall be deemed to be income (with retrospective effect from assessment year 1999-2000). Similarly, voluntary contributions received by any university or other educational institution or any hospital or other institution referred to in sections 10(23C)(iiiad) and 10(23C)(iiiae) respectively will be deemed as income received by them.
With effect from 1st June, 2007 any fund or institution established for charitable purposes or any trust established for public, religious and charitable purposes will be notified by Prescribed Authority which hitherto was notified by Central Government.
Registration:-Registration under section 12AA will be granted from 1st day of the financial year in which the application for registration is made. Commissioner not empowered to condone the delay in application for registration. The Commissioner has power to cancel the registration of the trust by an order in writing if he is satisfied that the activities of trust are not genuine or are not being carried out in accordance with the objects of the trust. Commissioner of Income tax now also has power to cancel registration of trust granted under provisions of section 12A of the Income-tax Act, 1961.
Appeals :-Orders passed under section 12AA or under section 80G rejecting the registration of trust/ rejecting approval under section 80G are appealable. The appeal lies to the Income tax Appellate Tribunal.
Approval under section 80G:-From 1st October, 2009, approval once granted under section 80G will be valid in perpetuity unless revoked by the Commissioner of Income tax in accordance with the provisions of section 80G(5)(vi) of the Income tax Act, 1961.
Audit:-To qualify for exemption u/ss. 11 and 12, a trust having total income (before exemption u/ss. 11 and 12) exceeding the maximum amount not chargeable to tax must have its accounts audited by a C.A.
Investments:-All investments of the trust must be in modes provided in s. 11(5). If not, they must be brought in conformity within 1 year from the end of the previous year in which such investments are acquired, or 31-3-1993, whichever is later. Contravention results in income and wealth of the trust being taxed at maximum marginal rate. This restriction does not apply to:
  1. Any asset held as part of the corpus as on 1-6-1973;
  2. Any accretion to shares, forming part of the corpus as on 1-6-1973, by way of bonus shares;
  3. Any debentures acquired before 1-3-1983. If debentures acquired after 28-2-1983 and before 25-7-1991, exemption is denied only in respect of income from such debentures, provided debentures are disinvested by 31-3-1992.
Modes of Investment specified in S. 11(5)
  1. Investment in Government savings certificates/other securities/ certificates issued by Central Government under Small Savings Schemes;
  2. Deposit in any account with the Post Office Savings Bank;
  3. Deposit in any account with a scheduled/co-operative bank;
  4. Investment in units of the Unit Trust of India;
  5. Investment in any security of the Central/State Government;
  6. Investment in debentures whose principal and interest are fully and unconditionally guaranteed by Central/State Government;
  7. Investment or deposit in any public sector company (PSC); Shares of PSC may be retained for three years and other investments or deposits till its maturity once PSC ceases to be a PSC;
  8. Deposits with or investment in any bonds issued by an approved financial corporation engaged in providing long-term finance for industrial development in India;
  9. Deposits with or investment in any bonds issued by an approved public company with main object of carrying on business of providing long-term finance for construction / purchase of houses in India for residential purposes or for urban infrastructure;
  10. Investment in immovable property;
  11. Deposits with the Industrial Development Bank of India;
  12. Any other prescribed form or mode of investment or deposit. (for example, Units of mutual funds referred to in s. 10(23D), investment by way of acquiring equity shares of a ‘depository’ prescribed).
  13. Investment in “Indira Vikas Patra” and “Kisan Vikas Patra” are in accordance with the norms and modes specified in sec. 11(5) – Circular No. 566, dt. 17-7-1990.
Corpus donations
U/s. 11(1)(d), voluntary contributions with specific direction that they shall form part of the corpus of the trust are not includible in the total income of the trust. However, u/s 12 other voluntary contributions would be deemed to be income of the trust.
Business income:-Exemption is not available in relation to any profit and gains of business of a trust, unless the business is incidental to the attainment of the objectives of the trust and separate books of account are maintained in respect of such business.
Capital gains:-The gains arising from transfer of a capital asset, is deemed to have been applied to charitable/religious purposes, if the whole net consideration is used to acquire new capital assets. If only part of the net consideration is so utilised, such gains, as equals the excess of the amount so utilised over the cost of the transferred asset is deemed to have been applied for charitable/religious purposes.
Anonymous donations:-The term “anonymous donation” is defined to mean any voluntary contribution, where the person receiving such contribution does not maintain a record consisting of the identity of the person making such contribution indicating the name and address of the person and such other particulars as may be prescribed. Such anonymous donations will be taxed @ 30%. However, the following anonymous donations are not covered:–
  • donations received by a trust or institution which is created or established wholly for religious purposes;
  • donations received by any trust or institution created or established wholly for religious and charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.
  • However, in case of partly religious and partly charitable institutions where the anonymous donations are directed towards medical or educational institutions run by such entities or anonymous donations are received by wholly charitable institutions, it will be taxable to the extent such donations exceeds 5% of the total income of institution or Rs.100,000/- whichever is more.

Time limit for application for claiming exemption:-Application by funds, trusts, institutions, universities, other educational institutions, hospitals or medical institutions seeking exemption under section 10(23C), could now be made on or before 30th September of the relevant assessment year.
Electoral Trust:-Electoral Trust to be approved by the Central Board of Direct Taxes. Voluntary contributions received by Electoral Trust to be treated as income with effect from 1st April, 2010. Income of Electoral Trust by way of voluntary contribution will be exempt subject to fulfillment of following conditions:
  • Such Electoral trust distributes to the political parties (registered under section 29A of the Representation of the People Act, 1951) 95% of the donation received by it during the previous year along with the surplus, if any brought forward from any earlier years and;
  • Electoral Trust functions in accordance with the rules made by the Central Government.
Contribution to Electoral Trust eligible for deduction while computing taxable income.