Thursday, 31 May 2012

CBDT’s Clarification On Reopening Assessments Due To Retro Law in FA 2012

 
The Finance Minister had stated that a letter would be issued by the CBDT regarding reopening of completed assessments on accounts of the retrospective amendments in the Finance Act 2012. That letter is set out below:

Letter [F.No.500/111/2009-FTD-1(Pt.)], dated 29-5-2012

The Finance Act 2012 has introduced certain clarificatory amendments in Section 2 clause (14), Section 2 clause (47), Section 9 and Section 195, of the Income Tax Act, 1961 (“Act”), with retrospective effect from 01.04.1962 or 01.04.1976, whereby meaning of various terms used in these sections have been clarified in order to remove any doubt regarding their interpretations.

2. These amendments have been introduced retrospectively in order to clarify the legislative intent and state the position of law from the date of coming into effect of these sections in the Act.

3. Doubts have been raised in various quarters about the implication of these amendments on the assessments that have already been completed and attained finality.

4. The Board, after due consideration, hereby directs that in case where assessment proceedings have been completed under section 143(3) of the Act, before the first day of April, 2012, and no notice for reassessment has been issued prior to that date; then such cases shall not be reopened under Section 147/148 of the Act on account of the abovementioned clarificatory amendments introduced by the Finance Act, 2012. However, assessment or any other order which stand validated due to the said clarificatory amendments in the Finance Act 2012 would of course be enforced.

5. This may be brought to the notice of all officers in your region immediately.

Tax Prescription for Doctors

Both Self Drugging & Self Tax Planning are not advisable.
            
Doctor is one of noble professional in the society & helps the society to be a healthy. But this professional will not be spared & will be taxed for the income generated from his profession.
 
The hardest thing in the world to understand is the income tax.” — Albert Einstein, Physicist.
 
But this small document is an effort to give the doctors about overall picture of tax (which Einstein said is hard). It aims to help doctors to have insight knowledge on income tax.  This document will assist them on to have the idea of tax/accounts/audit & to avoid unnecessary payment of tax, interest & penalty.
 

SI.
Subject
Explanation
1.
         Accounts
Doctor is also one of the professional who is covered under section 44AA of income tax act, which requires maintaining books of accounts if the doctor is in receipt  of  Fee (gross fee collection) of more than Rs. 1,50,000/- (one lakh and fifty thousand) during the year. This is mandatory as per the income tax act.
 
Penalty for non maintenance of books of  accounts is Rs. 25,000.(As Per Section-271A of Income Tax Act)
2.
        Accounts
Rule 6F of Income Tax Rules specifies that few books of accounts has to be maintained –
 
1) Cash book , Journal, Ledger,
2) Carbon copies of bills (more than Rs. 25) and original bills of expenditure made, daily register and inventory (of Medicines).
 
These documents and accounts should be preserved for 6 years from the end of relevant Assessment Year.
3.
Audit
If practicing doctor is having gross fee collection of Rs. 10,00,000 (ten lakhs) or more (15 laks For AY 2011-12) during the previous year (April to March), then books of accounts should be audited by a qualified practicing Chartered Accountant.
 
Penalty for not having audit is---0.5% of the receipts or Rs. 100,000, whichever is less. (As Per section 271B of income tax Act)
4.
Tax
Section 139 of Income Tax Act requires to file the Income Tax return every year on or before 31st  July  (Non- Audit Cases i.e. gross fee collection is less than Rs. 15,00,000/-) or 30th September (Audit cases i.e. gross fee collection is more than Rs. 15,00,000/-)
5.
Tax
If Annual Tax liability is more than Rs. 10,000, then tax is required to be paid in advance. It can be called as self TDS. TDS is the tax which employee will pay every month from salary.  But for professionals, the due dates for advance tax are – 15th September, 15th December and 15th March. They are required to pay 30%, 30% and 40% of Annual tax liability for the forth coming assessment year. (The advance tax has to be paid on estimate basis).
 
Ex.  If the tax liability estimated is Rs. 20,000/- ,then the due dates for paying tax liability are
1) Rs. 6,000/- on or before 15th September,
2) Rs. 6,000/- on or before 15th December &
3) Balance Rs. 8,000/- on or before 15thMarch.
6.
Interest
If Advance tax is not paid within the due date as specified above interest @ 1% per month till the next due date is payable. (As Per Section-234C of Income Tax Act).
 
If 100% of tax is not paid in advance, interest @ 1% per month is payable from 1st April till the date of payment on the balance tax due. (As Per Section-234B of Income Tax Act).
 
If 100% of tax is not paid in advance and return is not filed in time, interest @ 1% per month is payable till the date of filling the return of Income by paying 100% of tax due on the return. (As Per Section-234A of Income Tax Act).
7.
Hand Loan Taken
As Per Sec. 269SS of Income Tax Act, “No person  shall take or accept from any other person any loan otherwise than Account payee cheque or account Payee Bank Draft if amount of such loan is Rs. 20,000/- or more.”
 
If already any loan is taken during current year or any earlier year and/or interest accrued there on and any loan is accepted during the year, aggregate amount of such loan is Rs. 20,000/- or more, then also the Account Payee Cheque or Account Payee Bank Draft is must for such Loan.
8.
 
Hand Loan Repayment
As Per Sec. 269T of Income Tax Act, “In case the loan balance along with the interest there on, on the date of repayment is Rs. 20,000/- or more,  then such loan has to be repaid through the Account Payee Cheque or Account Payee Bank Draft”
9.
Payments to Relatives
Nobody (including Income Tax Officer) will stop doctors paying salary or professional payment to spouse/relative for any service availed, if it’s reasonable.
 
EX:
1.If a CA is undertaking the assignment of account writing for Rs. 18,000/-, and the doctor shows professional payment of Rs. 50, 000/- to his B.Com. Passed spouse. Such contention is not tenable as the payment is more in the nature of relationship.
 
2. If spouse of a Doctor is a nurse or held office superintendent and salary to the spouse is Rs. 20,000/- p.m. but the salary to same kind of job in market is Rs. 5,000/- then payment of Rs. 20,000/- is not tenable.
10.
Business in the name of Spouse. (Unless Professionally Qualified).
 
1.       Running Medical Shop in the name of spouse.
Purchasing the medicines in the name of doctor, and selling in the name of spouse and diverting the income of doctor is another tactics of avoiding tax. Such contention is not tenable, unless the spouse holds pharmaceutical qualification or the spouse of doctor employs any such graduate and the medicines are purchased in the name of such graduate and sold in his name.
 
2.       Running diagnostic center in the name of spouse.
Unless the spouse is pathological graduate or employs any such graduate for carrying out the diagnostic center then the contention of diverting the income to spouse can’t be taken.
 
3.    Other Incidental Business in the name of spouse.
Unless the spouse has a professional qualification to do the business or employs any such graduate for carrying out the incidental work of doctor, the contention of diverting the income to spouse can’t be taken.
11.
Payments in excess of Rs. 20,000/-
If any expenditures like Medicine Bill, Vehicle Maintenance and such other Payments are claimed as expenditure while computing the income, are to be mandatory by Account Payee Cheque or Account Payee Bank Draft, if the payment exceeds Rs. 20,000/-. (As Per Sec. 40A(3) of Income Tax Act)
12.
Savings / Investments
As known to everyone, tax can be saved through investing the amount in the eligible investments to the tune of Rs. 1,00,000/-. The investments are like Insurance premium, House loan principal repayment & Eligible Mutual Funds.etc.,
13.
.
MediClaim  Policy Payments
Doctors also can purchase these policies and get the premium deducted from their total income up to Rs. 15, 000/- on the life of spouse, Children and parents- u/s 80D. This deduction is in addition to Rs. 1,00,000/- u/s 80C. As Per Section 80D “ the deduction is allowed only if Premium is paid through the account payee cheque, demand draft or through the credit card or debit card.(CASH PAYMENTS ARE NOT ALLOWED).
14.
Donations
No charitable donations to N.G.O.’s will give 100% tax benefit. Tax saving from these donations varies from 5%, 10% or 15% depending on your tax slab rate.
 
For some specified donations Tax savings varies 10%, 20% or 30% depending on your tax slab rate.
 
Ex. If you donate Rs. 100/-, you will get the maximum tax saving  of  Rs. 15.

 
The following documents are required to be maintained:
 
1. Cash receipts and / or Fee Collection Register for Fee Collection.
 
2. Expenditure details – Accounts Writing Fees, Bank Charges, Clinic Rent, Conference Fees Payment, Electricity Bills, Interest on Loan, Insurance (on Vehicle or Indemnity Insurance), IMA Fees Payment, Medicines, Mobile Bills or Recharge Currency, News Papers & Periodicals for Hospitals, Printing & Stationary, Professional Payments (CA’s or Lawyers), Professional Tax Payment Challan, Pooja Expenses of Hospital (if any),  Travelling & Boarding Charges (Bus, Train or Air Tickets, & Loading & Hotel Bills),  Vehicle Maintenance (Petrol Bills & Service Bills), Salary payments to staff or such  other type of expense made for office.
 
We advice for collection of bills for expenses made and file it.
 
3. Assets details – Any assets purchased of sold during year – Computer, Medical Equipment, Land & Building, Car, Flat etc. Please consult your CA whenever you have any intention to purchase. Keep the record of these – Date, Bills & Payment, etc.,
 
4. Investment Details – Shares, Bank FD, Mutual funds, Savings Bank, Recurring Deposit (Bank or Post office), Life Insurance.
 
5. Pass Book Details (Details on Bank OD if any).
 
6. Loan Details and repayment there of (Statement of Loan Repayment With the bifurcation of principle & interest portion in the installment).
 
Last note but not the least, Self Medicine is dangerous to health which doctor discourages to every patient. Even Self –Tax planning is not advisable, unless he/she is salaried person and salary is the one and only source of income.
 
"Taxes are what we pay for civilized society.'' — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice. Hope this document will help the doctors to plan tax than avoiding the tax.

Wednesday, 30 May 2012

“Tax paid by employer not salary for perquisite valuation” – Delhi High Court affirms the Tribunal ruling

This alert is in continuation to our GES Alert dated 11th November 2011 on the Delhi Tribunal ruling in the case of Isao Sakai.
Facts
 Telsuo Mitera, Isao Sakai and Yuji Horikawa, employees of Japan Airlines International Company Limited (the employer) filed their return of income for tax year 2005-06 (relevant to assessment year 2006-07) including perquisite value of accommodation.
 The employees were entitled to tax free salary and such payment was considered as perquisite. Consequently, tax payment by employer was not considered as part of salary for computing the value of rent free accommodation.
 The assessing officer and the Commissioner of Income-tax (Appeals) had held that taxes paid by the employer should be considered as salary for determining the value of accommodation. However, the Delhi Tribunal ruled that such payment was in the nature of benefit and should not be considered for perquisite valuation. The present appeal is by the Revenue against the order of the Delhi Tribunal.
Issues before the High Court
 Whether the tax paid by the employer is to be included as part of salary for determining perquisite value of rent free accommodation?

Why Software Income Is Not Taxable Despite Retro Law In Finance Act 2012



The verdict in B4U International has sent shock waves across the Country because it implies that the retrospective amendments in the Finance Act 2012 to the definition of the term “royalty” so as to rope in software income and equipment hire charges are infructuous in the absence of a corresponding amendment to the definition of that term in the DTAA. The author puts the issue in perspective and explores the way forward for the Government

The verdict of the ITAT Mumbai in B4U International must have come as a nasty shock to the mandarins of North Block because while these worthies thought that by amending s. 9(1)(vi) of the Income-tax Act with retrospective effect, they had accomplished the mission of taxing software receipts, they overlooked one minor detail – the Double Taxation Avoidance Agreement!

Taxes- Due Date Alert for the month June 2012

Taxes- Due Date Alert for the month June 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 June 2012.


Sr No
Due Date
Related to
Compliance to be made
1
05.06.2012
(Tuesday)
Service Tax
Payment of Service Tax for the Month of May 2012. Please also make payment for use of service under reverse charge mechanism
2
07.06.2012
(Thursday)
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 May 2012.
·        Deposit TDS from Salaries  deducted during the month of May 2012
•   Deposit TCS for collections made under section 206C including sale of scrap during the month of May 2012, if any
•    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of May 2012, if any
3
15.06.2012
(Friday)
Income Tax
Payment of fiest installment of advance tax (15%) for corporate
4
20.06.2012
(Wednesday)
VAT
Payment of VAT & filing of monthly return for the month of May 2012
5
30.06.2012
(Saturday)
VAT
Filing of Annual return in hard copy (Karnataka VAT)

Tax implications of a “Dependent Agent Permanent Establishment” explained

DDIT vs. B4U International Holdings Ltd (ITAT Mumbai)


The assessee, a Mauritius company, was engaged in telecasting TV channels. It had an advertisement collection agent in India who collected revenue from time slots given to Indian advertisers. The assessee claimed that its profits from India were not chargeable under the DTAA because (i) it did not have a PE and (ii) assuming the agent was a PE, the agent had received an arms’ length fee from the assessee and further profits could not be attributed. The department relied on DHL Operations B.V. 142 TM 1 (Mum) and claimed that as the assessee was dependent on the Indian agents, the Indian agents constituted a “Dependent Agent PE” and that despite arms’ length fee to the agents, profits were attributable to the DAPE. HELD by the Tribunal:

Despite Retro Law By Finance Act 2012, “Royalty” Not Taxable as DTAA prevails


B4U International Holdings Ltd vs. DCIT (ITAT Mumbai)


The assessee, a Mauritius company, made payment to Panamsat, USA, for hire of a “transponder satellite”. The AO held that the said hire charges constituted “royalty” and that the assessee ought to have deducted TDS u/s 195 and that as it had not done so, the amount was to be disallowed u/s 40(a)(ia). Before the Tribunal, the department argued that though as per Asia Satellite 332 ITR 340 (Del), the hire charges were not assessable as “royalty”, this verdict was no longer good law in view of the amendment to s. 9(1)(vi) by the Finance Act 2012 w.r.e.f. 1.4.1976 to provide that such hire charges shall be assessable as “royalty”. HELD by the Tribunal:

New Method for Transfer pricing

As you are aware, currently, for the purposes of determining the ALP, 5 methods have been prescribed under the Indian TP regulations. Further, the law gives power (since introduction of TP law) to the Central Board of Direct Taxes (CBDT) to prescribe any other method.

The CBDT has now prescribed the following (as Rule 10AB under IT Rules) under a notification given below-
"10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
 
The above is applicable from Assessment Year 2012-13 onwards (i.e. accounting year beginning 1 April 2011 onwards).
Whilst, we would be sending you our detailed Newsflash on the subject, our initial thoughts.....
The new method is in line with the OECD Guidelines. As can be seen, the scope of the new method seems broad providing flexibility to taxpayers to choose any method provided it satisfies the arm’s length test (i.e. takes into account the price which ”has been charged or paid” between non associated enterprises in an uncontrolled transaction). In our view, the important change is that the new method introduces price which “would have been charged or paid” ie it seems introducing the concept of “hypothetical” arms length test. This is likely to benefit tax payers where reliable comparable uncontrolled transactions cannot be identified.


INCOME-TAX (SIXTH AMENDMENT) RULES, 2012 - INSERTION OF RULE 10AB
NOTIFICATION NO. 18/2012 [F. NO. 142/5/2012-TPL], DATED 23-5-2012
In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962 namely:-
1. (1) These rules may be called the Income-tax (6th Amendment) Rules, 2012.
(2) They shall come into force on the 1st day of April, 2012 and shall apply to Assessment year 2012-13 and subsequent years.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the said rules), after rules 10A, the following rule shall be inserted, namely:-
"Other method of determination of arm's length price
10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
3. In rule 10B of the said rules, in sub-rule (1) after clause (e), the following clause shall be inserted, namely:-
"(f) Any other method as provided in rule 10AB."

IFRS with Indian AS

Indian Accounting Standards already issued by the Institute of Chartered Accountants of India (ICAI) corresponding to the International Financial Reporting Standards AS 1 is based on the pre-revised IAS 1. AS 1 is presently under revision to bring it in line with the current IAS 1. The Exposure Draft of the revised AS 1 is being finalized on the basis of the comments received on its limited exposure amongst the specified outside bodies. The major differences between IAS 1 and the draft revised AS 1 are discussed hereinafter.

Differences due to removal of alternatives :

1. Unlike IAS 1, the draft of revised AS 1 does not provide any option with regard to the presentation of 'Statement of Changes in Equity'. It requires statement showing all changes in the equity to be presented.

Whether income earned from development of software upgrades for Network Management Systems for smooth working of VSAT service, as part of business of telecommunication, is eligible for deduction u/s 80-IA(4) - YES: HC

 THE issues before the Bench are - Whether the income earned from development of software upgrades for Network Management Systems for smooth and trouble free working of VSAT service provided by the assessee, as part of business of telecommunication services, is eligible for deduction u/s 80-IA(4)(ii) of the Act and whether the INSAT 2E is a domestic satellite within the meaning of sub-clause (ii) of Clause (4) of Section 80-IA of the Act, despite the fact that British Telecom had leased it to the assessee. And the verdict goes in favour of the assessee.
Facts of the case

assessee is a public limited company and was providing satellite based telecommunication solutions including VSAT services, up-linking services, play out services and broadband service through satellite. It had earned income from the said services, besides rental income and income from other sources. In the return of income, it had claimed deduction u/s 80IA of the Act of Rs.4,88,29,013/- and after the adjustment, had declared total taxable income of Rs. 5,45,89,013/-.

The AO treated Rs.1,42,34,278/- as income earned by the assessee from domestic satellite service. The AO referred to notes on accounts in which the assessee had disclosed that payment of Rs.13,42,288/- was made for space segment charges in foreign currency. This payment was made to British Telecom (Worldwide) for use of satellite service in the Indian Satellite INSAT 2E. The AO held that the said satellite was not a 'domestic satellite' as it was owned by Department of Space, Government of India, which was not an Indian company and was being operated by British Telecom (Worldwide), a foreign company. The AO to compute and make the aforesaid addition of Rs.1,42,34,278/- observed that the assessee had made payment of Rs.13,42,288/- to British Telecom (Worldwide) and had not shown any income or receipts earned from any third party. The addition was made holding that the income included income from satellite services not in the nature of domestic satellite service as defined for purpose of the Section 80IA. The profit/income disclosed by the assessee was notionally on proportionate basis treated as profit/income earned from satellite services, not being domestic satellite services.

The said view, however, was not accepted by the CIT (Appeals), who held that British Telecom (Worldwide) or INTELSAT did not have ownership right over the satellite. Relying upon the letter dated 21stNovember, 2007, written by the Director, ISRO, it was held that the satellite was owned by the Department of Space, Government of India and, therefore, the AO was not justified in excluding the income earned from the domestic satellite services. The view of the CIT (Appeals) was affirmed by the tribunal.

The AO also noticed that the assessee had shown sales of Rs.2,12,28,512/-. On scrutiny of details, it was noticed that major sales were in respect of Antenna, RFT and other miscellaneous items, which included computer printer, UPS, CTV, air conditioner, hand camera, generator sets, telephone instruments, video conferencing systems, monitor etc. He held that the said equipments could be bought and procured from the Original Equipment Manufacturers (OEMS, for short) including the foreign vendors. Accordingly, Rs.50,42,717/- was excluded from the deduction claimed u/s 80IA of the Act as income not derived from specified services, after noticing that the cost of material was Rs.1,61,85,795/-. The CIT (Appeals) upheld the said addition holding that this was income derived from trading in goods. The tribunal has deleted the said addition.

On further appeal, the High Court held that,

Whether when assessee receives payments on sale of property in parts, piecemeal deposits of same under capital gains scheme disentitles assessee from Sec 54EC benefits - NO, rules ITAT


 THE issues before the Bench are - Whether when the assessee receives payments on sale of propperty in parts, the piecemeal deposits of the same under capital gains scheme disentitles the assessee from Sec 54EC benefits; Whether it is necessary for the assessee to make deposit of the entire sale consideration at one time under the scheme and Whether the period of six months for making deposits is to be counted from the date of sale receipts or the date of agreement. And the answer goes in favour of the assessee.
Facts of the case
Assessee is an individual. He filed his ROI claiming exemption under section 54EC. The AO during the course of assessment proceedings examined the issue of exemption and allowed the claim of the assessee.

Depreciation @ 60% on Networking Equipments

INCOME TAX APPELLATE TRIBUNAL, DELHI
I.T. A. No.1665/Del/2011 – Assessment Year: 2003-04
Dy. Commissioner of Income-tax
Vs.
M/s. Microsoft Corporation India Pvt. Ltd.
C.O. No.152/Del/2011 – Assessment Year: 2003-04
M/s Microsoft Corporation India Pvt. Ltd.
Vs.
Dy. Commissioner of I.Tax

ITAT in assessee’s own case vide order dated 19.11.2010 allowed depreciation @ 60% on ITG networking equipment by observing as under:-
“16. From the above note, it is clear that the above equipment primarily include the routers, switches, modems, etc. which are in the nature of input and output support devices which performs the functions including communication and control and, thus, they are computer hardware when they are used along with computer and when their functions are integrated with `computer’. Such devices used as part of the computer in its functions and, thus, it can be termed as `computer’ only, therefore, eligible for depreciation @ 60%. Therefore, also we find no infirmity in the claim of the assessee of depreciation @ 60% of ITG networking equipments.”
Since the issue is squarely covered by the decision of ITAT in the assessee’s own case as also by the decision of Hon’ble Delhi High court in the case of BSES Yamuna Powers Ltd. (supra), we do not find any infirmity in the order of CIT(A) deleting the addition on account of difference in depreciation. The Assessing Officer is directed to allow depreciation on ITG Networking Equipments and cables etc. @ 60%.


Amendment in DTAA between Japan and India

Notification No. 19/2012
Agreement for avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign countries - Japan - Amendment in Notification No. GSR 101(E), dated 1-3-1990
Whereas the Convention between the Government of the Republic of India and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on income has come into force on the 29th day of December, 1989 after the exchange of Instruments of Ratification as required by paragraph 1 of Article 28 of the said Convention;
And whereas, the said Convention was notified by the Central Government under section 90 of the Income-tax Act, 1961 (43 of 1961) in the Gazetee of India vide No. G.S.R. 101(E) dated 1st March, 1990;
And whereas, clause (a) of paragraph 4 of Article 11 of the said Convention provides the details regarding 'Central Bank' and 'financial institution wholly owned by the Government' in the case of Japan which will not be subject to tax under paragraph 3 of the said Article, in respect of interest arising to it in the other Contracting State;
And whereas, sub-clause (ii) of clause (a) of paragraph 4 of article 11 refers to 'international business unit of Japan Finance Corporation' as one of the financial institutions wholly owned by the Government;
And whereas, both the Government of India and the Government of Japan have now agreed to omit 'International business unit of Japan Finance Corporation' from sub-clause(ii) of clause (a) of paragraph 4 of Article 11 and substitute therein "Japan Bank for International Cooperation";
Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961, the Central Government hereby directs that the following amendments shall be made In the said notification as follows:-
In the said notification, in the Annexure, in Article 11 of the Convention, in paragraph 4, in clause (a), for sub-clause (ii), the following sub-clause shall be substituted, namely:-
"(ii) Japan Bank for international Co-operation;".
2. This notification shall be deemed to have taken effect from the 1st April 2012.
[F. No. 506/69/81-FTD.1]

Tuesday, 29 May 2012

Retrospective amendments in TDS obligations

In the recent budget retrospective amendments are made in section 9, 195 etc. thereby requiring deduction of tax at source on certain payments on account of software whether as license or purchase or by download, payment for satellite transmission or any right, property or information etc.

In a recent decision in the case of ITO v. Bovis Lend Lease (India) (P) Ltd. (2012) 21taxmann.com 100 the assessee’s contention had been that what it paid to non-resident was only reimbursement of costs and submitted a CA certificate too. The ITAT held that reimbursement of expenses in this case relate to fee for technical services hence section 195 was applicable. The ITAT however concluded that since the services had been provided offshore, TDS provisions were not applicable. Later the revenue’s argument in MA had been that such reimbursements have become taxable with the change in the Explanation to section 9(2) of the Act in the Finance Act, 2010 with effect from 1-6-1976 irrespective of the place of rendering of service.

In rejecting the MA of the revenue the ITAT viz a viz period prior to such new law held that the deductor will not have any liability to tax for non deduction of TAS on the basis of the Nagpur bench decision of Tribunal in the case of Canara Bank v. ITO [2009] 121 ITD 1. The bench therein held that a retrospective amendment can validly impose tax on the recipient of income. It had cannot, however, fasten a liability on the deductor from a back date. The Tribunal had observed that merely for the reason that the law had changed retrospectively, the assessees could not be treated in default for non fault of their own. The other reason for rejection has been the fact that the revenue had gone to the High Court in this case which was pending.

Those assesses who may not have deducted tax viz a viz payments described in such retrospective provisions may escape tax liability on the basis of these decisions

S. 194A TDS: Discounting Charges Is Not “Interest”


CIT vs. Cargil Global Trading Pvt. Ltd (Supreme Court)


The assessee paid Rs. 3.97 Crores to an associate concern in Singapore on account of discounted charges for getting the export sale bills discounted. The AO held that that the discounting charges was “interest” u/s 2(28A) and that as there was no TDS, the expenditure had to be disallowed u/s 40(a)(i). This was reversed by the CIT (A) and Tribunal. The High Court (335 ITR 94 (Del) included in file) relied on Circular No.65 dated 2.09.1971, Circular No.674 dated 22.03.1993 & Vijay Ship Breaking 219 CTR 639 (SC) held that as the discounting charges were not in respect of any debt incurred or money borrowed and were merely discount of the sale consideration on sale of goods, it was not “interest” u/s 2(28A) and there was no obligation to deduct TDS thereon. On appeal by the department to the Supreme Court, HELD

S. 194H: TDS Defaulter is liable only for interest & penalty & not the tax

Jagran Prakashan Ltd vs. DCIT (TDS) (Allahabad High Court)


 
The assessee, a publisher of newspapers, gave 10-15% trade discount to advertising agencies as per rules of the Indian Newspaper Society. The AO held that the said discount constituted “commission” and that the assessee ought to have deducted TDS u/s 194H and was liable as assessee-in-default u/s 201. The assessee filed a Writ Petition to challenge the said order. HELD by the High Court:

S. 9(1)(vii)(b): Export sales is not a “source of income outside India”. Expenditure on fully convertible debentures is deductible

CIT vs. Havells India Ltd (Delhi High Court)


The assessee, an Indian company, paid Rs. 14.71 lakhs to a US company for ‘KEMA’ certification which was necessary to enable it to sell its products in the European markets. The assessee claimed that though the said amount was ‘fees for technical services’ u/s 9(1)(vii), it was paid “for the purpose of earning income from a source outside India” (i.e. the exports) and so it was not taxable in India u/s 9(1)(vii)(b). The AO & CIT (A) rejected the claim though the Tribunal upheld it. On appeal by the department, HELD reversing the Tribunal:

FINANCE ACT 2012 - APPROVED

The Finance ACT 2012 is approved by President of India.

International Worker definition narrowed – outbound assignees contributing to India PF excluded

Background
The Government of India [GOI] had amended the Provident Fund regulations in October 2008 introducing the concept of International Worker (IW) and to include foreign nationals working in a covered establishment within its ambit. Further, Indian passport holders travelling to a country with which India had an effective social security agreement [SSA] were to be tagged as IWs as well and covered by the amended regulations.
This caused concerns to outbound employees travelling to SSA countries since IWs
 were subjected to tighter withdrawal norms [withdrawal on retirement after 58 years],
 had to contribute higher amounts to the pension fund [8.33% of pay to be diverted to pension],
 were not eligible to opt out of the scheme where their salary was higher than the prescribed limit [INR6,500 per month].
From an employer perspective, it presented a huge challenge to convince the employees to travel to SSA countries and accept the IW tag since it was perceived as a disadvantage as compared to domestic workers.
Representations were made to the Ministry of Overseas Indian Affairs(MOIA) and the Employees’ Provident Fund Organization [EPFO] through NASSCOM, highlighting the concerns of outbound assignees/companies deputing such employees. The EPFO has now issued a circular narrowing the definition of IW and clarifying other open issues. An updated FAQ has been issued as well.

Key highlights of the circular
 The EPFO has clarified that category of IWs will comprise only those Indian employees who have contributed to the social security programme of a country having SSA with India and having gained or going to gain eligibility for benefits under the said SSA. Indian employees availing exemption from contributing in the host country by obtaining a certificate of coverage [COC] from India and contributing to the Indian social security system will not be covered under the definition of IW. However, it is mandatory for the individual to contribute to India PF as a member to avail the COC.
 The EPFO has clarified that the components of salary to be included for PF computation are the same for both domestic employees and IWs. The only distinction will be the wage ceiling for the former.
 In line with the reply given in Parliament by the Honourable Minister of Labour and Employment, the circular clarifies that the provision of inoperative accounts will not be applicable for IW accounts.
 The circular provides that the totalization benefit provided for in an SSA is only to determine eligibility for monthly pension and not to compute the pension amount itself. Where the SSA speficially so provides, withdrawal benefit under the pension scheme would be available when eligibility criteria is not met after totalization. This may prove beneficial for an inbound employee covered by an SSA.
The updated FAQ reflects the clarifications provided in the circular.
Comments
The narrowing down of the IW definition provides a major relief to the Indian corporate sector having impacted outbound population. Given that outbounds to SSA countries availing the benefit of detachment would not be covered under the definition of IW, such employees would not be subject to tighter withdrawal norms and higher pension contributions. This should facilitate employers to plan their deputation programmes without any PF concerns.
Source : EPFO Circular No. IWU/7(17)2009 /2816 dated 25 May 2012 and FAQs updated on 25 May 2012

PENALTY IS DISCRETIONARY NOT MANDATORY

Shri P V Ramana Reddy Vs ITO, Hyderabad
Income Tax - Section 271(1)(C) - Whether provisions of section 271(1)(C) are discretionary and hence the same are to be exercised in a liberal manner - Whether AO is required to be more liberal particularly in cases where the additions are confirmed as a result of difference of opinion. - Assessee's appeal allowed: HYDERABAD ITAT

CENVAT CREDIT CANNOT BE DENIED ON TECHNICAL ISSUES

M/s Gujarat Nre Coke Ltd Vs CCE, Rajkot
Service tax - Adjustment of excess Service Tax paid - Centralized Registration -  Technical dispute - There is no dispute to the excess payment of the amount towards the service tax liability. When there is an excess payment of service tax, the same can be adjusted against the subsequent service tax liability. The assessee had made an application for centralised registration and was under the impression that the same was granted. Technical issues must not come in the way for grant of benefits.  (Para 8) - Appeals allowed: AHMEDABAD CESTAT

Monday, 28 May 2012

Analysis of recent three important Judgements

1. AAR decision– selective buy back of shares was held to be distribution of dividend: - [AAR no. P of 2010 dated 22nd March 2012 {www.itatonline.org}] –

In the backdrop of an unsavory Vodafone tax episode, the AAR decision in this case unfolds to us as a preview of the specter looming in the forthcoming GAAR regime.

FAQ on Form 15 H & 15 G

Everyone is aware that Form 15G and form 15H are used for avoiding the TDS deduction while computing the interest earned during the financial year. In this article we are discussing important points to remember while submitting the Form 15G and Form 15H to the deductor. We have also included frequently asked questions and answers on Form 15G and Form 15H. Reader can download the latest Form 15G and Form 15H in Excel, Word and PDF format from the links given at the bottom of the article.

Form 15H :- Declaration under sub-section (1C) of section 197A of the Income-tax Act, 1961, to be made by an individual who is of the age of sixty-five years or more (Sixty Years from A.Y. 2012-13) claiming certain receipts without deduction of tax.

  • Form 15H can be submitted only by Individual above the age of 65 years. (Age limit reduced to 60