Govt exempts taxable services provided to SEZ

Govt exempts taxable services provided to Special Economic Zone, and received by a developer or units of a Special Economic Zone

NOTIFICATION NO 9/2009-SERVICE TAX

Dated: March 3, 2009


In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry of Finance ( Department of Revenue), No. 4/2004-ServiceTax, dated the 31st March, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section ( i ) dated the 31st March, 2004, vide, G.S.R.248(E), dated the 31st March, 2004, except as respects things done or omitted to be done before such supersession, the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (105) of section 65 of the said Finance Act, which are provided in relation to the authorised operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that

(a) the developer or units of Special Economic Zone shall get the list of services specified in clause (105) of section 65 of the said Finance Act as are required in relation to the authorised operations in the Special Economic Zone, approved from the Approval Committee (hereinafter referred to as the specified services);

(b) the developer or units of Special Economic Zone claiming the exemption actually uses the specified services in relation to the authorised operations in the Special Economic Zone;

(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone;

(d) the developer or units of Special Economic Zone claiming the exemption has actually paid the service tax on the specified services;

(e) no CENVAT credit of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone has been taken under the CENVAT Credit Rules, 2004;

(f) exemption or refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone shall not be claimed except under this notification.

2. The exemption contained in this notification shall be subject to the following conditions, namely:-

(a) the person liable to pay service tax under sub-section (1) or sub-section (2) of section 68 of the said Finance Act shall pay service tax as applicable on the specified services provided to the developer or units of Special Economic Zone and used in relation to the authorised operations in the Special Economic Zone, and such person shall not be eligible to claim exemption for the specified services:
Provided that where the developer or units of Special Economic Zone and the person liable to pay service tax under sub-section (2) of section 68 for the said services are the same person, then in such cases exemption for the specified services shall be claimed by that person;

(b) the developer or units of Special Economic Zone shall claim the exemption by filing a claim for refund of service tax paid on specified services;

(c) the developer or units of Special Economic Zone shall file the claim for refund to the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be;

(d) the developer or units of Special Economic Zone who is not registered as an assessee under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or the said Finance Act or the rules made thereunder, shall, prior to filing a claim for refund of service tax under this notification, file a declaration in the Form annexed hereto with the respective jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be;

(e) the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall, after due verification, allot a service tax code (STC) number to the developer or units of Special Economic Zone within seven days from the date of receipt of the said Form;

(f) the claim for refund shall be filed, within six months or such extended period as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall permit, from the date of actual payment of service tax by such developer or unit to service provider;

(g) the refund claim shall be accompanied by the following documents, namely:-
(i) a copy of the list of specified services required in relation to the authorised operations in the Special Economic Zone, as approved by the Approval Committee;
(ii) documents for having paid service tax;
(iii) a declaration by the Special Economic Zone developer or unit, claiming such exemption, to the effect that such service is received by him in relation to authorised operation in Special Economic Zone.

(h) the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall, after satisfying himself that the said services have been actually used in relation to the authorised operations in the Special Economic Zone, refund the service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone;

(i) where any refund of service tax paid on specified services is erroneously refunded for any reasons whatsoever, such service tax refunded shall be recoverable under the provisions of the said Finance Act and the rules made thereunder, as if it is a recovery of service tax erroneously refunded.

3. The exemption contained in this notification shall apply only in respect of service tax paid on the specified services on or after the date of publication of this notification in the Official Gazette.

4. Words and expressions used in this notification and defined in the Special Economic Zones Act, 2005 (28 of 2005) or the rules made thereunder, shall apply, so far as may be, in relation to refund of service tax under this notification as they apply in relation to a Special Economic Zone.
Form

1. Name of the developer or unit of Special Economic Zone:

2. Address of the registered office or head office:

3. Permanent Account Number (PAN):

4. Details of Bank Account:
(a) Name of the Bank:
(b) Name of the Branch:
(c) Account Number:

5. (a) Constitution of developer or unit of Special Economic Zone [Proprietorship /Partnership /Registered Private Limited Company /Registered Public Limited Company /Others (specify)]

(b) Name, address, telephone number and Email ID of proprietor /partner /director

6. Description of authorized operations as approved by the Approval Committee:

S. No.
Description of goods
Classification in case of excisable goods

(1)
(2)
(3)






7. Description of taxable services received by the exporter for use in relation to the authorised operations in the Special Economic Zone:

S. No.
Description of taxable service
Classification under the Finance Act, 1994
Name, STC and address of service provider
Invoice number and date

(1)
(2)
(3)
(4)
(5)








8. Name, designation and address of the authorized signatory / signatories:

9. I / We hereby declare that-

(i) the information given in this application form is true, correct and complete in every respect and that I am authorized to sign on behalf of the developer or units of Special Economic Zone;

(ii) no CENVAT credit of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone shall be taken under the CENVAT Credit Rules, 2004;

(iii) I / we shall maintain records pertaining to the specified services used in relation to the authorised operations in the Special Economic Zone and shall make available, at the declared premises, at all reasonable time, such records for inspection and examination by the Central Excise Officer authorised in writing by the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be.

(Signature of the applicant / authorized person with stamp)

Date:

Place:

[F.No.354/163/2006-TRU]





(Unmesh Sharad Wagh)
Under Secretary to the Government of India



in the said notification, in the Table, for serial number 21 and the entries relating thereto, the following shall be substituted :-

"21
(1) Chief Commissioner of Central Excise, Shillong
Dibrugarh


(2) Chief Commissioner of Central Excise, Kolkata
Shillong
Guwahati"


F. No. 275/100/2006-CX.8A

(Manpreet Arya)
Under Secretary to the Government of India

Note:-The principal Notification Number 18/2007-Service Tax, dated the 12th May, 2007 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 353(E), dated the 12th May, 2007, and was amended vide notification number 46/2008- Service Tax, dated the 18th January, 2008 vide number G.S.R. 38(E) renumbered as 1/2008- Service Tax vide Corrigendum dated the 18th January, 2008 vide number G.S.R. 49(E) and vide notification number 25/2008- Service Tax, dated the 21st May, 2008 vide number G.S.R. 393 (E),

Internal auditor can carry tax audit for FY 2008-09

The Council in its 281st meeting held from 3rd to 5th October, 2008 decided that an internal auditor of an assessee, whether working with the organization or an independently practicing Chartered Accountant being an individual chartered accountants or a firm of chartered accountants, could not be appointed as his tax auditor.

The said decision came into effect from December 12, 2008. As per the decision an internal auditor cannot carryout tax audit on or after December 12, 2008. Subsequently representations have been received pointing out the hardship being caused by the abovesaid decision in respect of those internal auditors who have been appointed as tax auditors for the financial 2008-09 on or before December 12, 2008. The Council considering this hardship has decided that the decision taken by the Council at its meeting between 3rd to 5th October, 2008 shall be applicable to all appointments as tax auditor made on or after December 12, 2008 and accordingly those internal auditors whose appointment have been made as tax auditors before December 12, 2008, can carry out the tax audit of the financial year ending on March 31, 2009, i.e., Assessment Year 2009-2010 only.

Two More Auditing Standards cleared

The Council of the Institute of Chartered Accountants of India at its 286th meeting held on March 8, 2009 cleared two more Standards on Auditing (SAs), i.e., Revised SA 500, Audit Evidence and SA 720, The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements in the direction of enhancing the quality of audits.

Revised Standard on Auditing (SA) 500, Audit Evidence
Audit evidence is fundamental aspect of an audit on which the final audit opinion and the audit report is based. The quality and effectiveness of an audit is, therefore, to a large extent affected by the adequacy and appropriateness of the auditor’s procedures in gathering and evaluating the audit evidence. Though the Council of the Institute had in May 1988 issued a Standard on Audit Evidence, the Revised version of this Standard cleared today contains greater guidance for the auditors on critical aspects of audit evidence such as what constitutes sufficient appropriate audit evidence, information to be used as audit evidence, factors to consider in selecting items for testing, how to respond in case of inconsistency in or doubts over reliability of audit evidence. In other words, the Revised Standard in principles and procedures to be followed by them to obtain and evaluate audit evidence which is sufficient and appropriate for the purpose of their audit.

This Revised Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2009.

Standard on Auditing (SA) 720, The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements

The responsibility the auditor, in an audit of financial statements, is to express an opinion on the truth and fairness of the financial statements, the basic objective of an audit being to lend credibility to the financial statements. In a number of cases, especially companies, the annual reports or other such documents that contain audited financial statements and audit report thereon, issued to stakeholders, contain a lot of other information which is related/ unrelated to the financial statements. For example, reports by managements/ directors, financial ratios, etc. The Standard is a first of its kind Standard to have been issued by the Institute and requires the auditor to read such other information to identify any material inconsistencies vis a vis the audited financial statements since these can undermine the credibility of those financial statements and the audit report thereon. The Standard contains detailed guidance on auditor’s procedures where such material inconsistency is identified or in the process of reading such other information, any apparent misstatement of facts come to the attention of the auditor.

This Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2010.

Needless to add that both the above Standards are based on the corresponding International Standards issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. Further, the Institute would also bring out implementation guides for both the above Standards.

LATEST LEGAL DECISIONS RELATING TO TDS

1. Landing and Parking charges liable for TDS u/s 194–I: Payments made for landing and parking charges would be deemed to be rent and the same would warrant deduction of tax at source u/s 194–I. CIT Vs Asiana Airlines 175 Taxman 177 (Del.)

2. Interconnection / port charges not liable u/s 194J: Expression ‘Fees for technical services’ as appearing in section 194J would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. Hence, interconnect charges / port access charges cannot be regarded as fees for technical services. CIT Vs Bharati Cellular Ltd 175 Taxman 573 (Del.)

3. TDS liability only if income is taxable [Section 195]: TDS obligation arises only if the tax is assessable in India. If the interest is exempt under the Act, there was no question of TDS being deducted by the assessee. Vijay Ship Breaking Corpn Vs CIT 175 Taxman 77 (SC)

4. Liability to deduct tax u/s 195: Payment of interest presupposes the borrowal of money or the incurring of a debt. Issuance of debentures is a mode of borrowing money. If the mode of discharging the debenture debt us by issuing equity shares in lieu of cash, it does not in any way detract from its legal character as a debt. The assessee is liable to deduct tax in respect of the interest payments. LMN India Ltd 307 ITR 40 (AAR)

Source: Padhuka

ICAI Interrogates Satyam Auditors and CFO

CFO ADMITS HIS ROLE IN FALSIFICATION OF ACCOUNTS


In terms of directions of the CBI Court, Hyderabad allowing members of the High Powered Committee of the Institute of Chartered Accountants of India to examine and record statements of the three accused members of the Institute viz. CA. S. Gopalakrishnan, CA. Srinivas Talluri, auditors and CA. Vadlamani Srinivasu, CFO of Satyam, a team led by CA. Uttam Prakash Agarwal, President of the Institute and Chairman of the High Powered Committee along with CA. Shanti Lal Daga, a member of the Committee and a member of the Central Council of the Institute, interrogated the three accused members currently lodged in Chanchalguda Central Prison, Hyderabad.



The interrogation went on for the whole day, during which the CFO admitted his role in aiding the Chairman, B. Ramalinga Raju and Managing Director, B. Rama Raju in fudging and falsifying the accounts by forging and creating fake records. He was candid enough to admit that he along with the Vice President (Finance), G. Ramakrishna, a Cost Accountant by profession were actively involved in the scam. He admitted his involvement in the planning of the scam, which was masterminded by the Chairman and the Managing Director. According to him, another team which was directly reported to the CMD, led by G. Ramakrishna executed the plan by fabricating and preparing false documents such as sales invoices, bank statements, bank confirmations, by involving a team of around 10 junior staff.



The CFO further admitted that neither the auditors nor the independent directors were aware of the scam. He also mentioned that no pecuniary benefits were derived by the auditors and that it was not true that the auditors had confessed to their alleged role, as was reported earlier in the media.



Tracing back the events, the CFO mentioned that what started as a small adjustment in the accounts 5-6 years ago, continued quarter after quarter and year after year and by the second quarter of 2008 had attained unmanageable proportions. He also mentioned that the CMD initially assured that the falsification would be rectified after one or two quarters, but it went on. He stated that he had resisted the attempts, but could not do much in view of master-servant relationship. He stated that he had twice submitted his resignation, but was pursued by the CMD to continue, so that the company does not collapse and the future of 54,000 employees is not endangered.




The CFO expressed his regret and shame on having been a party to the scam, which according to him, was masterminded by the Chairman and Managing Director and abetted by him in planning and by G. Ramakrishna in its execution.




CA. Uttam Prakash Agarwal expressed his satisfaction on the outcome of the interrogation which had vindicated his belief about the credibility of the auditing profession. According to him, despite the existence of Audit Committee, independent directors, internal audit, integrated audit under SOX, information systems audit, whistle blowing mechanism on the inherent risk in the internal controls, the scam had occurred owing to a carefully crafted fraud by creating normal trails and backup support documents and records, which had kept the fraud unchecked and undetected for as much as 5-6 years.




Later in the night, the ICAI submitted a report to the CBI investigation team, prepared by a Group constituted to assist the Multi-disciplinary Investigation Team of the CBI. The report covers the outcome of the limited exercise done by the ICAI Group on the role of auditors in compliance with the Auditing and Assurance Standards issued by the Council of the Institute of Chartered Accountants of India, in respect of some of the issues relating to financials of Satyam for past 4-5 years, based on the copies of the documents provided by the CBI.

Peer review for audit firms of Listed Company

Members may be aware that the Council had accepted the recommendation of Securities & Exchange Board of India (SEBI) that audit of listed companies shall be carried out by the auditors who have undergone Peer Review Process and have been issued Peer Review Certificate by the Peer Review Board

The above decision is effective for accounting periods commencing on or after April 1, 2009.

Consequent to the above decision, all the auditors of Listed Companies are required to undergo Peer Review Process and get Peer Review Certificate issued from the Peer Review Board.

The Peer Review Board is making all out efforts to cover those audit firms, which are not yet selected for Peer Review Process. While the Board will be sending a letter to each such audit firm, it will be in the professional interest of such firms to immediately get selected for Peer Review by emailing us the following information at email id peerreviewboard@icai.org;

* Name of the Firm
* FRN or Membership No. in case of Proprietor firm.
* Latest Contact details i.e. complete address, Tel No with STD Code, Mobile No. & email id.

The Firms who have already been selected under the Peer Review Process and their review is in progress at different stages may also hasten up their Peer Review Process and ensure that their Final report is submitted by the Reviewer to the Board. Such firms are requested to furnish the above details at S.No.1 to 3. along with their present status of review.

In order to complete the Peer Review Exercise timely and smoothly all the audit firms of listed companies and their Reviewers are hereby requested to expedite their Peer Review Process.

Measures initiated by ICAI for revisiting Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates

CA. Uttam Prakash Agarwal, President, The Institute of Chartered Accountants of India (ICAI) re-iterated the Institute's desire to work closely with Industry and Government in both framing and revising Accounting Standards. He briefly outlined the measures initiated by ICAI for revisiting Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates.

Chronological order of discussions relating to Revision in Accounting Standard (AS) 11
Accounting Standards Board meeting (148) held on 1 February, 2009

A Working Group was set up for review of accounting treatment of monetary items under AS 11 on the matter being referred by National Advisory Committee on Accounting Standards (NACAS)

Working Group of meeting on AS 11 held on 16 February, 2009- Discussed modalities for revision in accounting treatment.

Working Group meeting on AS 11 held on 2 March, 2009- Discussed modalities for revision in accounting treatment.

Meeting at Ministry of Corporate Affairs Office on 4 March, 2009
There were discussions on various issues related to AS 11. The meeting was attended by President, Vice President and Director of the Institute. Mr. Jitesh Khoslas presence was requested at the Accounting Standards Board meeting the next day but he regretted his inability to attend due to other preoccupations.

Accounting Standards Board meeting (149) held on 5 March 2009

Two senior ministry officials were present at the meeting. Discussions on revision to AS 11 could not be concluded as two diverging views were there on the matter. Industry Representatives gave presentation to the Board on their views. The meeting decided to refer the matter to the Council with both points of view on the matter as in technical matters there was a convention of seeking unanimity.

Council Meeting held on 6,7 & 8 March 2009.
The item relating to revision of AS 11 for long-term monetary items was introduced as an additional agenda item in view of its importance to Industry and the need for providing clarity in accounting treatment for the year ended 31 March 2009. Joint Secretary, Government of India along with other government nominees were present and participating. On the question of a member of the Council as to whether the matter under consideration was of revision of the standard or a discussion on the pros and cons of revision Mr.Jitesh Khosla confirmed it was a process of discussion. The matter thereafter was on the council table for discussion. The council discussed the matter for over 2 1/2 hours as members had strong concerns on the gravity of revising the accounting standard.

As the matter warranted further deliberations to address the concerns of members it was decided that the matter would be referred back to the Accounting Standards Board. It was also decided that a process of discussion would be taken up with industry representatives in the presence of Mr.Jitesh Khosla and a tentative date of 18 March 2009 was fixed for a meeting at Mumbai.

As on that date,CII had organised a seminar on IFRS where President ICAI, Vice President ICAI and Mr.Jitesh Khosla Joint Secretary Government of India were speakers, as per advise of Mr.Jitesh Khosla, a meeting was held with a small group from CII. President ICAI after listening to the views of the group assured them that the matter would be taken up in the Council meeting to be held in April 2009.Proposed meeting with industry representatives scheduled for 18 March 2009 was subsequently cancelled.

National Advisory Committee on Accounting Standards (NACAS) meeting on 24 March, 2009.

The meeting was attended by President ICAI, Vice President ICAI, Chairman Accounting Standards Board ICAI. The meeting was also attended by representatives of the Institute of Cost and Works Accountants of India, Institute of Company Secretaries of India, ASSOCHAM, FICCI, and CII were present. Representatives from the Comptroller and Auditor Generals Office and the Indian Institute of Management Calcutta were also present. At the meeting only the matter relating to AS 11 was discussed.

CA. Uttam Prakash Agarwal, President Institute of Chartered Accountants of India explained all the steps taken by the Institute in this matter to arrive at a consensus decision. He also informed the meeting that there was a process involved both in the issuing of accounting standards as well as revising any standard. He stressed the need that the request of Industry for a revision to the accounting standard be examined in the context of the principles of consistency, prudence and going concern basis so that such action was in the best interest of all concerned. He also pointed out that fluctuation in foreign currency and volatility in foreign exchange markets were a given factor today. There was a mechanism of hedging against the risk of foreign currency fluctuation and it was in fact a failure of business houses decision-making process. He apprised Chairman NACAS of the various questions which had to be addressed such as whether this would require any amendment to the Companies Act as there was a contradiction between Schedule VI and AS? Whether this would amount to a deviation from IFRS? Are we going to defer convergence with IFRS? Whether the change will be specifically to the benefit of a group of people? Would this amount to distribution of losses? Is this an extraordinary circumstance? There has been a criticism that when it came to taking profits, Industry booked it, while when it comes to losses, Industry is approaching for changes. What are the hardships faced by the Industry? What is the impact on the share value? Is this going to be beneficial to the shareholders?

On the issue of certain comments made by Chairman NACAS on CNBC channel, President ICAI stressed that the Institute of Chartered Accountants of India had all along taken a very proactive role in the matter so that problems of industry could be resolved and that all the members of the Council were in support of the process initiated for the purpose of revision to the accounting standards.

About ICAI

The Institute of Chartered Accountants of India (ICAI) set-up by an Act of Parliament viz. The Chartered Accountant Act, 1949 to regulate the profession of Chartered Accountancy is the second largest and prominent accounting body in the world. It has been taking various proactive measures from time to time, aligned with the changing facets of the Indian economy, for continuously raising the standard of quality of accounting and financial reporting. The quality of education and the standards of examination of the Institute are acknowledged to be the best in the world.

ICAI has its Headquarters at New Delhi with 5 Regional Offices at Mumbai, Chennai, Kanpur, Kolkata, New Delhi and 118 branches spread all over the country. In addition, it has also set up 21 chapters outside India and an office in Dubai. Currently over 4,50,000 students are pursuing the Chartered Accountancy course and the total membership of ICAI is more than 1,50,000

Online filing of I-T returns quadruples

The online mode of filing tax returns seems to be gaining popularity with the aam admi.
According to the income tax department data, online filing of returns by salaried employees and interest or pension earners has jumped four times to 5.8 lakh returns in 2008-09 vis-à-vis 1.43 lakh a year ago.
The aggregate online filing by individuals and corporates surged more than two times during 2008-09 to 48.3 lakh against 21.92 lakh returns filed in 2007-08.
It should be noted here that the lower increase in the aggregate figures is because government had already made it mandatory for several groups of earners, such as listed companies and businesses, to file returns online.
About 9% of the returns were filed on the last three days of the financial year 2008-09 — between March 29 and March 31, 2009 — with 343 returns being filed per minute.
One can distinguish the profile of the person filing the income tax return by looking at which of the eight available forms was been submitted.
Form income tax return (ITR) 1 is meant for the salaried class, or people earning an interest on investment or receiving a pension. However, if one had to declare earnings or losses from other investments such as those from stock markets or property sales, then he would have to fill form ITR 2, 3 or 4. Form ITR 3 and 4 are for people who run a business in partnership, while those having a proprietary business would have to fill form ITR 4. Form numbers ITR 5, 6 and 8 are meant for companies, trusts or bodies for e-filing returns, including losses or incomes from businesses and fringe benefit tax on perks given to employees.
The highest number of returns were filed by residents of Maharashtra (8.25 lakh returns), Gujarat (5.08 lakh returns) and Delhi (4.09 lakh returns), respectively.
During the year, people filed returns online not only for the prevailing assessment year, but also for the previous assessment year of 2007-08.
I-T rules say if a person misses out on the deadline of filing tax returns, he can furnish the same within two years of earning the income. So people with an income in the financial year 2007-08 and submitting returns late in 2008-09, are permitted to file returns anytime before March 31, 2010.
However, there is a fine applicable on those filing returns for assessment year 2008-09 after March 31, 2009. An assessment year is the year in which one files returns for his income in the previous year. So, income in the 2008-09 will be assessed in the assessment year 2009-10.

Source : Journals

Service Tax on Commercial Rent Held Unconstitutional

The Delhi High Court has struck down the levy of service tax on renting
of immovable property as "unconstitutional", while deciding 26 writ petitions of different petitioners, by a combined order. The division bench of the Delhi High Court comprised of Mr. Justice Badar Durrez Ahmed and Mr. Justice Rajiv Shakdher observed that service tax shall not be levied on renting of immovable property.

Alishan Naqvee, Advocate, LexCounsel Law Offices, who represented his clients in two of the petitions disposed off today, tells that the category of "renting of immovable property service" was introduced by the Finance Act of 2007. This, in effect brought renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business and commerce, within the service tax net with effect from June 1, 2007. This new levy severely impacted business models across India as most of the rent arrangements did not even stipulate it beforehand.

The businesses across India opted to en masse challenge the constitutionality of levy of service tax on rent, on the primary grounds that renting does not involve any service, and the Central Government is not empowered to tax consideration for transfer of rights in immovable property, being a state subject as per the Constitution of India. Few High Courts, including the High Court of Mumbai, Delhi, Gujarat, Andhra Pradesh, Kolkata and Chennai reportedly granted interim reliefs to the petitioners from payment of service tax until final disposal of their matters. The stays were however granted subject to undertakings by the petitioners, mainly tenants, to deposit the service tax amount with the Government if the tax was ultimately held constitutional. The Delhi High Court however is the first High Court to deliver the final order in the matter that would have persuasive value for the other High Courts.


The detailed order of the Delhi High Court is expected to be available within the next couple of working days. One issue that needs to be seen is whether the Delhi High Court has expressly limited the applicability of its judgment to its territorial jurisdiction. Notably, while granting interim orders, the Delhi High Court had expressed that the stays would be operative within the territorial jurisdiction of the Court. Consequently, a number of petitioners, having operations in multiple states, were constrained to knock at the doors of the other High Courts.

To avoid multiplicity of litigation, the Union of India preferred a transfer petition to the Supreme Court of India seeking transfer of all writ petitions pending before different High Courts of India, to the Delhi High Court for single window adjudication.

It is open for the Government to prefer an appeal before the Supreme Court of India, challenging the decision of the Delhi High Court. The judgment however delivers great relief to the business by helping liquidity in the current times.

Source : Journals

Double taxation in indirect tax law ? an ongoing problem

New Delhi
April 13, 2009

Earlier articles in this column had highlighted the problem with regard to double taxation of a particular transaction under the indirect tax laws that are prevalent in India today. The central problem is with regard to the taxation of a transaction as both a supply of goods as well as a provision of service, with the tax consequence of both the State VAT and the service tax being applicable thereto.

The advent of the Goods and Services Tax (GST) could considerably mitigate, if not all together eliminate, the problem and for this reason alone, its earliest possible introduction is very desirable.

In yet another illustration of the serious challenge faced by taxpayers in regard to double taxation, the Karnataka High Court, in a recent decision in Bharti Airtel Ltd. Vs State of Karnataka (2009-TIOL-99) has held that a particular transaction was chargeable to the State VAT, as a sale of goods, notwithstanding the factual position that it had already been charged to the service tax, as a provision of service.

This decision has taken note of the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. Vs. UOI (2006) 145 STC 91) and nevertheless has come to the above conclusion. In this case, the issue at hand was the taxability of the provision of broadband connectivity by the assessee to its subscribers.

On the particular point of whether the activity of provision of broadband connectivity would at all amount to a supply of goods, as opposed to a provision of service, the High Court considered the technical aspect of the matter in very great detail. It also took note of the decision in the BSNL case (ra) that transfers of the right to use electromagnetic waves or radio frequencies could not be charged to the sales tax or State VAT since they did not constitute goods, for the purpose of Article 366 (29A) of the Constitution of India.

The High Court distinguished broadband connectivity from electromagnetic waves and held that the provision of such connectivity amounted to a sale of light energy and was hence taxable under the Karnataka VAT Act 2003, as a sale of goods. In other words, the Court held that broadband connectivity was essentially the ability to carry data through an optical fibre network whereby light energy was created at the time of commencement of transmission of data/information and was extinguished once the data/information was delivered at the place of intended destination.

The High Court distinguished such energy from electromagnetic waves, which were incapable of abstraction as they traveled through free space from one point to another and were also not extinguished for that reason. Sice broadband was qua the optical fibre network, the properties of ‘goods’ were attracted to the case in point.

The Court then took up the point that the provision of broadband connectivity to its subscribers had already been charged to service tax. It must be mentioned here that the Union Government was also a respondent in this particular appeal and had argued that the appellants had rightly discharged service tax on the activity and that the Court should, if at all it came to the conclusion that the transaction amounted to a sale of goods, nevertheless hold that the appellants were liable both for the service tax as well as the State VAT.

The appellants argued that they had entered into service level agreements with subscribers in relation to the provision of broadband connectivity and it was clearly demonstrated consequently that the dominant objective and intent was the provision of service.

Hence, even if there was a determination that a sale of goods had taken place, it could only be incidental to the aforesaid dominant objective. Consequently, in terms of the decision in BSNL, the lease rentals received from the subscribers for the provision of broadband connectivity could not be taxed under the VAT laws but could only be taxed under the provisions of the service tax laws.

The High Court took note of the decision of the Supreme Court in State of UP Vs. UOI (2003-TIOL-14) in regard to composite contracts for sales and services. In particular, it took note of the observation therein that an activity could be regarded under one statute as a sale of goods and equally as a provision of services under another statute.

Accordingly, the High Court came to the conclusion that in the case in point, the activity of provision of broadband connectivity did undoubtedly answer the description of ‘sale’ within the meaning of the Karnataka VAT law and was taxable therein notwithstanding that the same activity was also correctly held to be a service under the Finance Act 1994.

On the dominant nature test, the High Court concluded, based on a scrutiny of the underlying documentation with regard to the recovery of lease rentals from subscribers, that the dominant intent was actually the sale of artificially created light energy and that the provision of infrastructure in the form of the optical fibre network to facilitate the carrying of the data/information, which alone could constitute the service element in the contract, was only ancillary to this intent.

Thus, the Court determined that the dominant nature of the contract was one for sale of goods and rejected the arguments that the dominant nature of the contract was the provision of service. Thereupon, the High Court held that given the inability of separation of the service and sale element in this particular composite contract, the entire consideration received by the appellant from its subscribers towards lease rentals would be chargeable to the VAT. In arriving at this conclusion, the High Court again relied upon the decision of the Supreme Court in State of U.P. vs. UOI (supra).

It can thus be seen that the High Court has come to a conclusion which clearly brings about a double taxation of one transaction to both the goods tax and the service tax, based purely on a determination that the transaction was essentially one for sale of goods and not for provision of service.

The Court has apparently concluded that this determination can be done by each of the two taxing authorities in question and if such respective determinations resulted in a double taxation of a transaction that was an unavoidable legal consequence and that there was nothing improper or illegal as a result.

The central point of the BSNL case regarding the need for taxing entries in the respective statutes for goods and services to maintain exclusivity appears to have been either overlooked or impliedly understood and interpreted in a particular sense.

It was commonly understood subsequent to the BSNL judgement that the dominant nature test in relation to composite contracts other than those specifically covered by Article 366 (29A) could only result in a determination of either a sale of goods or a provision of service and not both.

To be sure, the Supreme Court in the above case did not lay down rules as to how the problem of double taxation could be effectively avoided by a proper application of the dominant nature test by one or the other of the taxing authorities and not by both. Therein lies the problem.

This decision of the Karnataka High Court once again brings to the fore the real and persistent challenge faced by tax payers with regard to double taxation under indirect tax laws of a particular transaction to both the goods and the service tax.

[Source: The Business Standard]

Finance panel sees 16% GST as basis for future talks

New Delhi
April 11, 2009

A further rejig in service tax and excise duty rates may be on the cards after the upcoming general elections to pave the way for the proposed goods & services tax (GST). According to a study commissioned by the 13 th Finance Commission, a revenue-neutral rate for GST would be just over 16%.

As part of its mandate, the 13 th Finance Commission is reviewing the planned structure of GST to assess its impact on the Centre and states’ tax kitty. It will come out with a new basis for devolution of taxes between the two. Vijay Kelkar, one of the key architects of GST in India, heads the commission. GST will subsume service tax and excise duty, along with a plethora of state-level taxes and duties, and is scheduled for introduction from April 1, 2010.

“The 13 th Finance Commission may be using a 16% rate of GST for its own purpose, but the exact rate will be decided only after the new government is elected, and there are discussions between the Centre and the states,” a finance ministry official said. The empowered committee of state finance ministers and the Union finance ministry have already agreed upon a dual GST structure, with separate rates for the Centre and the states. But discussions on the rate of the proposed tax are yet to begin.

While the Congress party in its election manifesto has reiterated its promise to press ahead with the proposed GST, the BJP has said it would ensure that the tax is introduced on schedule, but at a rate of between 12% and 14%.

After the three stimulus packages, service tax is now levied at 10%, while the median excise duty is levied at 8%. States impose value-added tax (Vat) at rates of 4% and 12.5%. For GST to be levied at 16% or even lower as promised by the BJP, tax experts say that other taxes would have to converge.

Convincing the states to lower taxes, however, won’t be easy. State governments have not evinced much keenness to reduce the Vat rate to align it with the central excise duty. At present, the highest rate under Vat is 12.5%, which is higher than the new median Cenvat rate of 8%.

“A GST rate of 16% will help industry become more competitive. Due to simplification of the indirect tax regime through GST, there will be better compliance and will also cause fewer revenue losses to the exchequer,” said PwC ED R Muralidharan.

[Source: The Financial Express]

I-T dept's petitions against cos on forex losses dismissed

New Delhi
April 9, 2009

The Supreme Court on Wednesday dismissed the Income-Tax Department plea that companies cannot claim deductions against tax liability on account of losses due to foreign exchange rate fluctuations.

A Bench headed by Justice S H Kapadia dismissed the Department’s petitions filed against 33 foreign and domestic companies including Maruti Udyog, Jindal Strips, GE Power Services, Perfetti India, Seagram, Escorts Ltd, E I Dupont India, Woodward Governor India, Honda Siel, Turner International and others.

The department had submitted that companies cannot claim deductions on such losses as they were incurred in the ordinary course of business and were part of it. It had argued that where the loss was incurred in respect of circulating capital, it was to be treated as revenue loss and where it was incurred in respect of fixed capital it was to be treated on the capital account.

However, the copy of the judgment was not available. Stating that the loss was in respect of fixed capital in a few cases, the petitions said: “... Under the mercantile system of accounting, liability can be allowed only when liability was repaid or which had been crystallised/ ascertained. The liability debited by Turner was merely a notional liability.”


The companies had stated that deduction can be allowed as liability was on the revenue account. While the Income-Tax Appellate Tribunal had upheld the assessees’ position, the Delhi High Court had endorsed the department’s plea.

[Source: The Financial Express]

I-T refunds diverted to fake accounts

New Delhi
April 8, 2009

Diligent taxpayers waiting for refunds at the end of the financial year would be aghast to know this: money meant for refunds is suspected to have been diverted to some fake accounts and the authorities have initiated a police probe into the racket.

As many as 10 police complaints have been filed by tax authorities with the Delhi Police against some data entry operators who are suspected to have diverted the money meant for refunds last year, a government official said on condition of anonymity.

The FIRs, filed with the Indraprastha Estate Police Station, near the headquarters of the Income Tax Department, Delhi, named the operators, who were hired by the department for processing of returns in the capital refunds.

In the last financial year, refunds of Rs 41,419 crore were issued, while in the previous year the refunds totalled to Rs 40,701 crore.

When contacted, a spokesperson for Central Board of Direct Taxes told PTI that these instances would not affect the refunds and asserted that the computer systems of the Income Tax Department were not hacked by outsiders.

The CBDT spokesperson, however, declined to give details of the amount involved in the cheating or the number of affected persons whose refunds found different destinations.

While officials maintained the modus operandi of those involved would be known after the police probe, sources said the data entry operators diverted funds through cheques meant for I-T refunds in August last year.

These operators were given user IDs and password of the taxmen by officials themselves and the system was not hacked.

Sources said the appointment of these operators cannot be avoided as there is dearth of staff for doing this work. The sanctioned number of tax assistants in Delhi I-T Department is 1017 but only 886 are working at present, they added.

Similarly, sanctioned number for stenographers, at the level where people are mostly hired as data entry operators, is 262, while only 20 are working right now, sources said.

Anyway in Delhi, refund banker scheme is operational, so there is not a problem with refunds, sources added.

As per the refund banker scheme, cash management product department of country’s largest lender SBI, processes the refunds, sent by the Income Tax department, and sends the refund intimation to the taxpayer.

All taxpayers, excluding corporate and a few others, are covered under the scheme. The scheme is in operation in some more cities like Patna, Bangalore, Chennai, Mumbai and Kolkata as well.

[Source: The Business Standard]

A.Y. 2009-10 New ITR Form's in PDF Format

Form No.

ITR 1
ITR 2
ITR 3
ITR 4
ITR 5
ITR 6
ITR 7
ITR 8
ITR V & Acknowledgement

The Income-tax (9th Amendment) Rules, 2009 [S.O. 866(E)]

Download The Notification Click Here

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
CENTRAL BOARD OF DIRECT TAXES

New Delhi, 27th March, 2009

NOTIFICATION

S.O. 866(E) - 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 (9th Amendment) Rules, 2009.

(2) They shall come into force on the 1st day of April, 2009.

2. In the Income-tax Rules, 1962, -

(a) in rule 12,

(i) in sub-rule (1), for the words, figures and letters on the 1st day of April, 2008, the words, figures and letters on the 1st day of April, 2009 shall be substituted;

(ii) in sub-rule (5), for the words, figures and letters on the 1st day of April, 2007, the words, figures and letters on the 1st day of April, 2008 shall be substituted;

(b) in Appendix-II, for Form ITR-1, Form ITR-2, Form ITR-3, Form ITR-4, Form ITR-5, Form ITR-6, Form ITR-7, Form ITR-8 and ITR-V the following forms shall be substituted, namely:-

A.Y. 2009-10
Form No.

ITR 1
ITR 2
ITR 3
ITR 4
ITR 5
ITR 6
ITR 7
ITR 8
ITR V & Acknowledgement

Income Tax Audit Report - Form 3CD amended - Income-tax (Tenth Amendment) Rules, 2009

CBDT has issued notification no. 36/2009 dated 13-4-2009 [Income-tax (Tenth Amendment) Rules, 2009] to amend form 3CD (Statement of particulars required to be furnished under Section 44AB of the Income Tax Act, 1961).

Accordingly a new entry no. 17A has been inserted as:

"17A. Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006."

Clarification regarding deduction under section 10B

Instruction No. 2/2009, dated 9-3-2009

Section 10B of the Income tax Act provides for exemption of income in case of hundred per cent export oriented undertakings subject to prescribed conditions.

Explanation 2 (iv) below to the said section defines a "hundred percent export oriented undertaking" as an undertaking so approved by the Board appointed in this behalf by the Central Government under section 14 of the Industries Development and Regulation Act, 1951. Subsequent to the delegation of this power by the Ministry of Commerce and Industries to the Development Commissioners, such approvals to 100% EOU's are now being granted by the Development Commissioners, which are later ratified by the Board of Approvals.

The matter regarding validity of approvals given by Development Commissioners has been examined in the Board. It has been decided that an approval granted by the Development Commissioner in the case of an export oriented unit set up in an Export Processing Zone will be considered valid, once such an approval is ratified by the Board of Approval for EOU Scheme.

Source : Newspapers

Income Tax deduction on exchange earned on films abroad

The Supreme Court has dismissed the appeal of the income tax department and ruled that the foreign exchange earned by transferring the right of exploitation of films outside India by way of lease is admissible for deduction under Section 80HHC of the Income Tax Act 1961.

According to the department, movies/films are not goods. Hence Section 80HHC cannot be invoked which grants benefit only to sale. The department further argued that the tape (cassette) was only a medium of transfer; that, there was no "sale" of the film in beta-cam format and that the film companies had only transferred the right to use for a period of five years and since the title remained with the exporters. The assessees (B Suresh and others) contended that the deduction/concession is given in cases where they derive profits from exports and earns foreign exchange. The court agreed with them and said that the rights held by them would certainly fall in the category of articles of trade and commerce, hence, merchandise.

Source : Newspapers

Firms committing criminal offences can be prosecuted, but not sent to jail

Companies which commit criminal offence can be prosecuted and sentenced to fine, though they cannot be sent to jail as they are only juristic persons. This principle was reiterated by the Supreme Court in the case, Ballarpur Industries Ltd Vs State of Tamil Nadu.

Recalling its 2005 judgment in the case, Standard Chartered Bank Vs Directorate of Enforcement, the court stated that "there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment and fine. It has been held that though a company cannot be sentenced to imprisonment, it can nevertheless, be prosecuted and the court can impose punishment of fine instead."

Investing wisely under 80C will help save taxes

For many, Section 80C of the Income Tax Act forms the cornerstone of their tax saving strategy. The section incorporates tax breaks for so many varied activities that our lawmakers wish to encourage that it has a different connotation for different age groups or different income levels.

The tax breaks for long-term investments range from zero risk investments like PPF to risky options like equity-linked savings scheme (ELSS).

The section encourages spending for insurance protection and it also provides relief for those spending on their dependents. Therefore, there is no ‘one-size-fits-all’ formula for this Section.

The only way to go about planning taxes is to define your age and income group and choose the appropriate options.

Age: 25 years
Gross taxable Income: Rs 3,00,000

If an individual, who earns a taxable annual income of Rs 3 lakh with the mandatory provident fund deduction of Rs 20,000 per year, does not take any tax-saving measures except paying a life insurance premium of Rs 10,000, he might have to shell out Rs 12,360 in taxes.

But, if he invests Rs 1 lakh under section 80C and buys a health cover, entailing a premium of Rs 10,000, he can bring down his tax payable to Rs 4,120.

In the case of women, the tax liability will be merely Rs 1,030, since the threshold exemption limit for women is Rs 1,80,000.

This apart, if she is repaying an education loan, the tax liability might be nil as the entire interest amount paid on the loan is exempt under section 80E.

Also, if the individual does not have any dependents, it would be prudent to reconsider the need for life insurance. While many financial planners recommend ELSS for people in this age group, others contend that even public provident fund (PPF) is an attractive avenue.

“Our recommendation for this category is that they should invest 50% in ELSS and 50% in PPF,” said financial planner Amar Pandit.

Age: 30 years
Gross taxable income: Rs 5,00,000

If an individual’s taxable income is around Rs 5 lakh per annum, he will fall in the next bracket — the one attracting a tax rate of 20% (Assumptions: PF contribution of Rs 36,000 and life insurance premium of Rs 10,000).

However, proper tax planning could result in considerable savings. Against paying a tax of Rs 47,174 before investing in instruments under 80C and paying a health insurance premium of Rs 15,000, he will end up paying just Rs 32,960.

Since most individuals may not have to shoulder any major responsibilities at this age, again, a combination of ELSS and PPF could be a good bet.

“A point to be borne in mind here is that all investment decisions need to be taken after evaluating individual needs and risk profile, and not merely on the basis of age and income level,” pointed out financial planner Kartik Jhaveri.

Age: 35 years
Gross taxable income: Rs 7,00,000

Here, if an individual (married with kids) has availed of a home loan this year, the opportunities for maximising the tax breaks are immense.

If he is servicing a home loan of Rs 40 lakh, he can claim deductions on interest and principal repaid. In fact, the amount of principal repaid itself will help in exhausting the entire Rs 1 lakh limit.

Besides, the deduction of Rs 1,50,000 for interest paid on home loan will lower his tax liability further.

The combined impact of all deductions will be huge: from paying a tax of Rs 96,820 — prior to availing of these exemptions, the tax payable will come down to Rs 43,260. In case he has not opted for a home loan, he can claim deductions under section 80C for tuition fee paid for his children’s education.

Age: 40 years
Gross taxable income: Rs 10,00,000

At these income levels, the tax-saving options are almost similar to the Rs 7,00,000 bracket. A home loan repayment would circumvent the need for making any investments under section 80C. Exemptions claimed under various sections (80C, 80D and 24) would result in the tax payable decreasing from Rs 1,83,340 to Rs 1,29,265.

If the individual has started making contribution to PPF since the age 25, the mandatory 15-year lock-in tenure would have come to an end. Under these circumstances, if he is not repaying his home loan and consequently, is scouting for avenues to invest under section 80C, he can consider extending the PPF tenure for another five years.

For senior citizens, the income up to Rs 2,25,000 per annum is exempt from tax. For this category of assessees, experts recommend avoiding instruments entailing a prolonged lock-in period.

However, the 9% senior citizens scheme and post office time deposits (investments under which are deductible under section 80C) are recommended.

Source : Newspaper Articles

Foreign exchange from overseas film rights to get tax sops: SC

The Supreme Court has ruled that the foreign exchange earned by transferring the rights of exploitation of the films outside India by way of lease is admissible for deduction under Section 80HHC of the Income-Tax Act, 1961.

The court turned down the plea of the revenue department, which had said that films are not goods and so, deduction under Section 80HHC was not permissible.

A bench comprising Justice S H Kapadia and Justice H L Dattu said, “The basic requirement of Section 80HHC is earning in foreign exchange and retention of profits for export business. Profits are embedded in the ‘income’ earned. Earning of income depends on sale of goods and services. Today, the difference between the two is getting blurred with globalization and cross-border transaction. Today, with technological advancement one has to change our thinking regarding concepts like goods, merchandise and articles.”

The court dismissed a bunch of appeals filed by the revenue department. In one such case, during the assessment year 1993-94, an assessee, B Suresh, had transferred feature film rights for exploitation outside India and earned income in foreign exchange. The assessee claimed deduction under Section 80HHC in respect of the receipts. The Assessment Officer (AO), however, held that the assessee was not entitled to deduction since no goods were exported as contemplated under Section 80HHC, but it was merely an export of “rights” in the film.

The decision of the AO was overruled by the commissioner of income tax. The department then had moved the Income Tax Appellate Tribunal, which held that the assessee was entitled to deduction under Section 80HHC. The department then came to the apex court.

Telecom companies are deducting lower amounts of TDS: Taxman

Some of top telecom companies are being accused of deducting lower amounts of tax at source on payments made to each other for roaming and interconnection charges, but the companies deny any wrongdoing.

Interconnect charges, which include call termination fees, port charges and carriage fees, account for about 30% of the tariff charged to the consumer. Roaming charges make up 10-15% of operators’ earnings.

“A number of telecom service providers had not been deducting the actual quantum of tax that they are supposed to,” Central Board of Direct Taxes member (revenue) Saroj Bala told ET. She declined to identify the companies. The quantum of tax claimed by the authorities is not known.

The income-tax department is of the view that interconnection and roaming charges are in the nature of a fee for technical services, for which tax must be deducted at source at a 10% rate. Interconnection charges apply when voice or data originating in the network of one operator terminates with a user after going through the network of another service provider, or when an independent long-distance operator carries the STD traffic of a telco.

Customer need not deduct tax while paying for hotel services

A customer need not deduct income tax while paying for services provided by a hotel, Bombay High Court held recently. Section 194 C of the Income Tax Act says that any person, while making payment to a contractor for any work, must deduct the income tax (which the contractor owes).

But a division bench of Justices Ranjana Desai and J P Deodhar held that the provision could not be extended in the case of payments for hotel services. Otherwise, even a person who pays a barber for a hair-cut would be needed to deduct tax first, court observed.

Section 194 C does not include service contracts, and Supreme Court had earlier made it clear that nobody is expected to deduct tax at source in making payments to lawyers, doctors, chartered accountants, etc.

But a circular issued by Central Board of Direct Taxes in March 1994 had sought to bring all service-related payments under the section. It was challenged by East India Hotels, a group which has hotels all over the country.

“Services rendered by hotels by making certain facilities/amenities do not involve carrying out any “work” which results in production of anything” and therefore it won't be covered by section 194, court said.

Tax incentives from your own / rent house

TAX BENEFIT IN CASE YOU STAY IN A RENTED ACCOMMODATION

Any allowance specially granted to the tax payer by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the tax payer is exempt, subject to certain conditions. The exemption is restricted to the least of the following:

a. HRA actually received

b. Rent paid in excess of 10% of salary

c. 50% of salary in case the house is situated in Delhi, Mumbai, Kolkata and Chennai, and 40% in case the house is situated in any other city.

It is pertinent to note that HRA exemption is not available if such residential accommodation either owned by the tax payer or the tax payer has not actually incurred expenditure on payment of rent.

TAX BENEFIT FOR OWNERS – SELF OCCUPIED

In case a tax payer has one house property which is occupied i.e. used for own residence, then the annual value of such house property is taken to be nil and hence, there would not be any taxability.

If the tax payer has taken a housing loan for construction or acquisition of such house property, then he is eligible to claim deduction for the interest paid on the housing loan up to Rs 150,000 per annum subject to certain conditions.

Even the pre-EMI interest also qualifies for deduction mentioned above. Thus, a deduction can be claimed for the interest payable on the borrowed capital for the period prior to the financial year in which the property has been acquired or constructed in five equal installments starting from the financial year in which such property is acquired or constructed.

TAX BENEFITS FOR OWNERS WHERE THE PROPERTY IS LET-OUT

If the tax payer owns a house property which is let-out, then the rent received/receivable for such property is taxable as income under the head ‘house property’ subject to certain conditions.
A deduction for municipal taxes actually paid and a standard deduction of 30% of the annual value can be claimed by the tax payer.

Further, a deduction can be claimed for the interest actually paid (without limit) in case a housing loan has been taken for acquisition of such house property.

Internal auditor cannot be tax auditor for the same company

Come April 1, an internal auditor of an organization cannot take up tax audit of the same entity. ICAI has now decided to implement this norm in true spirit from this date.

This decision will mainly impact those chartered accountancy firms that were being appointed as internal auditors and also performing tax audits for the same organization. It also covers those employees who had taken up the role of an internal auditor.

The stipulation that an internal auditor cannot be a tax auditor has been put in place to ensure there is quality of service and auditor independence is maintained, said Mr Uttam Prakash Aggarwal, ICAI President.

“If the same person is getting two assignments from the same management — as an internal auditor as well as tax auditor, the chances are high that this will influence his independence. We do not want this to happen,” Mr Aggarwal.

Although the central council had in October 2008 taken a decision to this effect, it was not fully put into practice on account of the representations received on this front. It was submitted that this decision would create “hardship” for those who had already appointed their internal auditor for carrying out tax audit for financial year 2008-09, i.e. assessment year 2009-10.

Director’s liability for company’s taxes

Under company law, a director of a company is not personally liable for the company’s debts unless a court of competent jurisdiction finds him guilty of misfeasance. Company law proceeds on the basic principle of jurisprudence that a director is presumed to be innocent unless he is proved to be otherwise.

These salient principles of company law and jurisprudence are given the go-by under the income-tax law. Section 179 of the Income-Tax Act, 1961 imposes a vicarious liability on a director and such liability can be imposed by the assessing officer (AO) without adjudication by a court.

It will be for the director to prove his innocence. The section lays down that where any tax due from a private company cannot be recovered, then every person who was a director at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

This provision is not applicable to a company which is treated as public company under Section 43A of the Companies Act, 1956 in relation to tax pertaining to the period subsequent to its becoming a public company. This position was settled by Supreme Court itself.

The section underwent major amendment in October 1975. Prior to this date, it applied only to a private company in liquidation. The 1975 amendment extended the operation of the section to companies converted into public companies in respect of the period during which they were private companies.

It applies to all companies whether in liquidation or not. The marginal note to Section 179 wrongly refers to ‘company in liquidation’. After the 1975 amendment, it applies even to a company which is dissolved or struck off the registrar without being wound up.

Finmin rejects proposal to relax FBT norms for exporters

The Finance Ministry has turned down a Commerce Ministry proposal to provide relaxation to exporters, reeling under the impact of the global financial meltdown, from payment of FBT, saying such benefits cannot be granted to one section of taxpayers.

The issue of relaxing the Fringe Benefit Tax (FBT) norms for foreign travel undertaken for export purposes was raised by Commerce Ministry officials at a recent meeting of the Committee of Secretaries. The proposal, sources said, was shot down by the Revenue Department which argued that any move to relax the FBT, which was introduced in Budget 2005 by the then Finance Minister P Chidambaram, would have to be done across-the-board with the approval of legislature. Moreover, the revenue department officials added that such benefits cannot be restricted only to the export sector.

The Commerce Ministry officials were of the view that FBT component with regard to foreign travel should be relaxed to spur exports which are worst hit as a result of the global financial crisis. India's exports, after a gap of seven years, moved into negative zone in October declining by 12.1 per cent. With major economies of the world including US, Japan and the Europe slipping into recession, India's exports continued to remain in the negative for the last four months slipping by 16 per cent in January.

Personal Guidance.....A check list for Personal Tax

Indian financial year runs from 1 April to 31 March. Accordingly, the Income-Tax Return is to be prepared and filed for the relevant financial year.

31st March is an important date as it marks the end of a financial year. The last few weeks are when we rush for the documents/investment proofs, based on which we compute our tax liability.

The income-tax department has done away with the requirement of filing any supporting documents like investment proofs, etc, along with the return of income. It is, however, prudent to collect the same before the end of the financial year and keep them in records for future reference. These would also be required, in case your return is picked up for assessment.

Here are ten things to do before March 31, 2009 i.e. before the current financial year ends:

1. Submit to your employer the proof of investments/expenses that you have incurred to claim deduction under Section 80C. These includes receipt for insurance premium paid, deposits made in your public provident fund account, investment made in equity-linked savings schemes, National Savings Certificates purchased, children’s tuition fees paid, etc. Your employer would require the details and the documentary proof to provide you the deduction under Section 80C.

2. If you are claiming deduction for house rent allowance, then ensure that you have submitted the necessary details and proofs like rent receipt, etc, to your employer for claiming the benefit.

3. Collect all your bank statements and Tax Deducted at Source (TDS) certificates, if any, from your bank. This will help you to compute interest income on bank deposits and pay balance tax, if any.

4. If you have a running home loan, you must collect the certificate of repayment of principal amount and the interest paid during the financial year from the bank/financial institution from which you have taken the housing loan. You are required to provide a computation to your employer specifying the income under the head ‘House Property’ along with the proof of interest and principal repayment, to claim deduction.

5. In case you have changed employment during the financial year and not collected your Form 16, then you should collect the same now.

6. If you have made a donation to any charitable organization during the year, then ensure that you collect a valid receipt to claim deduction u/s 80G.

7. If you are claiming deduction under Section 80D for payment of health insurance premium for self and family, then ensure that you have obtained receipt for the premium paid.

8. If you are claiming deduction for interest on educational loan then ensure that you have the necessary records to substantiate the same.

9. If you have sold/transferred any asset like house property, shares, mutual funds etc. then compute the capital gains and check the exemptions available to you. A distinction is to be made between long term and short term capital gains.

10. Compute your tax for the year and assess whether you are required to pay any balance tax.

These are few of the important steps that one should take care of while preparing one’s tax computation. It would be a good idea to take the necessary action now to avoid the last minute rush of collecting the details and ensuring that all the available exemptions/deductions are claimed.

Wealth-Tax (Second Amendment) Rules, 2009 - Amendment in Rule 3A Notification No. 16/2009, dated 13-2-2009

In exercise of the powers conferred by section 46 of the Wealth-tax Act, 1957 (27 of 1957), the Central Board of Direct Taxes hereby makes the following rules further to amend the Wealth-tax Rules, 1957, namely :—

1. (1). these rules may be called the Wealth-tax (Second Amendment) Rules, 2009.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Wealth-tax Rules, 1957, in rule 3A, —

(a) in sub-rule (3), —

(i) in clause (i), for the letters, figures and word “Rs. 50 lakhs”, the letters, figures and word “Rs. 300 lakhs” shall be substituted;

(ii) in clause (ii), for the letters, figures and words “Rs. 10 lakhs” and “Rs. 50 lakhs”, the letters, figures and words “Rs. 40 lakhs” and “Rs. 300 lakhs” shall respectively be substituted;

(iii) in clause (iii), for the letters, figures and word “Rs. 10 lakhs”, the letters, figures and word “Rs. 40 lakhs” shall be substituted;

(b) for sub-rule (4), the following sub-rule shall be substituted, namely:—

“(4) Where the valuation of any asset, being building or land or any right in any building or land, referred to the District Valuation Officer, the Valuation Officer or the Assistant Valuation Officer, as the case may be, is pending with him on the 13th February, 2009, being the date of commencement of the Wealth-tax (Second Amendment) Rules, 2009, —

(i) the District Valuation Officer shall transfer the reference to the Valuation Officer, if the value of the asset as declared in the return made by the assessee under section 14 or section 15 does not exceed Rs. 300 lakhs ;

(ii) The Valuation Officer shall transfer the reference to the Assistant Valuation Officer, if the value of the asset as declared in the return made by the assessee under section 14 or section 15 does not exceed Rs. 40 lakhs.”

[F. No. 149/159/2008-TPL]