Uncertainties in TDS provisions - Recent issues

Introduction 1. Tax deduction at source is a responsibility bestowed on the payer with no rewards attached for perfection in compliance. On the other hand, if the compliance is not proper, so many tax provisions become applicable one after another such as disallowance of expenditure under section 40(a)(ia), mandatory levy of interest under section 201(1A) and penalty under section 271C. It becomes, thus, a primary requirement for payers to ensure that the tax is deducted at source so that the expenditure so incurred is allowed and further consequences are blocked at the outset of the transaction. It may so happen that the recipient, i.e., payee may resist deduction of tax at source by the payer and it is a reality that some payers incur the tax deduction as their own expenditure in order to avoid the wrath of the tax department and laws.

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.