ADOPTION
OF INTERNATIONAL FINANCIAL REPORTING STANDARDS CHALLENGING BUT REWARDING : CII
Thesynergyonline
Accountancy Bureau NEW
DELHI, AUG 06 : CONVERGENCE with the International Financial Reporting Standards
by Indian corporates was going to be challenging but at the same time would prove
to be very rewarding was the undisputed opening note of the CII IFRS Summit
on the theme Countdown to Convergence organized by CII here . With
more and more Indian companies venturing into the global marketplace, uniformity
of standards would lead to reduced transaction costs, attract more foreign capital
and create more investor wealth. On
the occasion, CIIs past president, Mr PK Nanda released the CII - Ernst
& Young publication Journey to IFRS A Guide on Transition,
an initiative to map the process of integrating internationally recognized financial
standards with the financial statements as presented in India . The publication
would be useful in answering the questions relating to the impact on financial
statements, delineating the significant dissimilarities between IFRS and Indian
GAAP and the implementation and maintenance process. Mr
Rajiv Memani, Chairman, CII National Committee on Accounting Standards and Company
Law & Country Managing Partner Ernst & Young , India said, The
new standards are becoming a necessity in the globalised world order. Adoption
of the new standards would benefit not only Indian businesses and capital markets,
but would also create job opportunities for Indian accountants. Mr
Memani also acknowledged the need for making significant investment to build adequate
IFRS skills and establish its knowledge base amongst Indian accounting professionals.
Stressing on
the need for regulatory changes Mr Memani said, In order to make IFRS mandatory
and ensure successful implementation, amendments to existing statutes need to
be undertaken. At the outset, the Companies Act, which currently requires Indian
GAAP to be followed, should be amended to make IFRS mandatory. Further, the support
of other regulators such as SEBI, IRDA, RBI is also needed. Appropriate changes
would be required in tax legislations to ensure they are capable of dealing with
the new framework. In
his address, Mr Uday Phadke, President, Finance, Legal and Financial Services,
Mahindra & Mahindra Ltd, said that the introduction of IFRS was a major opportunity
for the Indian accounting profession. Mr Phadke further said that the Indian industry
would need to adopt a proactive approach with regard to IFRS and take active part
in standard formulation. He said common standards are facilitator for greater
business interaction and are a necessity for companies seeking to move into overseas
markets. (npsinha@thesynergyonline.com)
ICAI
ALIGNS WITH CHANGING FACETS OF INDIAN ECONOMY Thesynergyonline
Accountancy Bureau NEW
DELHI, MAY 17 : THE Council of the Institute of Chartered Accountants of
India at its 278th meeting on May 13-15, 2008, has approved setting up of a Chapter
of the Institute in New York, U.S.A. This is the 20th Chapter of the Institute
outside India. The 1st Chapter was set up in Zambia. At
present the Chapters of the Institute are in Saudi Arabia (Jeddah, Riyadh, Eastern
Province), Botswana, Nigeria , Nairobi, Port Moresby (Papua New Guinea), Dubai,
Abu Dhabi, Bahrain, Kuwait, Doha, Australia (Melbourne & Sydney), Canada (Toronto),
Indonesia, London, Muscat (Sultanate of Oman). As
a result of the formation of these Chapters, the members can attend Continuing
Professional Education Programmes organized by the Chapters. Besides, the Chapters
also act as a bridge between ICAI and the Accountancy bodies in these countries.
These help in identifying professional and employment opportunities available
for members of ICAI, assist ICAI in setting up of accountancy Institutes, if no
such Institute already exists in those countries. The
Council of the Institute has also approved Accounting Standard (AS) 32, Financial
Instruments: Disclosures. The objective of this Accounting Standard is to require
entities to provide disclosures in their financial statements to enable users
to evaluate (a) the significance of financial instruments for the entitys
financial position and performance; and (b) the nature and extent of risks arising
from financial instruments to which the entity is exposed during the period and
at the end of the reporting period, and how the entity manages those risks.
In view of
the above, the Accounting Standard will bring about greater transparency in the
disclosures related to financial instruments such as derivatives and the exposures
to the risks related to such financial instruments and how the entity manages
its risks.
The Institute has already issued the related Accounting Standards, namely, Accounting
Standard (AS) 30, Financial Instruments: Recognition and Measurement and Accounting
Standard (AS) 31, Financial Instruments: Presentation. Issuance of this standard
completes Accounting Standards on the subject of Financial Instruments. Like AS
30 and AS 31, the Council proposes to make AS 32 recommendatory from 1st April
2009 and mandatory from 1st April 2011. The
globalization and the emerging scenario of the corporate world requires specialized
professionals who can provide service with excellence, professionalism & objectivity
to deal with various aspects of the corporate affairs. Members and other stakeholders
need guidance on various areas of corporate laws and practices.
While appreciating
the need of the profession in the global corporate sector, the Corporate Laws
Committee has initiated steps to formulate the Corporate Affairs Standards on
various areas of Corporate Affairs such as Business Valuation, Investor Protection,
Corporate Restructuring etc. to guide the members and stakeholders to ensure a
corporate regime benchmarked with best global practices. The
Council at its 278th Meeting approved in- principle to issue Corporate Affairs
Standards/Guidelines. While discussing the matter, the Council was of the view
that the Accountancy Profession because of its expertise and excellence in corporate
practice , is the best profession to render services in the global service market.
This decision of the Council is a capacity building measure for the profession.
(npsinha@thesynergyonline.com) HIKE
IN BASIC EXEMPTION LIMIT WOULD LEAD TO INCREASE IN PURCHASING POWER : ICAI
Thesynergyonline
Accountancy Bureau NEW
DELHI, APRIL 23 : THE increase in the basic exemption limit and rationalization
of the tax slabs coupled with excise duty cuts would lead to increase in purchasing
power and consequent increase in spending, thus promoting industrial growth,The
Council of the Institute of Chartered Accountants of India has submitted in a
Post-Budget Memorandum -2008 to the Government. Every
year, the Institute organizes a workshop on the Union Budget in which the senior
officials from the Central Board of Direct Taxes participate and give appropriate
clarifications. Accordingly, a workshop on the Union Budget 2008-09 was organized
by the Institute on March 20 , 2008. The session was devoted to a discussion of
the direct tax proposals. Senior Officials of the Government participated and
gave appropriate clarifications on the various issues. In this memorandum, ICAI
suggested certain amendments to the proposals contained in the Finance Bill, 2008
which would help the Government to achieve the desired objectives , it says.
The
Union Budget 2008-09 has been presented in the backdrop of an economy which is
on its high growth trajectory, with an average growth rate of more than 9 per
cent in the last two years. The major challenges facing the economy are sustenance
of this growth rate, management and regulation of capital inflows and controlling
the rate of inflation. The slowdown of industrial growth and agricultural growth
are a cause of worry and hence, the waiver of farm loans has come as a relief
to the small and marginal farmers who have availed institutional loans, the Council
says.. The increased deduction for medical insurance premium for the
health of parents is a good measure, especially so, since the condition of dependency
has been removed. The Budget 2007-08 had introduced the Reverse Mortgage Scheme
for the benefit of senior citizens. The Finance Bill, 2008 has clarified that
there would be no tax liability on a senior citizen on account of such reverse
mortgage and the income received by the senior citizen would be exempt from tax.
This is, no doubt, a novel scheme serving as a social security measure for the
aged , it says . With
a view to give proper credit in respect of TDS/TCS, the CBDT is now empowered
to make rules as may be necessary. The ICAI undertakes to be a valuable partner
in this exercise. The ICAI fully supports the initiative of the Government and
would render complete assistance in framing the rules. In this memorandum, firstly
an executive summary of our suggestions on the specific clauses of the Finance
Bill, 2008 relating to income-tax has been given. The detailed suggestions are
given thereafter. Executive Summary 1. Clause 3 Insertion
of Explanation 3 to section 2(1A) (a) Explanation 3 may be modified to provide
that income derived from saplings or seedlings grown in a nursery shall be deemed
to be agricultural income, whether or not the basic operations are carried out
on land. (b) Explanation 3 may be made clarificatory and thereby given retrospective
effect. (c) Definition of sapling and seedling may be provided. 2. Clause
3 - Substitution of section 2(15) (a) The scope of applicability of section
11(4A) may be increased appropriately instead of amending section 2(15). (b)
In the alternative, the proviso to section 2(15) may be suitably modified to exclude
services rendered to members/constituents from its scope. 3. Clause 5
Insertion of clause (iia) in section 35(1) (a) Weighted deduction of 125%
of the amount contributed should be available for contribution made for both research
and development. It should not be restricted to contribution made for research
alone. (b) Contributions made to foreign institutions for scientific research
should also be eligible for deduction. A condition can be imposed that the Intellectual
Property Rights should belong to the contributing entity in India. The eligible
foreign institutions may also be specified by the Central Government for this
purpose. 4. Clause 6 Amendment of section 35D (a) Fees paid for
increase in authorised capital should be included under the expenses qualifying
for deduction in the case of a company under section 35D(2)(c). (b) The words
or in connection with the increase in capacity of his existing business
may be added at the end of clause (ii) of section 35D(1). 5. Clauses 7, 97
to 116 - Amendment of section 36(1) Insertion of new clause (xvi) (a)
Clause 99 of Chapter VII of the Finance Bill, 2008 providing for charge of commodities
transaction tax should be suitably amended to provide that commodities transaction
tax would not be attracted in cases where the option is exercised. (b) An
eligible transaction of trading in commodity derivatives should be excluded from
the ambit of speculative transaction defined in section 43(5). The eligible
transaction of trading in commodity derivatives may be included as item (e) in
the proviso to section 43(5), which excludes certain transactions from the definition
of speculative transaction. Further, the definition of eligible transaction
in the Explanation to section 43(5) should be amended to include a transaction
of trading in commodity derivatives also. 6. Clause 9 - Amendment of section
40A Substitution of new sub-sections (3) and (3A) for existing sub-section
(3). (a) This amendment should be made effective in respect of payments made
after the specified date i.e. 1.6.2008. (b) Consequential changes should be
made in the disclosure requirement in tax audit report. 7. Clause 15
Amendment of section 80-IB Insertion of sub-section (11C) (a) The requirement
of minimum number of beds should be reduced from 100 to 50. (b) The assessee
should be permitted to avail the benefit of tax holiday in any 5 consecutive years
out of the initial 8 years beginning from the year of setting up the hospital.
8. Clause 16 - Amendment of section 80-ID Insertion of new clause (iii)
in sub-section (2) The assessee should be permitted to avail the benefit
of tax holiday in any 5 consecutive years out of the initial 8 years beginning
from the year of setting up the hotel. 9. Clause 18 Amendment of section
111A (a) Marginal relief may be provided for in section 111A (b) The last
proviso to section 48 should be removed so that securities transaction tax paid
may be allowed as a deduction while computing short-term capital gains. (c)
The proviso to section 111A(1) should also be correspondingly amended to increase
the rate of tax on the balance of short-term capital gains to 15%. 10. Clause
20 Amendment of section 115JB It should be clarified that the following
are to be deducted from net profit, if the same have been credited to the profit
and loss account - deferred tax asset and - reversal of deferred tax
liability or provision therefor. 11. Clause 21 Amendment of section
115-O Insertion of sub-section (1A) (a) The condition that the holding
company should not be a subsidiary of any other company may be removed. (b)
The deduction may be allowed to all companies which have received dividend from
another company, on which dividend distribution tax is paid. In other words, this
concession should not be restricted only to dividend received from a subsidiary
company. (c) If a company has invested in a Mutual Fund and has received
income from such Mutual Fund on which dividend distribution tax is paid under
section 115R, the said income should also be deductible from dividend distributed
by the company for the purpose of payment of dividend distribution tax under section
115O. This will avoid double taxation of the income received from the mutual fund.
12. Clause 22 Amendment of section 115WB (a) Expenditure on in-house
training, expenditure on any conference for skill development etc. should be excluded
from the purview of FBT. (b) Surcharge on FBT should be attracted only in
the case of those companies/firms where the value of fringe benefits exceed Rs.1
crore. 13. Clauses 24 & 27 Amendment of sections 115WD and 139(1)
(a) The definition of specified date in section 44AB should be
amended to have the same meaning as in Explanation 2 to section 139(1). (b)
In case of non-corporate assesses subject to audit, the due date may be further
advanced to 31st August of the assessment year. Further, in the case of non-corporate
assesses not subject to audit, the due date may be advanced to 30th June of the
assessment year. 14. Clause 26 Insertion of new section 115WKB
The stock option benefit enjoyed by an employee should be treated as his salary.
Consequently, the employer can withhold the FBT in relation to such benefits from
such employees salary. The employer should accordingly record this in the
TDS certificate issued by him to his employee. This would help the employee to
claim credit of such deemed payment of FBT in a country outside India. 15.
Clause 30 Amendment of section 147 Insertion of second proviso
The Assessing Officer should be required to specifically state the details of
income which has escaped assessment in the notice issued by him, and assessment/reassessment
should be restricted to such specified income alone. 16. Clause 40
Amendment of section 194C Insertion of clause (ja) in sub-section (1)
Only those AOPs and BOIs, which are liable to get their accounts audited under
section 44AB, should be required to deduct tax under section 194C. 17. Clause
46 Amendment of section 254(2A) Substitution of third proviso
(a) In the third proviso, the words if the delay in disposing of the appeal
is attributable to the assessee may be substituted for the words even
if the delay in disposing of the appeal is not attributable to the assessee.
(b) Alternatively, responsibility should be vested with the Tribunal to dispose
of the appeal during the period of stay. (c) Time barring provisions, similar
to the provisions contained in section 153 for completion of assessments, should
be made applicable in cases where stay has been granted. 18. Clause 52
Insertion of new section 292BB (a) Clause (b) of section 292BB relating to
non-service of notice in time should be removed (b) The language of the section
may be suitably modified to provide that where the assessee fails to raise preliminary
objection during the course of assessment proceedings that notice is not served
upon him or that notice is served in an improper manner, then he cannot raise
such an objection at the appellate or later stage. 1.
Clause 3 Insertion of Explanation 3 to section 2(1A) Agricultural income
is exempt from tax under section 10(1). The scope of agricultural income
is defined in section 2(1A). In the past, there have been court rulings that
only if a nursery is maintained by carrying out the basic operations on land and
subsequent operations in continuation thereof, income from such nursery would
be treated as agricultural income and would qualify for exemption under section
10(1). Therefore, income derived from sale of plants grown directly in pots would
not be treated as agricultural income. The
Finance Bill, 2008 has now proposed to insert Explanation 3, with effect from
A.Y.2009-10, to provide that income derived from saplings or seedlings grown in
a nursery would be deemed to be agricultural income. The intention of the proposed
amendment, as explained in the Explanatory Memorandum, is that income derived
from saplings or seedlings grown in a nursery are to be deemed as agricultural
income, whether or not the basic operations are carried out on land. The
language of the Explanation does not clarify the intent explained in the Explanatory
Memorandum. It should be appropriately modified by including the portion given
in italics (at the end of the earlier paragraph) to reflect the correct intention.
Also, since the proposed amendment is clarificatory in nature, it should be given
effect to retrospectively. Further, the meaning of sapling and seedling should
be defined, to avoid confusion. Suggestions (a)
Explanation 3 may be modified to provide that income derived from saplings or
seedlings grown in a nursery shall be deemed to be agricultural income, whether
or not the basic operations are carried out on land. (b)
Explanation 3 may be made clarificatory and thereby given retrospective effect.
(c) Definition of sapling and seedling may be provided. 2. Clause 3 -
Substitution of section 2(15) The
amendment proposes to clarify that advancement of any object of general
public utility shall not be a charitable purpose if it involves carrying
on of any activity in the nature of trade, commerce or business or any activity
of rendering of any service in relation to any trade, commerce or business for
a cess or fee or any other consideration. This is irrespective of the nature of
use or application of the income from such activity or retention of such income
by the concerned entity. Therefore, such entities would not be eligible for exemption
under section 10(23C) or section 11. This proposal may affect genuine charitable
institutions. The scope of exclusion from charitable purpose
would now also cover services rendered by Chambers of Commerce, Resident Welfare
Associations (RWAs), trade associations, port trusts who are carrying on service
activities by collecting the membership fee and providing services to their members,
even though there is no profit motive in such cases. It may be noted that the
other income of such Chambers of Commerce etc. is taxable even now by virtue of
section 11(4A). Suggestions
(a) The scope of applicability of section 11(4A) may be increased appropriately
instead of amending section 2(15). (b) In the alternative, the proviso to
section 2(15) may be suitably modified to exclude services rendered to members/constituents
from its scope. 3. Clause 5 Insertion of clause (iia) in section 35(1)
Section 35(1)(ii) provides for weighted deduction to a payer, to the extent of
125 per cent of the sum paid to an approved scientific research association, approved
university, college or other institution to be used for scientific research subject
to certain other specified conditions. It is proposed to insert a new clause
(iia) in sub-section (1) of section 35 to allow a weighted deduction of 125 per
cent of the amount paid by a person to a company to be used for scientific research.
This proposal is to encourage outsourcing of scientific research, particularly
by small companies which face difficulty in making heavy investment for building
in-house scientific facilities. However, the company should fulfill the following
conditions - (i) It should be registered in India; (ii) It should have
as its main object the scientific research and development; (iii) It should
be for the time being approved by the prescribed authority in the prescribed manner;
and (iv) It should fulfill such other conditions as may be prescribed.
It may be noted that research and development is generally used as a single phrase.
However, only the contribution made for research qualifies for deduction under
the proposed amendment. In order to avoid any ambiguity in this regard, the contribution
made for both research and development should qualify for deduction. Further,
at times, research of the nature required by the assessee may not be undertaken
within India. In such cases, the assessee may have to make contribution to a foreign
entity, for which deduction would not be available under this new clause. In order
to encourage such research, it is necessary that deduction be available for contributions
made to foreign entities also. Suggestions
(a) Weighted deduction of 125% of the amount contributed should be available for
contribution made for both research and development. It should not be restricted
to contribution made for research alone. (b) Contributions made to foreign
institutions for scientific research should also be eligible for deduction. A
condition can be imposed that the Intellectual Property Rights should belong to
the contributing entity in India. The eligible foreign institutions may also be
specified by the Central Government for this purpose. 4.
Clause 6 Amendment of section 35D Under section 35D, preliminary expenses
are allowed as deduction over a period of 5 successive years from the year of
commencement of business i.e. one-fifth of the expenditure is allowed as deduction
in each year. Such preliminary expenses incurred before the commencement of business
is allowed as deduction to companies in both the manufacturing and service sectors.
However, such expenses incurred after the commencement of business for expansion
of the existing business or for setting up a new unit was allowed only for the
companies in the manufacturing sector. It is proposed to extend this benefit to
the companies in the service sector as well. Fees
paid for increase in the authorised capital in case of companies are not treated
as preliminary expenses for the purpose of section 35D. Further, the expenses
incurred prior to and for the purpose of increase in capacity are not treated
as preliminary expenses for the purpose of section 35D. Such expenses should also
be treated as preliminary expenses for the purpose of availing the benefit of
deduction under this section. Suggestions
(a) Fees paid for increase in authorised capital should be included under the
expenses qualifying for deduction in the case of a company under section 35D(2)(c).
(b) The words or in connection with the increase in capacity of his
existing business may be added at the end of clause (ii) of section 35D(1).
5. Clauses
7, 97 to 116 - Amendment of section 36(1) Insertion of new clause (xvi)
Commodities transaction tax is proposed to be levied in respect of every taxable
commodities transaction i.e. transaction of purchase or sale of option in goods,
or option in commodity derivative, or any other commodity derivative, traded in
recognized associations. Such tax is proposed to be allowed as a deduction
from business income under section 36(1). Since the basic transaction of trading
in commodities is not taxable, commodities transaction tax should not be levied
in a case where the option is exercised. It may be noted that securities transaction
tax is attracted when an option is exercised because the basic transaction of
trading in securities itself is taxable. Suggestions (a) Clause 99 of
Chapter VII of the Finance Bill, 2008 providing for charge of commodities transaction
tax should be suitably amended to provide that commodities transaction tax would
not be attracted in cases where the option is exercised. (b) An eligible transaction
of trading in commodity derivatives should be excluded from the ambit of speculative
transaction defined in section 43(5). The
eligible transaction of trading in commodity derivatives may be included as item
(e) in the proviso to section 43(5), which excludes certain transactions from
the definition of speculative transaction. Further, the definition of eligible
transaction in the Explanation to section 43(5) should be amended to include
a transaction of trading in commodity derivatives also. 6. Clause 9 - Amendment
of section 40A Substitution of new sub-sections (3) and (3A) for existing
sub-section (3). Section
40A(3) provides for disallowance of expenditure incurred in respect of which payment
is made of a sum exceeding Rs.20,000 otherwise than by an account payee cheque
or an account payee bank draft. In
order to escape disallowance under this section, there has been a practice of
splitting up a high value payment into several cash payments, each below Rs.20,000,
sometimes even during the course of a day. In
order to prevent such a practice, it has been proposed that disallowance under
this section will be attracted if the payment or the aggregate of payments made
to the same person during a day otherwise than by an account payee cheque or an
account payee bank draft exceeds Rs.20,000. This amendment is proposed to be effective
from 1.4.09 i.e. A.Y. 2009-10 (or P.Y. 2008-09). However, the Finance Bill, 2008
would receive the assent of the President only in May 2008. Hence, the amendment
should be made effective only in respect of payments made after 1.6.2008.
Suggestions
(a) This amendment should be made effective in respect of payments made after
the specified date i.e. 1.6.2008. (b) Consequential changes should be made
in the disclosure requirement in tax audit report. 7. Clause 15 Amendment
of section 80-IB Insertion of sub-section (11C) Hospitals set up in
rural areas enjoy a five year tax holiday under section 80-IB if they are constructed
during the period between 1.10.2004 and 31.3.2008 and fulfill the prescribed conditions.
This is provided for in sub-section (11B). It
has now been proposed to extend the five year tax holiday under section 80-IB
to hospitals set up in non-metro cities i.e. anywhere in India other than in excluded
areas. Excluded area means the area comprising the urban agglomerations of Greater
Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore and Ahmedabad, the districts
of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar and Gandhi Nagar and the city
of Secunderabad. This amendment is proposed to be effected through insertion of
new sub-section (11C) To
be eligible for this benefit, the hospital should be constructed and should start
functioning between 1.4.08 and 31.3.2013. Further, it should have at least 100
beds for patients. Hospitals in small towns may find it difficult to comply with
this condition. Further,
since there is a probability of incurring losses during the initial years, the
assessee may not be able to avail the benefit of the five-year tax holiday, which
would begin from the assessment year relevant to the previous year in which the
business of the hospital starts functioning. Suggestions
(a) The requirement of minimum number of beds should be reduced from 100 to 50.
(b) The assessee should be permitted to avail the benefit of tax holiday in any
5 consecutive years out of the initial 8 years beginning from the year of setting
up the hospital. 8. Clause 16 - Amendment of section 80-ID Insertion
of new clause (iii) in sub-section (2) Section 80-ID provides a five-year
tax holiday to new two, three and four star hotels and convention centres set
up in the Northern Capital Region. It
has been proposed to extend the benefit of this five year tax holiday to new two,
three or four star hotels located in the specified district having a World Heritage
Site. For availing this benefit, the hotel should be constructed and should start
functioning between 1.4.08 and 31.3.2013. Since
there is a probability of incurring losses during the initial years, the assessee
may not be able to avail the benefit of the five-year tax holiday, which would
begin from the assessment year relevant to the previous year in which the business
of the hotel starts functioning. Suggestion
The assessee should be permitted to avail the benefit of tax holiday in any 5
consecutive years out of the initial 8 years beginning from the year of setting
up the hotel. 9. Clause 18 Amendment of section 111A Section 111A
provides for a special tax rate of 10% on short-term capital gain arising from
the transfer of a short-term capital asset, being an equity share in a company
or a unit of an equity oriented fund, where such transaction is chargeable to
securities transaction tax. It
has been proposed to increase the rate of tax on such short-term capital gain
to 15%. However, the proviso to section 111A(1), which provides for adjustment
of unexhausted basic exemption limit, has not been correspondingly amended to
increase the rate of tax on the balance of short-term capital gains to 15%.
Tax
slabs are proposed to be rationalized and consequently, individuals with income
up to Rs.3 lakhs have to pay tax @ 10%. However, if a person has only short-term
capital gains, his income would be taxable @ 15%. Further, no deduction under
Chapter VI-A would be allowed against such short-term capital gains. Therefore,
marginal relief should be provided for in section 111A. Securities
transaction tax is now proposed to be allowed as a deduction while computing business
income. However, the same is not allowed as a deduction for computing short-term
capital gains. Thus, there is a differential tax treatment for securities transaction
tax paid by a businessman and an investor. Suggestions
(a) Marginal relief may be provided for in section 111A (b) The last proviso
to section 48 should be removed so that securities transaction tax paid may be
allowed as a deduction while computing short-term capital gains. (c) The proviso
to section 111A(1) should also be correspondingly amended to increase the rate
of tax on the balance of short-term capital gains to 15%. 10.
Clause 20 Amendment of section 115JB This section provides that if
the tax computed under the Income-tax Act is less than 10% of book profit, then
the book profit is deemed to be the total income and tax is payable @10% thereon.
For this purpose, book profit means the net profit as per the profit and loss
account prepared in accordance with Part II and Part III of Schedule VI to the
Companies Act, as adjusted by certain additions/deductions as specified. One of
the adjustments is to add back income-tax paid or payable, and the provision therefor.
It is
proposed to clarify that deferred tax liability should also be added to the book
profit for computing Minimum Alternate Tax, if the same were debited to the profit
and loss account. However,
there is no corresponding clarification regarding deductibility of a deferred
tax asset and reversal of deferred tax liability or provision therefor from the
net profit, if the same has been credited to the profit and loss account.
Suggestion
It should be clarified that the following are to be deducted from net profit,
if the same have been credited to the profit and loss account - deferred
tax asset and - reversal of deferred tax liability or provision therefor.
11. Clause 21 Amendment of section 115-O Insertion of sub-section
(1A) Section 115-O relates to tax on distributed profits of domestic companies.
Sub-section (1) of the section provides that tax on distributed profits at the
rate of 15% shall be levied on any amount declared, distributed or paid by a domestic
company to its shareholders by way of dividends. However,
there is a problem of double taxation in case of dividend distributed by a subsidiary
company to its holding company. In
order to avoid such double taxation, it has now been proposed that a domestic
company receiving dividend from subsidiary company can reduce the same from dividends
declared, distributed or paid by it. For this purpose, holding company is one
which holds more than 50% of the nominal value of equity shares of the subsidiary.
This amendment is proposed to be effected by insertion of new sub-section (1A).
However,
companies other than holding companies cannot avail the benefit of reduction of
dividend received from dividend paid for the purpose of payment of dividend distribution
tax. There are certain conditions to be fulfilled by the subsidiary company/holding
company to avail this benefit. They are - -
the subsidiary company should have actually paid the dividend distribution tax;
- the holding company should be a domestic company; and - it should not be
a subsidiary of any other company. If the holding company is a subsidiary
of another company, then it cannot claim the benefit in respect of dividend received
from its own subsidiary. This condition would cause difficulty to all companies
which are subsidiaries of other companies. Suggestions
(a) The condition that the holding company should not be a subsidiary of any other
company may be removed. (b) The deduction may be allowed to all companies
which have received dividend from another company, on which dividend distribution
tax is paid. In other words, this concession should not be restricted only to
dividend received from a subsidiary company. (c) If a company has invested
in a Mutual Fund and has received income from such Mutual Fund on which dividend
distribution tax is paid under section 115R, the said income should also be deductible
from dividend distributed by the company for the purpose of payment of dividend
distribution tax under section 115O. This will avoid double taxation of the income
received from the mutual fund. 12. Clause 22 Amendment of section
115WB Sub-section (2) of section 115WB provides that where an employer incurs
any expenditure, inter alia, for the purposes of entertainment, hospitality, conference,
and sales promotion (including publicity) etc., such employer shall be deemed
to have provided fringe benefits to its employees. With
a view to rationalizing the provisions of Fringe Benefit Tax, the following amendments
to sub-section (2) of section 115WB have been proposed- (i) Any expenditure
on or payment through pre-paid electronic meal card shall also be excluded from
the hospitality expenditure for calculation of the value of fringe benefit. Such
electronic meal card should not be transferable, should be usable only at eating
joints or outlets and should fulfill such other conditions, as may be prescribed.
(ii) Explanation to clause (E) is proposed to be amended to provide that any expenditure
incurred or payment made to provide crèche facility for
the children of the employee; or sponsor a sportsman, being an employee;
or organize sports events for employees, shall not be considered
as expenditure for employees welfare. However,
there are several other issues relating to FBT which also need to be addressed.
Expenditure on in-house training, expenditure on any conference for skill development
etc. should also be excluded from the purview of FBT. Surcharge on FBT should
be attracted only in the case of those companies/firms where the value of fringe
benefits exceed Rs.1 crore. This would be in line with the limit at which surcharge
is applicable for income-tax. Suggestions
(a) Expenditure on in-house training, expenditure on any conference for skill
development etc. should be excluded from the purview of FBT. (b) Surcharge
on FBT should be attracted only in the case of those companies/firms where the
value of fringe benefits exceed Rs.1 crore. 13. Clauses 24 & 27
Amendment of sections 115WD and 139(1) The
due date for filing return of income for companies, persons subject to audit and
working partners of a firm subject to audit is 31st October of the assessment
year. The due date for filing return of fringe benefits for companies and persons
subject to audit is also 31st October of the assessment year. These due dates
are proposed to be advanced to 30th September of the assessment year. However,
the specified date for the purpose of getting the accounts audited
and filing the report of such audit under section 44AB continues to be 31st October
of the assessment year. Suggestions
(a) The definition of specified date in section 44AB should be amended
to have the same meaning as in Explanation 2 to section 139(1). (b) In case
of non-corporate assessees subject to audit, the due date may be further advanced
to 31st August of the assessment year. Further, in the case of non-corporate assessees
not subject to audit, the due date may be advanced to 30th June of the assessment
year. 14. Clause 26 Insertion of new section 115WKB It
has been proposed to insert a new section 115WKB to provide that where fringe
benefit tax (with respect to allotment or transfer of specified security or sweat
equity shares) has been paid by the employer and subsequently recovered from the
employee, the recovery of fringe benefit tax shall be deemed to be the tax paid
by such employee in relation to value of fringe benefits provided to him. The
deeming provision shall apply only to the extent to which the amount of recovery
relates to the value of the fringe benefits provided to such employee. The
proposed amendment may achieve the desired purpose only if the employee is legally
liable to pay the FBT on the benefit arising out of the stock options. As per
the existing provisions, FBT can be recovered from the employee. However, since
the employee is not legally liable to pay FBT, he may not be entitled to claim
the recovery of the same in his country of residence as tax paid by him. Further,
on the procedural front, an employee would be required to establish that the FBT
recovered from him is in relation to the ESOP benefit enjoyed by him. Currently,
there is no provision in the Income-tax Act providing for the issue of any certificate
or related document in this regard. Suggestions
The stock option benefit enjoyed by an employee should be treated as his salary.
Consequently, the employer can withhold the FBT in relation to such benefits from
such employees salary. The employer should accordingly record this in the
TDS certificate issued by him to his employee. This would help the employee to
claim credit of such deemed payment of FBT in a country outside India. .
15. Clause 30 Amendment of section 147 Insertion of second proviso
It is proposed to add a second proviso to provide that the Assessing Officer may
assess or reassess such income, other than the income involving matters which
are the subject matter of any appeal, reference or revision, which is chargeable
to tax and has escaped assessment. The proposed amendment allows the Assessing
Officer to issue notice to assess/reassess income which has escaped assessment
if the matter is not pending in appeal/reference/ revision. The Assessing Officer
should be required to state in his notice under section 148, the specific details
of income which has escaped assessment for which the notice is being issued. He
should restrict the assessment/re-assessment to such specific income only.
Suggestion The
Assessing Officer should be required to specifically state the details of income
which has escaped assessment in the notice issued by him, and assessment/reassessment
should be restricted to such specified income alone. 16. Clause 40
Amendment of section 194C Insertion of clause (ja) in sub-section (1)
Sub-section (1) of section 194C provides for deduction of income-tax at source
from any sum credited or paid to a resident contractor for carrying out any work
(including supply of labour for carrying out any work) in pursuance of a contract
between the contractor and the Government, local authorities, statutory corporations,
companies, co-operative societies, statutory authorities engaged in providing
housing accommodation, registered societies, trusts, universities, firms and those
individuals/HUFs who are required to get their accounts audited under section
44AB. However, association of persons and body of individuals were not subject
to tax deduction at source under section 194C. This
section is proposed to be amended to provide that any association of persons or
body of individuals, whether incorporated or not, shall be liable to deduct income-tax
at source under sub-section (1) of section 194C. This inclusion may cause genuine
difficulty to certain AOPs and BOIs. For example, Resident Welfare Associations
making payment to security agencies would also be required to deduct tax at source,
which would cause genuine difficulty to them. Suggestion
Only those AOPs and BOIs, which are liable to get their accounts audited under
section 44AB, should be required to deduct tax under section 194C. 17. Clause
46 Amendment of section 254(2A) Substitution of third proviso
The proviso to section 254(2A) provides that the Appellate Tribunal may, on merit,
pass a stay order in any proceeding relating to an appeal filed under section
253(1). However, the aggregate period of stay should not exceed 365 days.
It is proposed to substitute the third proviso to clarify that if the appeal is
not disposed of within such period, the order of stay shall stand vacated, even
if delay in disposing the appeal is not attributable to the assessee. As per
this proposed amendment, the period of stay cannot be extended even if the delay
in disposing the appeal is not attributable to the assessee (for example, if the
Bench is not functioning). If the principles of natural justice are applied,
an assessee should not be penalized if he is not at fault. Therefore, in such
cases, taking into consideration the principles of natural justice, the Appellate
Tribunal should have the power to extend the period of stay. Suggestion
(a) In the third proviso, the words if the delay in disposing of the appeal
is attributable to the assessee may be substituted for the words even
if the delay in disposing of the appeal is not attributable to the assessee.
(b) Alternatively, responsibility should be vested with the Tribunal to dispose
of the appeal during the period of stay. (c) Time barring provisions, similar
to the provisions contained in section 153 for completion of assessments, should
be made applicable in cases where stay has been granted. 18. Clause 52
Insertion of new section 292BB This section proposes to provide that where
an assessee has appeared in any proceeding or co-operated in any inquiry related
to an assessment or reassessment, it shall be deemed that notice has been duly
served upon him. He cannot take an objection in any proceeding or inquiry that
the notice was - not served upon him; or - not served upon him in time;
or - served upon him in an improper manner. It may be noted that the words
appearance in any proceeding or co-operation in any inquiry
may be interpreted to include the following: (a) the assessee may appear on
subsequent notice (reminder) to file objection to the original notice claimed
to have been issued but not served on the assessee. (b) the assessee may appear
on protest (c) the Assessing Officer may depute his field inspector
to enquire about the facts and a statement of the assessee may be recorded at
his residence or business premises. (d) the appearance of an assessee during
the course of another proceeding for another assessment year may constitute the
appearance or cooperation in the proceeding under consideration. Further,
non-service of notice within the time limit amounts to violation of the principles
of natural justice. The appearance by the assessee or his co-operation in the
inquiry would not set right this violation. Suggestions (a) Clause (b)
of section 292BB relating to non-service of notice in time should be removed
(b) The language of the section may be suitably modified to provide that where
the assessee fails to raise preliminary objection during the course of assessment
proceedings that notice is not served upon him or that notice is served in an
improper manner, then he cannot raise such an objection at the appellate or later
stage.
In the Post Budget Memorandum on indirect taxes the Council has given the relevant
issues arising out of the budget proposals and have also given considered suggestions
to address the same.
A.
AMENDMENTS TO CUSTOMS ACT AND CENTRAL EXCISE ACT 1.
Issue Section 129EE is proposed to be inserted in the Customs Act, 1962
and Section 35FF is proposed to be inserted in Central Excise Act, 1944. The
proposed amendment is a welcome move as it provides for payment of interest on
delayed refund of the amount deposited under proviso to Section 129E and 35F respectively. The
proposed section provides for payment of interest after expiry of three months
from the date of communication of the order of the appellate authority till the
date of refund of such amount except in cases where the operation of the order
of the appellate authority is stayed by a Superior Court or Tribunal. This exception
creates practical difficulties as the said order of the Superior Court or Tribunal
may come late and if the reference is proposed, the order of the appellate authority
may not be communicated to the assessee till such time as the appeal is filed
to the Superior Court or Tribunal and the Superior Court or Tribunal issues the
order. Further, this results in denial of interest on appellants amount
during the period of stay even though the matter is ultimately decided in favour
of the tax payer. Also,
a strict reading of the section indicates that if a stay is granted against the
operation of the order by a Superior Court or Tribunal, there would be no interest
payment at all even if finally the matter is decided in favour of the tax payer
and the deposited amount is refunded. Further,
the interest on the refund is sought to be provided from the expiry of three months
from the date of communication of the order of the appellate authority till the
date refund of such amount which results in denial of interest from the date of
deposit made by the tax payer. The section requires determination of the date
of communication of the order to the appellate authority which create difficulties
as against the date of passing of the order which is simpler, identifiable measure. Suggestions a)
Interest on refund of the deposit amount be provided from the date of deposit
of the amount. b)
Alternatively, the period of three months be reckoned from the date of passing
of the order by the appellate authority. c)
Interest on delay in granting refund be provided in all cases irrespective of
the state of operation in all cases even if the operation of the order of appellate
authority is stayed by a Superior Court of Tribunal. 2.
Issue An
exception is proposed to be added to Section 2(d) of Central Excise Act, 1944
explaining the meaning of the term goods. It provides that any article,
material or substance, which is capable of being bought or sold for a consideration,
shall be deemed to be marketable. For
goods to be excisable, the same ought to result from a process of manufacture
which term is again defined only in an inclusive manner. The courts have interpreted
the term to mean a process leading to change in the name, character or use
of the material processed and have, in some cases, also added the marketability
element as well as a criteria for determining whether the goods emerging from
the process could be regarded as manufactured. As will appreciate the terms goods
and manufacture have been explained and read together for the purpose
of determining excisability of manufactured goods. It
may, therefore, be necessary to also modify the definition of manufacture
[Section 2(f)] to avoid possible disputes especially in relation to taxability
of waste and scrap arising in the course of manufacture which is not arising as
a result of manufacture per se but in the course of manufacture of primary goods. Suggestion An
appropriate sub-clause to the effect that any process by which goods arise / come
into existence at any time during the course of manufacture of any goods and which
are bought and sold for a consideration shall be deemed to be a process of manufacture.
B. AMENDMENTS TO SERVICE TAX LAW
Banking
and Financial Services - Foreign Exchange Broking 3.
Issue Service
rendered in relation to the activity of purchase and sale of foreign currency
in the capacity of principal is proposed to be brought into the service tax net
by substitution of subclause (iv)(a) to S 65(12) which is not the case with any
other goods. The
activity of purchase and sale of goods is within the domain of the State Government
and, therefore, we believe that the provision to tax the activity relating to
purchase and sale of foreign currency would be ultra virus. We,
however, understand that what is sought to be taxed is only the service being
provided by foreign exchange brokers ( agents) for purchase and sale of foreign
currency . This is also clear from the fact that 0.25% of the purchase or sale
price is sought to be treated as the service element. The
tax is sought to be levied on both legs of the transaction i.e. purchase as well
as sale of foreign currency. If the transaction is between two brokers, it would
amount to double taxation as the purchase as well as sale transaction would be
taxed separately. Further, service provided by any person is
taxable under the category of banking and financial services. Thus, an individual
who sells foreign currency or buys foreign currency may also be held to be liable
to service tax. Suggestions a)
Appropriate amendment/clarification be issued to the effect that the tax is on
the service provided by brokers/agents in relation to purchase or sale of foreign
currency. b)
One leg of the transaction either the purchase or the sale may be taxed or appropriate
amendment be made/exemption notification be issued to the effect that the tax
is leviable only on the broker and not on the purchaser or seller of the foreign
currency . 4.
Information Technology Service We
welcome the proposal to consolidate and introduction of new entry relating to
Information Technology Software service and also note that the definition of the
term Information Technology Software is the same as that adopted
for Customs and Central Excise Duty purposes to maintain uniformity. There
are few areas of concern in this regard: 1
The new category proposes to bring to charge taxation of software supplied electronically
and as we read the language, it appears to cover both customized and packaged
software. Packaged software delivered on media from outside of India is today
exempt from charge of customs duty. The reason for taxing the same when delivered
electronically is not clear to us. 2
Some of the services relating to information technology software are still covered
under other categories like repair and maintenance of software, technical testing.
Since the tax treatment is the same, all the categories are taxable, there does
not seem to be a justifiable reason to keep them under other categories. 3
It is not clear as to how the same are to be treated for the purpose of Import
and Export of Service Rules. 4
Many States impose tax ( VAT) on software which includes customized and packaged
software. The States do not distinguish between the mode of delivery and therefore,
even if the packaged software is delivered electronically, they would tax it.
Thus, there will be double taxation and spate of litigation. Suggestions a)
Tax incidence |