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FAQs on FBT - ESOP


Circular No 9/2007
F. No. 142/25/2007-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
****
New Delhi, the 20th December, 2007
To
All Chief Commissioners of Income-tax/
Directors General of Income-tax
Sub:- Explanatory circular on Fringe Benefit Tax arising on allotment or
transfer of specified securities or sweat equity shares.
In terms of the provisions of Chapter XII-H of the Income-tax Act
(hereinafter referred to as “Act”), an employer, being a company, is liable to
pay Fringe Benefit Tax (FBT) in respect of the fringe benefits provided or
deemed to have been provided by it to its employees, directly or indirectly,
during the previous year.
With a view to bring grant of stock options by employers to employees
within the purview of FBT, Finance Act, 2007 has inserted a new clause (d) in
sub-section (1) of section 115WB. The salient features of this provision are:-
(i) FBT shall apply in all cases where any specified security or
sweat equity shares has been allotted or transferred by the
employer to his employees;
(ii) FBT shall be payable in the previous year in which such
allotment or transfer has taken place;
(iii) the provisions of this new clause shall apply even if the
allotment or transfer is directly or indirectly;
(iv) the provisions of this new clause shall apply even if the
allotment or transfer is free of cost or at concessional rate;
(v) the provisions of this new clause shall apply even if the
allotment or transfer is to current or former employee or
employees;
(vi) the provisions of this new clause shall apply in cases where the
allotment or transfer is on or after 1st day of April, 2007.
The expressions “specified security” and “sweat equity shares” have
also been defined. The value of fringe benefit is subjected to FBT at the
prevailing rate, which is currently 30% plus surcharge plus education cess.
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2. Method of computation of the value of the fringe benefit
Under the existing provisions contained in section 115WC, the method
of computation of the value of fringe benefits referred to in section 115WB has
been provided. A new clause (ba) in sub-section (1) of the said section
115WC has been inserted to provide for computation of fringe benefit related
to allotment or transfer of specified security or sweat equity shares by
employers to employees.
It has been provided that the value of fringe benefit in such cases shall
be determined in accordance with the formula –
A–B
Where, A = the Fair Market Value (FMV) of the specified security or
sweat equity shares on the date of vesting of the
option; and
B = the amount, if any, actually paid by, or recovered from the
employee;
The expression “fair market value” has been defined to mean the value
determined in accordance with the method as may be prescribed by the
Board.
“Option” has been defined to mean a right but not an obligation
granted to an employee to apply for the specified security or sweat equity
shares at a predetermined price.
The Central Board of Direct Taxes (CBDT) vide notification S.O.
number 1805(E) dated 23rd October, 2007 has inserted Rule 40C in the
income-tax Rules; which has prescribed the method for determination of fair
market value of specified security or sweat equity share, being a share in the
company. Salient features of this rule are:
(i) In a case where, on the date of the vesting of the option, the
share in the company is listed on a recognized stock exchange,
the fair market value shall be the average of the opening price
and closing price of the share on that date on the said stock
exchange;
(ii) If on the date of vesting of the option, the share is listed on more
than one recognized stock exchanges, the fair market value
shall be the average of opening price and closing price of the
share on the recognised stock exchange which records the
highest volume of trading in the share;
(iii) If on the date of vesting of the option, there is no trading in the
share on any recognized stock exchange, the fair market value
shall be,-
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(a) the closing price of the share on any recognised stock
exchange on a date closest to the date of vesting of the
option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock
exchange, which records the highest volume of trading in
such share, if the closing price, as on the date closest to the
date of vesting of the option and immediately preceding such
date, is recorded on more than one recognized stock
exchange.
(iv) In a case where, on the date of vesting of the option, the share
in the company is not listed on a recognized stock exchange,
the fair market value shall be such value of the share in the
company, as determined by a Category 1 Merchant Banker
registered with the Security and Exchange Board of India, on the
specified date.
(v) The specified date has been defined as to mean,-
(i) the date of vesting of the option; or
(ii) any date earlier than the date of the vesting of the option, not
being a date which is more than 180 days earlier than the date
of the vesting.
3. Determination of the cost of acquisition for capital gains purposes
Consequent to insertion of clause (ba) in sub-section (1) of section
115WC providing for the valuation of fringe benefits referred to in clause (d) of
sub-section (1) of section 115WB, a new sub-section (2AB) has been inserted
in section 49.
This new sub-section provide that the cost of acquisition of specified
security or sweat equity shares shall be the fair market value which has been
taken into account while computing the value of fringe benefit under the new
clause (ba) of sub-section (1) of section 115WC.
4. Determination of the period of holding
A new sub-clause (hb) has also been inserted in clause (i) of
Explanation 1 to clause (42A) of section 2. This new sub-clause provide that
the period of holding in case of such specified security or sweat equity shares,
in the hand of the employee, shall be reckoned from the date of allotment or
transfer of such security or shares.
5. Recovery of FBT by the employer from its employee
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A new section 115WK has also been inserted enabling the employer to
recover the fringe benefit tax from the employee in respect of specified
security or sweat equity shares, if such security or shares are transferred or
allotted to the employee on or after 1st April, 2007.
It has been prescribed that the employer can vary the agreement or
scheme under which such specified security or sweat equity shares has been
allotted or transferred. The agreement or scheme can be varied with a
purpose to recover from the employee the fringe benefit tax to the extent to
which such employer is liable to pay the fringe benefit tax in relation to the
allotment or transfer of such specified security or sweat equity shares to such
employee.
6. Illustration
The above amendments are explained with the help of an illustration.
Illustration: A company ‘X’ grants option to its employee ‘R’ on
1st April, 2004 to apply for 100 shares of the company at a predetermined
price of Rs. 50/- per share with date of vesting of the option
being 1st April, 2006 and exercise period being 1st April, 2006 to 31st
March, 2010.
Employee ‘R’ exercises his option on 31st March, 2007 and shares are
allotted/transferred to him on 3rd April, 2007. On 25th October, 2007
these shares are sold for Rs. 200/- each. On the date of vesting of the
option , fair market value of the share was Rs. 80/- per share. The tax
implication of above situation will be as under:-
Since shares are allotted or transferred on or after 1st April,
2007, provision of fringe benefit tax are attracted. Fringe benefit with
respect to employee ‘R’ is (Rs. 80 – Rs. 50) X 100 = Rs. 3,000/-.
Company ‘X’ will pay fringe benefit tax on Rs. 3,000/-.
Cost of acquisition in the hand of employee ‘R’ = Rs. 80/- per share
Capital gain = (Rs.200 – Rs. 80) X 100 = Rs. 12,000/-
Period of holding = 3rd April, 2007 to 25th October, 2007 i.e., less than
12 months. Hence, the amount of RS. 12,000/- will be charged to short
term capital gain.
7. Frequently Asked Questions
A number of issues have been raised by trade and industry at different
fora after the presentation of the Finance Bill, 2007, after its enactment and
also after the notification of Rule 40C. The questions and answers in the
following section seek to clarify these issues:
1. Whether a foreign company is liable to pay FBT on shares
allotted or transferred to the employees of its Indian
subsidiary?
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Answer: In terms of the provisions of Chapter XII-H of the Act, an employer,
being a company, is liable to pay FBT in respect of the fringe
benefits provided or deemed to have been provided by it to its
employees, directly or indirectly, during the previous year. Since
the shares are allotted or transferred to employees of the Indian
subsidiary, by virtue of their employment with the subsidiary
company, the liability to pay fringe benefit tax on such shares vests
upon the Indian subsidiary and not on the foreign company.
2. Whether charge back of costs by the foreign company to the
Indian subsidiary is relevant to determine the obligation of the
Indian company to pay FBT?
Answer: As stated in answer No.1, the Indian subsidiary is liable to fringe
benefit tax irrespective of whether or not there is a charge back of
cost by the foreign holding company.
3. Will FBT apply in case of employees of the Indian subsidiary
for shares awarded by the foreign holding company if the
employees of the Indian subsidiary are allotted or transferred
shares while outside India?
Answer: In the answer to Question No.20 of CBDT Circular No. 8/2005 dt.
29.8.2005, it has been clarified that an employer is liable to fringe
benefit tax on the value of fringe benefits provided or deemed to
have been provided to employees based in India. Therefore, an
Indian subsidiary would be liable to pay FBT in respect of the value
of the shares allotted or transferred by the foreign holding company
if the employee was based in India at any time during the period
beginning with the grant of the option and ending with the date of
vesting of such option (hereafter such period is referred to as ‘grant
period’), irrespective of the place of location of the employee at the
time of allotment or transfer of such shares.
4. How will the value of fringe benefit be determined in case
where the employee was based in India only for a part of the
grant period?
Answer: In a case where the employee was based in India only for a part of
grant period, a proportionate amount of the value of the fringe
benefit will be liable to FBT. The proportionate amount shall be
determined by applying to the value of the fringe benefit, the
proportion which the length of the period of stay in India by the
employee during the grant period bears to the length of the grant
period.
(The value of fringe benefit means the fair market value of the
specified security or sweat equity shares, on the date on which the
option vests with the employee, as reduced by the amount actually
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paid by, or recovered from, the employee in respect of such
shares.)
5. Whether a foreign company is liable to fringe benefit tax in
respect of shares allotted or transferred to an employee who is
deputed to work in India in the year of such allotment or
transfer?
Answer: A foreign company is liable to FBT in respect of shares allotted or
transferred to its employee who is based in India. However, in such
cases only a proportionate amount of the value of the fringe benefit
will be liable to FBT. The proportionate value shall be determined
by applying to the value of the fringe benefit, the proportion which
the length of the period of stay in India by the employee during the
grant period bears to the length of the grant period.
(The value of fringe benefit means the fair market value of the
specified security or sweat equity shares, on the date on which the
option vests with the employee, as reduced by the amount actually
paid by, or recovered from, the employee in respect of such
shares.)
6. What will be the cost of acquisition of shares, referred to in
question nos 4 and 5, where only a proportionate value of
fringe benefit has been subjected to FBT?
Answer:- In accordance with section 49(2AB) of the Act, the cost of
acquisition of such shares shall be the fair market value on the date
on which the option vests with the employee. The calculation of
fringe benefit for the purpose of determining FBT does not change
this value. Hence, the subsequent calculation of reducing such fair
market value by the amount actually paid by or recovered from the
employee as well as the calculation of proportionate value in certain
cases, referred to in Question No.4 & 5 above, will not change the
cost of acquisition.
7. Where the benefit on account of shares allotted or transferred
under Employee Stock Option Plans (ESOPs) is taxed in the
hands of the employees in different countries, would the
employer still be liable to FBT? If yes, can the employer claim
credit for payment of tax by the employee in other countries?
Answer: Employer will be liable to FBT in India irrespective of whether
employees have been charged to tax in different countries or not.
An employer cannot claim any credit in India against its FBT liability
for taxes paid by employees in other countries.
8. Where FBT, on account of shares allotted or transferred under
ESOPs, has been paid by the employer in respect of an
employee based in India and subsequently recovered from
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him, can such employee claim credit in a foreign country for
this FBT paid by the employer in India?
Answer: Ordinarily, the employee is liable to tax in respect of fringe benefits
received by him from his employer. However, the taxation of fringe
benefits in the hands of the employee raises several problems.
Accordingly, it was decided to introduce FBT as a surrogate tax on
employer in respect of the fringe benefits provided or deemed to
have been provided by it to its employees during the previous year.
This being so, in a case where FBT, on account of share allotted or
transferred ESOPs, has been paid by the employer in respect of an
employee based in India and subsequently recovered from him; the
FBT is effectively paid by the employee in respect of fringe benefits
enjoyed by him. Therefore, such employee can claim credit, in a
foreign country, for the FBT, on account of shares allotted or
transferred under ESOPs, paid by the employer in India.
9. Whether the benefits arising on account of shares allotted or
transferred under ESOPs can be taxed as a perquisite under
section 17 of the Act instead of being taxed as fringe benefit
under Chapter XII-H of the said Act, at the option of the
employer?
Answer: Any fringe benefit liable to be taxed in the hands of the employer
under Chapter XII-H of the Act cannot be taxed in the hands of the
employee as a perquisite under section 17 of the said Act.
Therefore, an employer does not have an option to tax the benefit
arising on account of shares allotted or transferred under ESOPs as
perquisite which otherwise is to be taxed as fringe benefit.
10. Whether there will be any FBT liability in a case where the FMV
on the date of vesting is less than the price paid by the
employee to the employer for allotment or transfer of shares?
Answer: No. FBT would not be payable in such cases.
11. What will be the valuation methodology for foreign companies
if the shares are not listed in a recognized stock exchange in
India but are listed on any globally recognised stock
exchange?
Answer: If the shares are not listed in a recognized stock exchange in India,
the shares will be treated as unlisted. Accordingly, such shares will
have to be valued by category 1 Merchant Banker registered with
Securities and Exchange Board of India. However, if the shares are
listed in any globally recognised stock exchange, the merchant
banker shall use the listed price as one of the basis for valuation
and recommend the best value.
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12. Whether an independent valuation carried by any foreign
merchant banker/other experts as recognized for the purposes
of valuation in the foreign country be treated as sufficient
compliance for the purposes of valuation of fringe benefit
arising on account of allotment or transfer of shares under
ESOPs of an unlisted foreign company or is it mandatory that
the merchant banker should be registered with the Securities
and Exchange Board of India.
Answer: For the purposes of valuation of fringe benefit arising on account of
allotment or transfer of shares under ESOPs of an unlisted foreign
company, it is mandatory for the valuer to be a category I Merchant
Banker registered with the Securities and Exchange Board of India.
13. When there exists different methods for valuing FMV for
unlisted companies, which method should be used by the
merchant bankers to determine the FMV?
Answer: The Merchant Banker should determine the FMV on the basis of
alternative methods and recommend the most appropriate value.
14. What is the significance of specified date? Whether the
valuation is to be made on a specified date or specified
security or sweat equity share is to be valued as on the
specified date?
Answer: The process of valuation may be carried out by the merchant
banker at any time before or after the date of vesting of the option,
but the specified security or the sweat equity share is required to be
valued as on the specified date.
15. What is the FMV that a company should adopt if the shares
have been valued by more than one merchant banker or by one
merchant banker on more than one occasion?
Answer: The valuation which value the specified security or sweat equity
share on the specified date, which is closest to the date of the
vesting of the option, should be adopted, if the shares have been
valued by more than one Merchant Banker or by one Merchant
Banker on more than one occasion.
16. Whether the fringe benefit arising on account of shares allotted
or transferred under an ESOP is allowed as deduction in
calculating the taxable income of the employer company?
Answer: In case where the employer purchases the shares and then
subsequently transfers such shares to its employees, the
expenditure so incurred is allowable as deduction in computing the
taxable income of the employer company. However, if the shares
are allotted to the employees from the share capital of the
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company, no deduction is allowable in computing the taxable
income of the company since no expenditure has been incurred by
it.
17. Whether ESOPs issued to non-executive directors or nonemployees
liable to FBT?
Answer: Benefit arising out of ESOPs issued to non-employees will not
be liable to FBT. However, in such cases, the taxability of such
benefits in the hands of the non-employees will be determined in
accordance with the existing law.
18. Which method, first-in-first-out (FIFO) or last-in-first-out (LIFO)
shall be followed in case there are multiple date of vesting for
different number of shares. For example if the dates of vesting
are:
31 Mar 06 - 300 options – FMV Rs. 8 per share ( one share
per option)
31 Mar 07 - 300 options – FMV Rs. 9 per share ( one share
per option) and the employee is allotted 500 shares as on 30
September 2007, how will FBT be calculated?
Answer: In such cases, the First-in-First-Out (FIFO) method shall be
followed. Hence, the FBT shall be calculated with respect to 300
shares at FMV of Rs 8 per share and 200 shares at FMV of Rs 9
per shares.
19. Whether it is binding upon the Assessing Officer to accept the
valuation made by the merchant banker?
Answer: It is binding upon the Assessing Officer to accept the valuation
made by the Merchant Banker unless the valuation by such banker
is perverse.
20. How would the recovery of FBT be treated in the hands of the
employer?
Answer: Since FBT is not an allowable deduction in computation of the
income of the employer, any recovery of FBT will not be treated as
income in his hands.
21. What should be the mechanism and timing of recovery of FBT?
Answer: The law does not provide for any specific mechanism or timing
of recovery of FBT.
22. Is it lawful for the employer to recover FBT with respect to
ESOPs granted prior to April 1, 2007?
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Answer: It would be lawful for the employer to recover FBT with respect
to ESOPs granted prior to April 1, 2007, but allotted or transferred
to the employee after such date.
23. What will be the date of allotment of an Employee Stock
Option?
Answer: The date of allotment of an Employee Stock Option shall be the
date on which the underlying asset is allotted or transferred to the
employee
24. Whether the FBT recovered from the employee would form the
cost basis for employee for calculating Capital Gain on
subsequent sale of shares?
Answer: No. The recovery of FBT from the employee by the employer will
not change the cost of acquisition of the shares in the hand of the
employee.
25. Will Rule 40C of Income-tax Rules, shall also apply in a case
where shares are allotted or transferred to an employee under
“Employee Stock Purchase Plan”, or “Employee Stock Option
Scheme”, or “Employee Stock Ownership Plan”, or “Employee
Stock Purchase Scheme”, or “Employee Stock Option
Scheme” or “Employee Appreciation Rights or Plans”?
Answer: Rule 40C shall apply in all cases where specified security or sweat
equity shares, being shares in a company, are allotted or
transferred to an employee under any scheme or plan or otherwise.
For the purpose of this circular an Employees’ Stock Option Plan
shall include all such schemes or plans, etc.
(Kamlesh C. Varshney)
Director (TPL-II)
Copy to:
1. PS to Finance Minister/MoSF (Revenue)/Finance Secretary/Revenue
Secretary and Adviser to FM.
2. Chairman (DT/ All Members of CBDT.
3. All Joint Secretaries, Commissioners and Directors of CBDT.
4. All Chambers of Commerce/Industry/Trade Associations.
5. Director General, National Academy of Direct Taxes, Nagpur.
6. Directors, Regional Training Institutes,
Ahmedabad/Bangalore/Chandigarh/Chennai/Kolkata/Lucknow/Mumbai
.
7. The Comptroller and Auditor General of India (30 copies).
8. Ministry of Law (10 copies).
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9. Secretary, Settlement Commission, New Delhi.
10. All Officers and Technical Sections in CBDT.
11. All Officers of Income-tax Department through their CCsIT/DsGIT
(Kamlesh C. Varshney)
Director (TPL-II)

Posted by Aliasgar at 10:05 AM 0 comments


Income Tax - Registration u/s 12A is condition precedent for availing benefits u/s
11 as charitable institution : Supreme Court
THE question before the Apex Court was : Is registration under Sec 12A a condition precedent
for claiming benefits under Sec 11(1)(a)? And after perusing the relevant Sections of 11, 12 &
12A, the Supreme Court has held that registration under section 12A is a condition precedent for
availing benefit under sections 11 and 12 of the Act. Unless and until an institution is registered
under section 12A of the Act, it cannot claim the benefit of section 11(1)(a) of the Act.
However, even with this decision of the Apex Court, the dispute which cropped up in 1977 has
not ended as there are many other issues related to the case and the Tribunal has been directed to
expediously decide them on merits.
Brief facts of the case :
The UP Forest Corporation is the assessee. It was asked by the Income Tax Department to file its
return for the AY 1976-77. The Corporation challenged it in a writ where the High Court held
that the assessee was a local authority u/s 10(20) and was entitled to claim exemption. The
Revenue did not challenge it and the decision became final till the time the Supreme Court for
other AYs took a contrary view.
The AO assessed the corporation for the AY 1977-78 by making some additions of income. But
the CIT(A) held it was a local authority entitled for exemption benefits. The Tribunal reversed
the decision of the CIT(A) but the HC held that the corporation was a local authority.
The issue went to the Supreme Court which observed that the expression 'local authority' has not
been defined in the Income Tax Act. And going by Sec 3(31) of the General Clauses Act, 1897
which applies to all Central Acts, this expression has been defined and the corporation does not
qualify to be a local authority. Then came up a question - whether the corporation was to get
registered u/s 12A for invoking provisions of the Sec 11(1)(a) to claim exemption as a charitable
institution? Since this issue was not raised before the lower authorities, it was remanded back.
The issue went through another rigmarole route of litigation and came back to the Apex Court to
decide the same. And after perusing the pertinent sections 11, 12 & 12A, the Apex Court
observed that,
++ Application for registration under section 12A has to be made in Form 10A prescribed by
Rule 17-A of the Income-tax Rules, 1962 before the expiry of one year from the date of the
creation of the trust or the establishment of the institution, whichever is later;
++ The same has to be made by the person in receipt of the income of the trust. Chief
Commissioner or Commissioner under proviso to clause (a) of section 12A has been vested with
the discretion to admit an application for registration after the expiry of the prescribed period;
++ A conjoint reading of sections 11, 12 and 12A makes it clear that registration under section
12A is a condition precedent for availing benefit under sections 11 and 12 of the Act. Unless and
until an institution is registered under section 12A of the Act, it cannot claim the benefit of
section 11(1)(a) of the Act.
Thus the SC held that unless and until an institution is registered under section 12A of the Act, it
cannot claim the benefit of section 11(1)(a) of the Act. Keeping in view the fact that the
appellant-Corporation has not been granted registration under section 12A of the Act, we hold
that the appellant is not entitled to claim exemption from payment of tax under sections 11(1)(a)
and 12 of the Act.

Posted by Aliasgar at 10:01 AM 0 comments


Penalty u/s 271(1)(c) - recording of satisfaction
NEW DELHI, DEC 24, 2007 : THE facts of the case are as follows:-
The assessee British Airways PLC, is a company incorporated in United Kingdom and is a tax
resident of that country. It is mainly engaged in the airline business and has been operating in
various countries including India. During the assessment years under consideration, the business
so carried on in India comprised of (i) Operation of aircraft in international traffic for
transportation of passengers, goods and mail to and from India and (ii) Rendering of engineering
and ground handling services to aircrafts operated by other airlines. The profit derived by the
assessee company from the business of operation of aircrafts in international traffic was
undisputedly not taxable in India in view of Article 8 read with Article 7(9) of the Double
Taxation Avoidance Agreement between India and United Kingdom (in short "the DTAA")
which provides that such profit shall not be taxed in the source country i.e. India and the same
was thus taxable only in the residence country i.e. United Kingdom in terms of Article 7(1) of
DTAA. However, the issue of contention is with regard to the profit derived from the business of
provision of engineering and ground handling services to other airlines, which according to the
AO, was not covered within the ambit of Article 8 of DTAA and the appellant company
contended that the profit so derived by it from the business of provision of engineering and
ground handling services to other airlines was not taxable in India as the same was also exempt
from tax under Article 8 of DTAA.
++ The AO did not agree with this stand of the assessee company. The AO accordingly
completed the assessments under section 143(3) of the Act for all the years under consideration
and brought to tax the profit derived by the assessee company from the business of rendering of
engineering and ground handling services to other airlines in India during the respective years.
On further appeals, the Tribunal also confirmed the chargeability of these profits to tax in India
while disposing of the appeals filed by the assessee company for the assessment years 1996-97,
1997-98 and 1998-99. The appeals for the remaining three assessment years 1999-2000, 2000-01
and 2001-02, however, have not been disposed of by the Tribunal and are still pending for
disposal.
++ After having upheld the chargeability of the profits derived by the assessee company from the
business of provision of engineering and ground handling services to other airlines to tax in
India, the Tribunal set aside and restored back the matter to the AO for all the three assessment
years 1996-97, 1997-98 and 1998-99 for making fresh assessments of taxable profits derived by
the assessee company from the said business.
++ In pursuance to the orders of the Tribunal, the AO determined and assessed the taxable profits
derived by the assessee company from the aforesaid business, and also imposed penalties.
These appeals by the assessee are directed against the common order of CIT(A) - dated
30.10.2006 whereby he confirmed the penalties imposed by the AO u/s 271 (1) (c) :-
The assessee company has challenged the validity of penalty orders passed by the AO u/s 271(1)
(c) on the ground that there being no satisfaction recorded by the AO in the assessment orders as
warranted by section 271, the initiation of penalty proceedings itself was bad in law.
On the issue of the satisfaction of the Assessment officer regarding the concealment of the
income or furnishing the inaccurate particulars of the income which were agitated by both the
sides, the tribunal considered the issues raised in various cases.
++ Satisfaction should be apparent from the assessment order and since there cannot be any
presumption about such satisfaction, a mere initiation of penalty proceedings without there being
any satisfaction recorded in the assessment order is bad in law. It is required to be recorded by
him in the assessment order specifically. (CIT v/s. Ram Commercial Enterprises, Delhi HC)
++ the observations recorded by the AO in the last part of the assessment order "penalty
proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income have separately been
initiated" read with a noting made by him in the earlier portion of the assessment order about the
failure on the part of the assessee to explain the source of credits in the bank account as well as
the assessee failure to adduce any evidence to support the genuineness of such credits, were
sufficient to show his satisfaction as required by law for initiation of penalty proceedings- CIT
v/s. Smt. Santosh Sharma
++ in the case of CIT v/s. AnandBazarPatrika Pvt. Ltd. 116 ITR 416 wherein it was held that it is
not open to the AO to treat an appeal proceedings as an extension of assessment proceedings so
as to enable him to find a case for penalty after he signs the assessment order.
++ The decision rendered in the case of Ram Commercial Enterprises on the other hand has been
approved in principle in the said order and only the mode and manner of satisfaction as required
to be recorded by the AO is left to be considered by Full Bench in the absence of specific
statutory provisions in this regard.
++ if the proposition propounded by the Hon'ble Delhi High Court in their various decisions
discussed above in the matter of satisfaction required to be recorded by the AO before validly
initiating the penalty proceedings is applied to the facts of the present case, the
findings/observations recorded by the AO in the assessment orders passed originally as pointed
out and relied upon ,cannot be said to be sufficient compliance of the statutory requirement and
the requisite satisfaction cannot be said to be spelt out by the AO in the said orders on the basis
of the said findings/observations.
++ A perusal of the said orders shows that there is no reason whatsoever given by the AO in the
said orders to show as to why, in his opinion, it was just and proper to initiate penalty
proceedings or at least to show as to why he was satisfied that the assessee had concealed the
particulars of his income or had furnished inaccurate particulars of such income.
++ The requisite satisfaction about the assessee having concealed the particulars of his income or
having furnished inaccurate particulars of such income was not recorded by the AO in the
relevant assessment orders before initiating the penalty proceedings u/s 271(1)(c) and in the
absence thereof, the initiation of penalty proceedings itself was bad in law and consequently the
penalties imposed by him in pursuance of the said initiation are liable to be cancelled.
++ In that view of the matter, the tribunal has aside the impugned order of the ld. CIT(A)
confirming the penalties imposed by the AO u/s 271(1)(c) for all the six years under
consideration and cancelled the penalties so imposed.

Posted by Aliasgar at 9:56 AM 0 comments


Monday, December 24, 2007
Service Tax notification
NOTIFICATION NO
43/2007-Service Tax, Dated: November 29, 2007
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32
of 1994), the Central Government, on being satisfied that it is necessary in the public interest so
to do, hereby exempts the taxable service, specified in sub-clause (zzo) of clause (105) of section
65 of the said Finance Act (hereinafter referred to as the said service), provided in relation to
business exhibition of goods by the organiser of business exhibition to a manufacturer of goods
falling under Chapters 57, 61, 62 and 63 of the Central Excise Tariff Act, 1985 (hereinafter
referred to as the said manufacturer), from the whole of the service tax leviable thereon under
section 66 of the said Finance Act, subject to the following conditions, namely:-
(a) prior to availment of exemption under this notification, the said manufacturer has exported
goods falling under Chapters 57, 61, 62 and 63 of the Central Excise Tariff Act, 1985
(hereinafter referred to as the said goods) and is registered as exporter of said goods with any of
the following organisations, namely:
(i) Apparel Export Promotion Council;
(ii) Carpet Export Promotion Council;
(iii) The Cotton Textiles Export Promotion Council;
(iv) Handloom Export Promotion Council;
(v) The Indian Silk Export Promotion Council;
(vi) Powerloom Development & Export Promotion Council;
(vii) Synthetic & Rayon Textiles Export Promotion Council;
(viii) Wool & Woollens Export Promotion Council;
(ix) Wool Industry Export Promotion Council;
(x) Jute Manufacturers Development Council;
(b) the exemption shall be claimed by the said manufacturer for the said service received;
(c) the exemption claimed by the said manufacturer shall be provided by way of refund of
service tax paid on the said service;
(d) the said manufacturer claiming the exemption has actually paid the service tax on the said
service;
(e) no CENVAT credit of service tax paid on the said service has been taken under the CENVAT
Credit Rules, 2004.
2. The exemption contained in this notification shall be given effect to in the following manner,
namely:-
(a) the person liable to pay service tax under section 68 of the said Finance Act shall pay service
tax as applicable on the said service provided to the said manufacturer and such person shall not
be eligible to claim exemption for the said service;
(b) the said manufacturer shall claim the exemption by filing a claim for refund of service tax
paid on the said service to the Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of
manufacture or warehouse;
(c) the claim for refund shall be filed on a quarterly basis, within sixty days from the end of the
relevant quarter during which payment of the value of the said service and the service tax thereon
has been made;
(d) the refund claim shall be accompanied by documents evidencing payment of service tax on
the said service for which claim for refund of service tax paid is filed;
(e) 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 service has been actually
used by the said manufacturer in relation to business exhibition of the said goods manufactured
by him, refund the service tax paid on the said service.
3. The exemption contained in this notification shall be valid upto 31st March, 2009.
4. This notification shall come into force on the date of its publication in the Official Gazette.
F.No.341/15/2007-TRU
(G.G. Pai)Under Secretary to the Government of India

NOTIFICATION NO
42/2007-Service Tax, Dated: November 29, 2007
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32
of 1994), the Central Government hereby makes the following amendments in the notification of
the Government of India in the Ministry of Finance (Department of Revenue) No.41/2007-
Service Tax, dated the 6th October, 2007 which was published in the Gazette of India,
Extraordinary, vide number G.S.R. 645(E) dated the 6th October, 2007, namely:-
In the said notification, in the Schedule, after Sr.No.7 and the entries relating thereto, the
following shall be inserted, namely:-
(1)
(2)
(3)
(4)
"8.
Section 65(105)(zzzd)
Specialized cleaning services namely disinfecting, exterminating, sterilizing or fumigating of
containers used for export of said goods provided to an exporter.
(i) the exporter furnishes a copy of the written agreement entered into with the buyer of the said
goods requiring such specialized cleaning of containers used for export of said goods; and
(ii) the service provider is accredited by the competent statutory authority to provide such
specialized cleaning services.
9.
Section 65(105)(zza)
Services provided for storage and warehousing of said goods.
(i) the said goods are stored in a storage or warehouse which is approved by the competent
authority; and
(ii) the storage or warehouse is exclusively used for the purpose of storage or warehousing of
export goods. "
2. This notification shall come into force on the date of its publication in the Official Gazette.
F.No.341/15/2007-TRU]
(G.G. Pai)Under Secretary to the Government of India
Note.- The principal notification was published in the Gazette of India, Extraordinary, Part I,
section 3, sub-section (i), vide number G.S.R. 645(E) dated the 6 th October, 2007.

Posted by Aliasgar at 10:37 AM 0 comments


Saturday, December 22, 2007
TAN AO Code Ver 2.6
New TAN AO Code version 2.6 is released on 18.12.2007. Please send your request on
tin_baroda@yahoo.com to get this version in XL format by mail.

Posted by Aliasgar at 12:39 PM 0 comments


Circular 288/289
NOTIFICATION NO
289/2007, Dated: December 13, 2007
In exercise of the powers conferred by clause (xxi) of sub-section (2) of Section 80C of the
Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following
Scheme, further to amend the Bank Term Deposit Scheme, 2006, namely:- 1 (1) This scheme
may be called the Bank Term Deposit (Amendment) Scheme, 2007. (2) It shall come into force
on the date of its publication in the Official Gazette. 2. In the Bank Term Deposit Scheme, 2006,
in paragraph 11, after sub- paragraph (2), the following proviso shall be inserted, namely:- "
Provided that in the event of the death of the first holder of the deposit in a case of a joint holder
type deposit, the other holder of the deposit shall be entitled to encash the term deposit before its
maturity by making an application to the branch manager of the bank, supported by proof of
death of the first holder of the deposit."
F.No.142/26/2006-TPL
(Sobhan Kar) Under Secretary
Note.- The principal Scheme was published in the Gazette of India, Part-II, Section 3, sub-
section (ii) vide Notification number S.O.1220(E), dated the 28th July, 2006.
NOTIFICATION NO
288/2007, Dated: December 10, 2007
In exercise of the powers conferred by sub-clause (f) of clause (iii) of sub-section (3) of Section
194A of the Income Tax Act, the Central Government hereby notifies the India Infrastructure
Finance Company Limited, New Delhi, for the purpose of said sub-clause.
F.No.275/68/2007-IT(B)
(V.N. Gaba) Under Secretary to the Government of India

Posted by Aliasgar at 9:56 AM 0 comments


Friday, December 21, 2007
NSDL e-TDS/TCS Return Preparation Utility (RPU)
Please use this link to download the latest RPU by NSDL http://www.tin-
nsdl.com/eTDSRPU.asp

Posted by Aliasgar at 10:44 AM 0 comments


Wednesday, December 19, 2007
Latest PAN AO Code and TAN AO Code
Do you need the latest AO Code? If so, please mail your request to us at tin_baroda@yahoo.com
with subject header "AO Code". Please leave the message field empty ...

Posted by Aliasgar at 12:08 PM 0 comments


Monday, December 17, 2007
Extension of due dates for filing of ITRs
http://www.taxindiaonline.com/RC2/subCatDesc.php3?
subCatDisp_Id=1&filename=wnew/cbdtreleasee.htm

Posted by Aliasgar at 3:17 PM 0 comments


Sunday, December 9, 2007
PAN through SMS!
Alankit Assignments launches new scheme for issuance of PAN through SMS!! ... go to
www.alankit.com to know further details ...

Posted by Aliasgar at 10:43 AM 0 comments


Saturday, December 8, 2007
Direct tax Payment participating Bank Branches
Search for Authorised Bank branch for Payment of Direct Tax near your location

Tax payer can select a state and location to get the list of Authorised Bank branches for the
payment of Direct tax in the location near to them.

for more information, go to http://www.tin-nsdl.com/TINbanksearch.asp

Posted by Aliasgar at 4:29 PM 0 comments


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Blog Archive
• ► 2009 (37)
○ ► August (2)
 Analysis of new Direct Taxes Code
 Direct Tax Code Bill 2009
○ ► July (4)
 Compensation for land acquisition + interest taxab...
 Budget 2009 highlights ...
 Besides the point ...
 UTN is still miles away .....
○ ► June (2)
 Remittances to Non residents - TDS thereon
 Tax Information Network - an overview
○ ► May (9)
 TDS compliance
 No visits to the Tax Office to file your Returns
 Supreme Court on Dharmendra Textiles
 Implementation of new TDS amendments deferred
 FINMIN not to move SC on service tax issue
 I-T returns of candidates to come under lens after...
 Date for implementation of Form No. 17 extended
 ICAI seeks clarity on crediting TDS to govt accoun...
 Views expressed in Dharmendra Textile case cannot ...
○ ► April (8)
 New TDS amendments to go?
 Annual Tax Statement (Form 26AS)
 Amendments in TDS Compliance
 Service tax is a value added tax – no tax on renti...
 Foreign Exchange fluctuation losses are allowable ...
 Amortization of Preliminary expenses
 Depreciation benefit on CVs may run till June 2009...
 No banking cash transaction tax from Apr 1 2009
○ ► March (12)
 there is no requirement that there has to be a reg...
 I-T dept mulls tax on carbon credits
 New tax rule to usher in clarity on TDS credit
 REDO OF ACCOUNTS LIKELY IF AUDITORS OBJECT
 Direct tax mop-up rises 19 per cent
 Income from housing property or business income
 Cos get nod to hedge carbon credits, freight deals...
 Sec 14A has no application to insurance business w...
 ICAI TO SCHOOL CAs IN GOVERNANCE
 Advance tax last installment for fiscal 200809 tak...
 CBDT amends income tax rules for PF trusts
 No TDS on payments made to a hotel by a customer –...
• ► 2008 (12)
○ ► December (1)
 Definition of ‘Charitable purpose’ under section 2...
○ ► June (2)
 Notification
 Guidelines for advertisement for CAs
○ ► May (1)
 Proposed amendments to Finance Bill 2008
○ ► April (2)
 Service Tax - Port services - Velji order of Ahmed...
 CAs can audit, Sales Tax lawyers can’t: HC
○ ► March (3)
 e-payment of direct taxes mandatory for corporates...
 Key features of Budget 2008
 Budget 2008 highlights ...
○ ► February (2)
 Threshold limit of PAN in TDS/TCS Returns raised
 Extension of Time for Filing of TDS/TCS Returns
○ ► January (1)
 Service Tax: Notification No. 45/2007 dated 28.12....
• ▼ 2007 (11)
○ ▼ December (11)
 FAQs on FBT - ESOP
 Income Tax - Registration u/s 12A is condition pre...
 Penalty u/s 271(1)(c) - recording of satisfaction
 Service Tax notification
 TAN AO Code Ver 2.6
 Circular 288/289
 NSDL e-TDS/TCS Return Preparation Utility (RPU)
 Latest PAN AO Code and TAN AO Code
 Extension of due dates for filing of ITRs
 PAN through SMS!
 Direct tax Payment participating Bank Branches

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Aliasgar
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Analysis of new Direct Taxes Code


What does the proposed Direct Taxes Code hold for the common man? A look at visible effects
and implications of the proposals on our monies.
The draft of the Direct Taxes Code bill 2009 and the Discussion paper have been made public
recently. In the words of the finance minister "the thrust of the code is to improve the efficiency
and equity of our tax system by eliminating distortions in the tax structure, introducing moderate
levels of taxation and expanding the tax base".
A very valuable input from the finance minister has been "It will specially meet the aspirations
of our young and professionally mobile population. So what exactly is all the excitement about
and will it really "change" things as they are?
What does it say about income tax rates?
The most remarkable point which would be a great cheer for all individuals is the revision in the
income tax rates. The change is not only in terms of the slabs but also the simplicity in
calculations. The Code proposes to create 4 slabs for the sake of income tax calculations.
For Men
Slab 1: Total income is lesser than Rs 160,000
The income tax for the above slab is proposed to be nil. This is what currently exists and hence
does not in any way change anything for individuals earning below 160,000.
Slab 2: Income is between 160,001 and Rs 10,00,000
This is the most drastic change proposed. The tax for the above slab is proposed to be 10 percent
of the amount by which the total income exceeds 1, 60,000. Meaning, if your income is
572,000/- then, the income tax would be 10% of (Rs 572,000-Rs 160,000). Although for
individuals who were earlier earning between Rs 160,000 and Rs 300,000 this does not bring
about any change, it brings great cheer for individuals earning between Rs 300,000 and Rs
500,000 as they straight away save 10% of any income that exceeds Rs 300,000, but is lesser
than Rs 500,000. Today they have to pay 20% on this amount!
For individuals who are today earning above Rs 500,000, this would bring even more cheer as
they save a flat Rs 20,000,plus 20% of any amount above Rs 500,000 and lesser than Rs
1,000,000!
Example: Ram's income today is Rs 7 00,000
Income tax as per present rates = Rs 118,450 (excluding surcharges and any cess)
Income if new code comes into effect = Rs 54,000, a saving of Rs 61000
Slab 3: Income is between Rs 10,00,001 and Rs 25,00,000
The code proposes the income tax for this slab to be Rs 84,000 (10% of 840,000) plus 20% of
any amount above Rs 10,00,001 but lesser than Rs 25,00,000. This would also bring about happy
tidings for people who are currently earning above Rs 1,000,000 as they save around Rs 100,000
plus 10 per cent of any income which exceeds 10,00,000.
Slab 4: Income exceeds Rs 25,00,000
The code proposes the income tax for this slab to be Rs 384,000 plus 30% of any amount
exceeding Rs 25,00,000. People currently earning above 25,00,000 would expect savings of over
40% of their current tax liabilities.
Away with 'assessment and previous year'
The new code has proposed to do away with the concept of using 'previous year' to denote the
year in which you earned the money and 'assessment year' the year in which you pay the self
assessment tax and file your return.
The new proposal is to use the simpler terminology of Financial Year (FY). For example if you
earned income in FY09-10 then, your pay advance tax in FY09-10 and any balance tax and
returns in FY10-11.
Source of income defined:
The income is proposed to be bifurcated into 'special sources' and ordinary sources. The special
sources include items like lotteries, games and non residents etc which will be charged on the
basis of a rate schedule.
Thus while calculating the total income we will have to add total income from ordinary sources
and total income from special sources.
Source based versus Residence based taxation:
Source based taxation is a process in which the income tax is calculated on the basis of the
source of income whereas residence based taxation calculates income on the basis that
individuals are taxable in the country or tax jurisdiction in which they are residing.
The debate has been for long on which methodology to use. The new code proposes to use
residence based taxation for residents and source based taxation for non-residents.
It states 'a resident in India will be liable to tax on his worldwide income and a non-resident will
be liable to tax in India only in respect of receipts in India'.
What this means is that if you have been out of India for more than 183 days you would be
treated as a non-resident and you need not pay tax on income which has already been taxed in the
country where you get the income from and also if it's not taxed there.
But, in case of residents the income which has not been taxed in another country will be taxed in
India upon repatriation.
Capital gains
The new code proposes two important ideas.
The concept of long term and short-term defined by the period of holding of a capital asset will
be removed.
Instead, for any capital asset which is transferred, to get a gain, anytime after one year from the
end of the financial year in which it was acquired, the cost of acquisition and cost of
improvement wil be adjusted on the basis of cost inflation index to reduce the inflationary gains?
The base date for calculation of cost of acquisition of a capital asset has been proposed to be
shifted from 01-01-1981 to 01-04-2000. This would be a big disadvantage to people who had
brought the assets very long ago.
The reason is that you would have brought it for very low prices but the capital gains will be
calculated based on the price of the asset on 01-04-2000.

Posted by Aliasgar at 3:00 PM 0 comments


Thursday, August 13, 2009
Direct Tax Code Bill 2009
As promised, the FINMIN has released the Direct Tax Code for discussion.

Posted by Aliasgar at 10:13 AM 0 comments


Friday, July 17, 2009
Compensation for land acquisition + interest taxable in the year of receipt
Assessee received enhanced compensation on its lands being acquired by Haryana Urban
Development Authority (HUDA) as also interest thereon during the previous year relevant to
assessment year 1999-2000.
Assessee filed its return on income for the assessment year 1999-2000 in which he did not offer
the amount of enhanced compensation and the interest received thereon during the previous year
relevant to the assessment year for taxation, on the plea that the amount of enhanced
compensation received had not accrued to the assessee during the year of receipt as the entire
amount was in dispute in appeal before the High Court which appeal stood filed by the State
against the order of the Reference Court granting enhanced compensation. The amount was
received by the assessee in terms of the interim order of the High Court against the assessee's
furnishing security to the satisfaction of the executing court. The interest received on enhanced
compensation during the previous year was also, according to the assessee, not chargeable to tax
on the same plea.
The A.O. did not accept the contentions of the assessee on the ground that in terms of Section
45(5) of the Income-tax Act, enacted w.e.f . 1.4.88, the amount by which compensation or
consideration stood enhanced or further enhanced by the Court, is deemed income chargeable
under the head "Capital Gains" of the previous year in which the said amount came to be
received. The A.O. accordingly brought to tax the amount of enhanced compensation of Rs.87 ,
13,517 /- received by the assessee during the previous year relevant to the assessment year 1999-
2000. Similarly, interest on enhanced compensation of Rs.1 ,47,575 /- received by the assessee
during the previous year was also brought to tax in the year of receipt. The assessee filed appeal
against the order of the A.O. in which he reiterated the above contention. Assessee also placed
reliance on the judgment of the Supreme Court in Commissioner of Income-tax, West Bengal-II
v. Hindustan Housing and Land Development Trust Ltd. - CIT (A) came to the conclusion that
since the enhanced compensation received was in dispute in the pending First Appeal, both, the
enhanced compensation as well as the interest thereon had not accrued to the assessee during the
year of receipt as the entire amount was in dispute in First Appeal and that the assessee had
received the said amount only against security furnished to the satisfaction of the executing
court. At this stage, it may be mentioned that the amount of enhanced compensation sought to be
taxed under Section 45(5) of the 1961 Act was Rs.87,13,517 /- whereas the interest on enhanced
compensation which was also sought to be taxed was Rs.1,47,575 /-.
Aggrieved by the decision of the CIT( A), the Department moved Income-tax Appellate Tribunal
which upheld the order of the CIT(A) and dismissed the appeal of the Department. Aggrieved by
the decision of the Tribunal the matter was carried in appeal to the High Court under Section
260A of the 1961 Act. By the impugned judgment it has been held that the case is squarely
covered by the judgment of the Supreme Court in the case of Hindustan Housing (supra).
According to the High Court, when the State is in appeal against the order of enhanced
compensation and interest thereon the receipt of additional compensation and interest thereon
was not taxable as income as the said two items were disputed by the Government in appeal.
Consequently, the Department's appeal was dismissed by the High Court.
Income Tax Department is in appeal in the Supreme Court.
The short question to be decided in this batch of civil appeals is whether ITAT was right in
ordering deletion of enhanced compensation and interest thereon from the total income of the
assessee on the ground that the said two items, awarded by the Reference Court, was under
dispute in First Appeal before the High Court.
The Supreme Court noted that the following conditions need to be satisfied for taxing a
transaction as capital gains-
(1) the subject-matter must be a capital asset,
(2) the transaction must fall in the definition of "transfer",
(3) there must be profit or loss called "Capital Gains" and
(4) that the taxpayer has claimed exemption in whole or in part by complying with legal
provisions (Like Section 54F ).
Section 45(1) of the Income Tax Act speaks about capital gains arising out of "transfer" of a
capital asset. The definition of the expression "transfer" is contained in Section 2(47) of the Act.
It has very wide meaning. What is taxable under Section 45(1) of the 1961 Act is "profits and
gains arising from a transfer of a capital asset" and the charge of income-tax on the capital gains
is a charge on the income of the previous year in which the transfer took place. Capital gain(s) is
an artificial income. Profit(s) arising from transfer of capital asset is made chargeable to income-
tax under Section 45(1) of the Act. From the scheme of Section 45, it is clear that capital gains is
not an income which accrues from day-to-day during a specific period but it arises at fixed point
of time, namely, on the date of the transfer. In short, Section 45 defines capital gains, it makes
them chargeable to tax and it allots the appropriate year for such charge. It also enacts a deeming
provision. Section 48 lays down mode of computation of capital gains and deductions therefrom .
The question which arises for determination is - why was Section 45(5) inserted by the Finance
Act, 1987, w.e.f . 1.4.88? Under Section 45(1), profits or gains arising from the transfer of a
capital asset effected in the previous year is taken to be the income of the previous year in which
the transfer took place and such profits are chargeable to tax under the head "Capital Gains".
However, it was noticed that in cases where capital gains accrued or arose by way of compulsory
acquisition, the additional compensation stood awarded in several stages by different appellate
authorities which necessitated rectification of the original assessment at each stage. To provide
for rectification of the assessment of the year in which capital gains was originally assessed,
Section 155( 7A ) was also introduced. However, as stated above, since additional compensation
under the Land Acquisition Act, 1894 was awarded in several stages multiple rectifications had
to be made to the original assessment which cause great difficulty in carrying out the required
rectification and in effecting the recovery of additional demand. It was also noticed that repeated
rectifications of assessment on account of enhancement of compensation by different courts
often resulted in mistakes in computation of tax. Therefore, with a view to remove these
difficulties, the Finance Act 1987 inserted Section 45(5) to provide for taxation of additional
compensation in the year of receipt instead of in the year of transfer of the capital asset.
Accordingly, additional compensation is treated as "deemed income" in the hands of the
recipient even if the actual recipient happens to be a person different from the original transferor
by reason of death, etc.
For this purpose, the cost of acquisition in the hands of the receiver of the additional
compensation is deemed to be nil. However, the compensation awarded in the first instance
would continue to be chargeable as income under the head "Capital Gains", in the previous year
in which transfer took place. At this stage, it may be noted, that, Section 45(1) stood further
amended ( w.e.f . 1.4.91) so as to include reference to Section 54H and Section 45(5)(a) which,
stood amended ( w.e.f . 1.4.88).
The important point to be noted is that in the case of compulsory acquisition of an asset, the
capital gains in the compensation, as originally awarded, is charged to tax in the year in which
the transfer by way of compulsory acquisition takes place, but additional compensation is
brought to tax only in the year in which it is received.
27. In the case of Hindustan Housing (supra) certain lands belonging to the assessee-Company,
which was in the business of dealing in land and which maintained its account on mercantile
system, were first requisitioned and then compulsorily acquired by the State Government. The
Land Acquisition Officer awarded Rs.24 ,97,249 /- as compensation. On appeal the Arbitrator
made an award at Rs.30 ,10,873 /- with interest at 5% from the date of acquisition. Thereupon,
the State preferred an appeal to the High Court. Pending the appeal, the State Government
deposited in the Court Rs.7,36,691 /- being the additional amount payable under the award and
the assessee was permitted to withdraw that additional amount on furnishing a security bond for
refunding the amount in the event of the said Appeal being allowed. On receiving the amount,
the assessee credited it in its suspense account on the same date. The question was : whether the
additional amount of Rs.7,24,914 /- could be taxed as the income on the ground that it became
payable pursuant to the award of the Arbitrator. The Tribunal held that the amount did not accrue
to the assessee as its income and was, therefore, not taxable in the assessment year 1956-57. The
financial year in which the additional amount came to be withdrawn ended on 31.3.56. It was
held by this Court that although award was made on 29.7.1955, enhancing the amount of
compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the
State. Therefore, there was no absolute right to receive the amount at that stage. It was held that
if the Appeal was to be allowed in its entirety, the right to payment of enhanced compensation
would have fallen altogether. Therefore, according to this Court, the extra amount of
compensation of Rs.7 ,24,914 /- was not income arising or accruing to the assessee during the
previous year relevant to the assessment year 1956-57.
The Supreme Court held that the judgment of the Court in Hindustan Housing is not applicable
to the present case.
Two aspects need to be highlighted. Firstly, Section 45(5) of the 1961 Act deals with transfer(s)
by way of compulsory acquisition and not by way of transfers by way of sales etc. covered by
Section 45(1) of the 1961 Act. Secondly, Section 45(5) of the Act talks about enhanced
compensation or consideration which in terms of L.A. Act 1894 results in payment of additional
compensation.
The issue to be decided :- what is the meaning of the words "enhanced
compensation/consideration" in Section 45(5)(b) of the Act? Will it cover "interest"? These
questions also bring in the concept of the year of taxability.
It is true that "interest" is not compensation. It is equally true that Section 45(5) of the Act refers
to compensation. But the provisions of the 1894 Act awards "interest" both as an accretion in the
value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest
under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or
consideration which is not the case with interest under Section 34 of the 1894 Act. So also
additional amount under Section 23( 1A ) and solatium under Section 23(2) of the 1961 Act
forms part of enhanced compensation under Section 45(5 )( b) of the 1961 Act. In fact, this view
is reinforced by the newly inserted clause (c) in Section 45(5) by the Finance Act, 2003
w.e.f.1.4.2004 .
In such a situation, such assessed capital gain of that year shall be recomputed by taking the
compensation or consideration as so reduced by such court, Tribunal or other authority to be the
full value of the consideration. For giving effect to such recomputation , the provisions of the
newly inserted ( w.e.f . 1.4.2004) section 155(16) by the Finance Act, 2003 (32 of 2003), have
been enacted.
The compensation under the L.A. Act, 1894, arises and is payable in multiple stages which does
not happen in cases of transfers by sale etc. Hence, the legislature had to step in and say that as
and when the assessee-claimant is in receipt of enhanced compensation it shall be treated as
"deemed income" and taxed on receipt basis.
Since the enhanced compensation/consideration (including interest under Section 28 of the 1894
Act) becomes payable/paid under 1894 Act at different stages, the receipt of such enhanced
compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any,
under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced
compensation is received is the year of taxability.
Consequently, even in cases where pending appeal, the Court/Tribunal/Authority before which
appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced
compensation (which is in dispute), the same is liable to be taxed under Section 45(5) of the
1961 Act. This is the scheme of Section 45(5) and Section 155(16) of the 1961 Act.
The Supreme Court clarified that even before the insertion of Section 45(5 )( c) and Section
155(16) w.e.f . 1.4.04, the receipt of enhanced compensation under Section 45(5)(b) was taxable
in the year of receipt which is only reinforced by insertion of clause (c) because the right to
receive payment under the 1894 Act is not in doubt. It is important to note that compensation,
including enhanced compensation/consideration under the 1894 Act, is based on the full value of
property as on date of notification under Section 4 of that Act. When the Court/Tribunal directs
payment of enhanced compensation under Section 23( 1A ), or Section 23(2) or under Section 28
of the 1894 Act it is on the basis that award of Collector or the Court, under reference, has not
compensated the owner for the full value of the property as on date of notification.
Having settled the controversy going on for last two decades, the Supreme Court observed, “ we
are of the view that in this batch of cases which relate back to assessment years 1991-92 and
1992-93, possibly the proceedings under the L.A. Act 1894 would have ended. In number of
cases we find that proceedings under the 1894 Act have been concluded and taxes have been
paid. Therefore, by this judgment we have settled the law but we direct that since matters are
decade old and since we are not aware of what has happened in Land Acquisition Act
proceedings in pending appeals, the recomputation on the basis of our judgment herein,
particularly in the context of type of interest under Section 28 vis -a- vis interest under Section
34, additional compensation under Section 23( 1A ) and solatium under Section 23(2) of the
1894 Act, would be extremely difficult after all these years, will not be done.”

Posted by Aliasgar at 10:54 AM 0 comments


Monday, July 6, 2009
Budget 2009 highlights ...
BUDGET 2009 - Key Features of Budget 2009-2010
CHALLENGES
! to lead economy to high GDP growth rate of 9 per cent per annum at the earliest
! to deepen and broaden the agenda for inclusive development
! to improve delivery mechanisms of the government.

OVERVIEW OF THE ECONOMY


! Growth rate of Gross Domestic Product dipped from an average of over 9 per cent
in the previous three fiscal years to 6.7 per cent during 2008-09.
! Whole sale price index rose to nearly 13 per cent in August, 2008 and had an
equally sharp fall to zero per cent in March, 2009.
! The structure of India’s economy changed over the last ten years with contribution
of the services sector to GDP at well over 50 per cent and share of merchandise
trade doubling to 38.9 per cent of GDP in 2008-09.
! Recognising economic recovery and growth as co-operative effort of the Central
and State Governments, meeting with Finance Ministers of States held as part of
preparation of the Budget. This is intended to become an annual feature.

TOWARDS ECONOMIC REVIVAL


Short-term Measures
! To counter the negative fallout of the global slowdown on the Indian economy,
Government responded by providing three focused fiscal stimulus packages in the
form of tax relief and increased expenditure on public projects along with RBI
taking a number of monetary easing and liquidity enhancing measures.
! Fiscal accommodation led to an increase in fiscal deficit from 2.7 per cent in
2007-08 to 6.2 per cent of GDP in 2008-09.
! The fiscal stimulus at 3.5 per cent of GDP at current market prices for 2008-09
amounts to Rs.1,86,000 crore.
! Measures taken by the Government were effective in arresting the fall in GDP
growth rate in 2008-09. 6.7 per cent growth rate recorded in 2008-09.
Infrastructure Development
! IIFCL to evolve a Takeout financing scheme in consultation with banks to facilitate
incremental lending to infrastructure sector.
! IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical
sectors over the next fifteen to eighteen months. IIFCL and Banks are now in a
position to support projects involving total investment of Rs.1,00,000 crore.
Highway and Railways
! Allocation to National Highways Authority of India (NHAI) for the National
Highway Development Programme (NHDP) increased by 23 per cent over
B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs.10,800
crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 2009-10.
Urban Infrastructure
! Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09.
Allocation for housing and provision of basic amenities to urban poor enhanced to
Rs.3,973 crore in B.E. 2009-10. This includes provision for Rajiv Awas Yojana
(RAY), a new scheme announced.
Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)
! Provision for the project BRIMSTOWA initiated in 2007 and funded through Central
Assistance to address the problem of flooding in Mumbai, enhanced from Rs.200
crore in Interim B.E. 2009-10 to Rs.500 crore in B.E. 2009-10 to expedite
completion of the project.
Power
! Allocation under Accelerated Power Development and Reform Programme
(APDRP) increased by 160 per cent to Rs.2,080 crore in B.E. 2009-10 over
B.E. 2008-09.
Gas
! Blueprint to be developed for long distance gas pipelines leading to a National Gas
Grid to facilitate transportation of gas across the length and breadth of the country.
Assam Gas Cracker Project
! Outlay for Assam Gas Cracker Project stepped up suitably in B.E. 2009-10.
AGRICULTURE DEVELOPMENT
! Target for agriculture credit flow set at Rs.3,25,000 crore for the year 2009-10.
In 2008-09 agriculture credit flow was at Rs.2,87,000 crore.
! Interest subvention scheme for short term crop loans up to Rs.3 lakh per farmer at
the interest rate of 7 per cent per annum to be continued. Additional subvention of
1 per cent to be paid from this year, as incentive to those farmers who repay short
term crop loans on schedule. Additional allocation of Rs.411 crore over Interim
B.E. 2009-10 made for this.
Debt Relief for Farmers
! Time given to the farmers having more than two hectares of land to pay 75 per cent
of their overdues under Debt Waiver and Debt Relief Scheme extended from 30th
June, 2009 to 31st December, 2009.
! Taskforce to be set up to examine the issue of debt taken by a large number of
farmers in some regions of Maharashtra from private money lenders who were not
covered by the loan waiver scheme announced last year.
Accelerated Irrigation Benefit Programme
! Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by
75 per cent over B.E. 2008-09.
! Allocation under Rashtriya Krishi Vikas Yojana (RKVY) stepped up by 30 per
cent in B.E. 2009-10 over B.E. 2008-09.
RESTORING EXPORT GROWTH
! Adjustment assistance scheme to provide enhanced Export Credit and Guarantee
Corporation (ECGC) cover at 95 per cent to badly hit sectors extended upto
March 2010.
! Allocation for Market Development Assistance Scheme enhanced to Rs.124 crore
in B.E. 2009-10.
! Interest subvention of 2 per cent on pre-shipment credit for seven employment
oriented export sectors extended beyond the current deadline of September 30,
2009 to March 31, 2010.
! To facilitate flow of credit at reasonable rates, Rs.4,000 crore provided as special
fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries
Development Bank of India (SIDBI). This will incentivise Banks and State Finance
Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing
50 per cent of incremental lending to MSEs during the current financial year.
! Stimulus package for print media comprising waiver of 15 per cent agency
commission on DAVP advertisements and 10 per cent increase in DAVP rates to be
paid as a special relief subject to documentary proof of loss of revenue in nongovernmental
advertisements, extended from 30th June, 2009 to 31st December, 2009.
MEDIUM-TERM SUSTAINABILITY
! To bring the fiscal deficit under control, institutional reform measures to be initiated
during the current year itself.
Fertilizer Subsidy
! To ensure balanced application of fertilizers for increasing agricultural productivity,
Government intends to move towards a nutrient based subsidy regime so as to
cover larger basket of fertilizers with innovative fertilizer products available in the
market at reasonable prices.
! It is intended to move to a system of direct transfer of subsidy to the farmers in due
course.
Petroleum and Diesel pricing Policy
! With almost three quarters of our oil consumption met through imports, it is
important to recognise that domestic prices of petrol and diesel are broadly in sync
with global prices. Government to set up an expert group to advise on a viable and
sustainable system of pricing petroleum products.
Taxation
! SARAL – II forms to be introduced early.
People’s ownership of PSUs
! While retaining at least 51 per cent Government equity in Public Sector
Undertakings, people’s participation in disinvestment programmes to be encouraged.
! Public Sector Enterprises such as banks and insurance companies to remain in
public sector and will be given full support including capital infusion to grow and
remain competitive.
Financial Sector
! The threshold for non-promoter public shareholding for all listed companies to be
raised in a phased manner.
! Scheduled commercial banks allowed to set up off-site ATMs without prior approval
subject to reporting.
! A sub-committee of State Level Bankers Committee (SLBC) to identify and
formulate an action plan for providing banking facilities in under-banked/unbanked
areas in the next three years. Rs.100 crore set aside as one-time grant in-aid to
ensure provision of at least one centre/Point of Sales (POS) for banking services in
each of the unbanked blocks.
! Government has established Competition Commission of India, an autonomous
regulatory body. An Appellate body headed by a retired judge of Supreme Court
also constituted.
TOWARDS INCLUSIVE DEVELOPMENT
National Rural Employment Guarantee Scheme (NREGS)
! Allocation under NREGS increased by 144 per cent to Rs.39,100 crore in
B.E. 2009-10 over B.E. 2008-09.
! To increase productivity of assets and resources under NREGA, convergence with
other schemes relating to agriculture, forests, water resources, land resources, rural
roads initiated. In the first stage 115 pilot districts selected for convergence.
National Food Security Act
! National Food Security Act to be brought in to ensure entitlement of 25 kilo of rice
or wheat per month at Rs.3 per kilo to every family living below the poverty line in
rural or urban areas. Food Security Bill to be put on the website of the Department
of Food and Public Distribution for public debate.
Bharat Nirman
! Allocation for Bharat Nirman increased by 45 per cent in 2009-10 over
B.E. 2008-09. Allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY)
increased by 59 per cent over B.E. 2008-09 to Rs.12,000 crore in B.E. 2009-10.
Under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation increased
by 27 per cent to Rs.7,000 crore.
! Allocation under Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800
crore in B.E. 2009-10. Allocation of Rs.2,000 crore made for Rural Housing Fund
(RHF) in National Housing Bank (NHB) to boost the resource base of NHB for
refinance operations in rural housing sector.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
! New scheme Pradhan Mantri Adarsh Gram Yojana (PMAGY) with an allocation
of Rs.100 crore launched on pilot basis for integrated development of 1000 villages
having population of scheduled castes above 50 per cent.
EMPOWERMENT OF WEAKER SECTIONS
! The Swarna Jayanti Gram Swarozgar Yojana (SGSY) restructured as National Rural
Livelihood Mission to make it universal in application, focused in approach and
time bound for poverty eradication by 2014-15. In addition to capital subsidy at
enhanced rate, interest subsidy to poor households to be provided for loans upto
Rs.1 lakh from banks.
! There are over 22 lakh Women’s Self Help Groups linked with banks. Reach of
SHGs to be widened to enrol at least 50 per cent of all rural women in India as
members of SHGs over the next five years.
! Corpus of Rashtriya Mahila Kosh to be increased from Rs.100 crore to Rs.500
crore over the next few years.
Female Literacy
! National Mission for Female Literacy to be launched with focus on minorities, SC,
ST and other marginalized groups with the aim to reduce level of female illiteracy
by half in three years.
Integrated Child Development Services (ICDS)
! All ICD Services to be extended to every child under the age of six by
March, 2012.
Student Loans to Weaker Sections
! To enable students from economically weaker sections to access higher education,
a scheme to provide full interest subsidy during the period of moratorium introduced
to cover loans taken from scheduled banks to pursue any of the approved courses
of study in technical and professional streams from recoganised institutions in India.
Welfare of Minorities
! Plan outlay of Ministry of Minority Affairs enhanced from Rs.1,000 crore in B.E.
2008-09 to Rs.1,740 crore in 2009-10 registering an increase of 74 per cent. This
includes Rs.990 crore for Multi-Sectoral Development Programme for Minorities,
Grants-in-aid to Maulana Azad Education Foundation, National Minorities Development
and Finance Corporation and pre and post matric scholarship for minorities.
! Allocations made for the new schemes of National Fellowship for Students from
minority community and Grants-in-aid to Central Wakf Council for computerization
of records of State Wakf Boards.
! Rs.25 crore each allocated for establishing new campuses at Murshidabad in West
Bengal and Malappuram in Kerala by Aligarh Muslim University.
Welfare of workers in the unorganized sector
! Action initiated to ensure implementation of social security schemes for occupation
like weavers, fishermen and women, toddy tappers, leather and handicraft workers,
plantation labour, construction labour, mine workers, bidi workers and rickshaw
pullers. Necessary financial allocation will be made for these schemes.
Employment Exchanges
! New project for modernization of Employment Exchange in public private
partnership to be launched so that a job seeker can register on line from anywhere
and approach any employment exchange.
Handloom
! One handloom mega cluster each in West Bengal and Tamil Nadu and one
powerloom mega cluster in Rajasthan to be set up. New mega clusters for carpets
to be also set up in Srinagar (J&K) and Mirzapur (UP).
Health
! Allocation under National Rural Health Mission (NRHM) increased by Rs.2,057
crore over Interim B.E. 2009-10 of Rs.12,070 crore.
! All BPL families to be covered under Rashtriya Swasthya Bima Yojana (RSBY).
Allocation under RSBY increased by 40 per cent over previous allocation to Rs.350
crore in B.E. 2009-10.
Environment and climate change
! In furtherance to National Action Plan on Climate Change, eight national missions
representing a multi-pronged long-term and integrated approach to be launched.
! National Ganga River Basin Authority set up. Budgetary allocation under National
River and Lake Conservation Plans increased from Rs.335 crore in B.E. 2008-09
to Rs.562 crore in B.E. 2009-10.
! Special one-time grant of Rs.100 crore given to Indian Council of Forestry Research
and Education, Dehradun.
! Rs.15 crore each to be allocated to Botanical Survey of India and Zoological Survey of
India. An additional amount of Rs.15 crore to be allocated for Geological Survey of India.
TOWARDS BUILDING ACOUNTABLE INSTITUTIONS
Improving Delivery of Public Services
! Unique Identification Authority of India (UIDAI) to set up online data base with
identity and biometric details of Indian residents and provide enrolment and
verification services across country. Provision of Rs.120 crore made for this in the
Budget.
! First set of unique identity number to be rolled out in 12 to 18 months.
National Security
! Additional amount of Rs.430 crore provided over Interim B.E. 2009-10
to modernise police machinery in the States.
! Additional amount of Rs.2,284 crore proposed over Interim B.E. 2009-10 for
construction of fences, roads, flood lights on the international borders.
! Programme for housing to create 1 lakh dwelling units for Central Para-military
Forces personnel to be launched through innovative financing model.
One Rank One Pension for Ex-servicemen (OROP)
! Based on the recommendation of the Committee headed by the Cabinet Secretary
on OROP, government has decided to substantially improve the pension of pre
01.01.2006 defence pensioners below officer rank and bring pre 10.10.1997
pensioners on par with post 10.10.1997 pensioners. The decisions to be implemented
from 01st July, 2009 and will cost more than Rs.2,100 crore annually.
Education
! Provision for the scheme ‘Mission in Education through ICT’ substantially increased
to Rs.900 crore and the provision for setting up and up-gradation of Polytechnics
under the Skill Development Mission enhanced to Rs.495 crore.
! Rs.827 crore allocated for opening one Central University in each uncovered State.
! Rs.2,113 crore allocated for IITs and NITs which includes a provision of Rs.450
crore for new IITs and NITs.
! The overall Plan budget for higher education is to be increased by Rs.2,000 crore
over Interim B.E. 2009-10.
! Rs.50 crore allocated for Punjab University, Chandigarh. Plan allocation for
Chandigarh to be suitably enhanced during the year to provide better infrastructure
to the people of Chandigarh.
Commonwealth Games, 2010
! Outlays to be stepped up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore
in regular Budget 2009-10.
Srilankan Tamils
! Rs.500 crore allocated for rehabilitation of internally displaced persons and
reconstruction of the northern and eastern areas of Sri Lanka. Ministry of External
Affairs to work closely with the Sri Lankan Government.
Cyclone Aila
! Rs.1,000 crore allocated for programme for rebuilding the damaged infrastructure
caused due to cyclone Aila in West Bengal.
BUDGET ESTIMATE 2009-10
! Budget Estimates provide for a total expenditure of Rs.10,20,838 crore consisting
of Rs.6,95,689 crore under Non-plan and Rs.3,25,149 crore under Plan registering
an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan
expenditure over B.E. 2008-09.
! Total expenditure in B.E. 2009-10 increased by 36 per cent over B.E. 2008-09.
! Increase in Non-plan expenditure is mainly due to implementation of Sixth Central
Pay Commission recommendations, increased food subsidy and higher interest
payment arising out of larger fiscal deficit in 2008-09.
! Interest payments estimated at Rs.2,25,511 crore constituting about 36 per cent of
Non-plan revenue expenditure in B.E. 2009-10.
! Subsidies up from Rs.71,431 crore in B.E. 2008-09 to Rs.1,11,276 crore in B.E.
2009-10.
! Outlay for Defence up from Rs.1,05,600 crore in B.E. 2008-09 to Rs.1,41,703
crore in B.E. 2009-10.
! Gross Budgetary Support for Annual Plan 2009-10 enhanced by Rs.40,000 crore
over Interim B.E. 2009-10.
! State Governments to be permitted to borrow additional 0.5 per cent of their GSDP
by relaxing the fiscal deficit target under FRBM from 3.5 per cent to 4 per cent of
their GSDP. This will enable the States to borrow Rs.21,000 crore additionally
over Interim B.E. 2009-10.
! Gross tax receipts budgeted at Rs.6,41,079 crore in B.E. 2009-10 compared to
Rs.6,87,715 crore in B.E. 2008-09.
! Non-tax revenue receipts estimated at Rs.1,40,279 crore in B.E. 2009-10 compared
to Rs.95,785 crore in B.E. 2008-09.
! Revenue deficit projected at 4.8 per cent of GDP in B.E. 2009-10 compared to 1
per cent in B.E. 2008-09 and 4.6 per cent as per provisional accounts of 2008-09.
! Fiscal deficit as a percentage of GDP is projected at 6.8 per cent compared to 2.5
per cent in B.E. 2008-09 and 6.2 per cent as per provisional accounts 2008-09.
TAX PROPOSALS
! Tax reform, like all reforms, is a process and not an event. Thrust of reforms has
been to improve the efficiency and equity of our tax system. This is sought to be
achieved by eliminating distortions in the tax structure, introducing moderate levels
of taxation and expanding the base and accompanied by requisite re-engineering
of key business processes coupled with automation.
! Recent initiative, on direct taxes side, of the setting up of a Centralized Processing
Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns
filed in entire Karnataka, will be processed.
! Centre’s Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2
per cent in 2003-04. Share of direct taxes in the Centre’s tax revenues has increased
to 56 percent in 2008-09 from 41 percent in 2003-04, reflecting sharp improvement
in equity of our tax system.
! Structural changes in direct taxes to be pursued by releasing the new Direct Taxes
Code within the next 45 days and in indirect taxes by accelerating the process for
the smooth introduction of the Goods and Services Tax (GST) with effect from 1st
April, 2010.
! The Direct Taxes Code, along with a Discussion Paper, to be released to the public
for debate. The Direct Taxes Code Bill will be finalised for introduction in Lok
Sabha sometime during the Winter Session based on the inputs received.
! The Authorities for Advance Rulings on Direct and Indirect Taxes to be merged by
amending the relevant Acts.
! Agreement has been reached on the basic structure of GST in keeping with the
principles of fiscal federalism enshrined in the Constitution. Broad contour of the
GST Model envisages dual GST comprising of a Central GST and a State GST.
The Centre and the States will each legislate, levy and administer the Central GST
and State GST, respectively.
Direct Taxes
! No changes made in the Corporate Tax rates.
! Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to
Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh
for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all
other categories of individual taxpayers.
! Deduction under section 80-DD in respect of maintenance, including medical
treatment, of a dependent who is a person with severe disability being raised from
the present limit of Rs.75,000 to Rs.1 lakh.
! Surcharge on various direct taxes to be phased out; in the first instance, by
eliminating the surcharge of 10 percent on personal income-tax.
! Sun-set clauses for deduction in respect of export profits under sections 10A and
10B of the Income-tax Act being extended by one more year i.e. for the financial
year 2010-11.
! Fringe Benefit Tax on the value of certain fringe benefits provided by employers to
their employees to be abolished.
! Scope of provisions relating to weighted deduction of 150% on expenditure incurred
on in-house R&D to all manufacturing businesses being extended except for a
small negative list.
! Businesses to be incentivised by providing investment linked tax exemptions
rather than profit linked exemptions. Investment linked tax incentives to be
provided, to begin with, to the businesses of setting up and operating ‘cold chain’,
warehousing facilities for storing agricultural produce and the business of laying
and operating cross country natural gas or crude or petroleum oil pipeline network
for distribution on common carrier principle. Under this method, all capital
expenditure, other than expenditure on land, goodwill and financial instruments
to be fully allowable as deduction.
! Minimum Alternate Tax (MAT) to be increased to 15 per cent of book profits from
10 per cent. The period allowed to carry forward the tax credit under MAT to be
extended from seven years to ten years.
! New Pension System (NPS) to continue to be subjected to the Exempt-Exempt-
Taxed (EET) method of tax treatment of savings. Income of the NPS Trust to be
exempted from income tax and any dividend paid to this Trust from Dividend
Distribution Tax. All purchase and sale of equity shares and derivatives by the
NPS Trust also to be exempt from the Securities Transaction Tax. Self employed
persons to be enabled to participate in the NPS and to avail of the tax benefits
available thereto.
! Alternative dispute resolution mechanism to be created within the Income Tax
Department for the resolution of transfer pricing disputes. Central Board of Direct
Taxes (CBDT) to be empowered to formulate ‘safe harbour’ rules to reduce the
impact of judgemental errors in determining transfer price in international
transactions.
! Commodity Transaction Tax (CTT) to be abolished.
! Donations to electoral trusts to be allowed as a 100 percent deduction in the
computation of the income of the donor.
! Deduction under section 80E of the Income-tax Act allowed in respect of interest
on loans taken for pursuing higher education in specified fields of study to be
extended to cover all fields of study, including vocational studies, pursued after
completion of schooling.
! To mitigate the practical difficulties faced by charitable organisations, anonymous
donations received by charitable organisations to the extent of 5 percent of their
total income or a sum of Rs.1 lakh, whichever is higher, not to be taxed.
! Scope of presumptive taxation to be extended to all small businesses with a turnover
upto Rs. 40 lakh. All such taxpayers to have option to declare their income from
business at the rate of 8 percent of their turnover and simultaneously enjoy exemption
from the compliance burden of maintaining books of accounts. As a procedural
simplification, they are also to be exempted from advance tax and allowed to pay
their entire tax liability from business at the time of filing their return. This new
scheme to come into effect from the financial year 2010-11.
! Tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto
available in respect of profits arising from the commercial production or refining
of mineral oil, to be extended to natural gas. This tax benefit to be available to
undertakings in respect of profits derived from the commercial production of mineral
oil and natural gas from oil and gas blocks which are awarded under the
NELP-VIII round of bidding. The section to be retrospectively amended to provide
that “undertaking” for the purposes of section 80-IB(9) will mean all blocks awarded
in any single contract.
Indirect Taxes
! Proposals on indirect taxes to seek to achieve stable framework by maintaining the
overall rate structure for customs and central excise duties as well as service tax.
Customs duties
! Customs duty of 5% to be imposed on Set Top Box for television broadcasting.
! Customs duty on LCD Panels for manufacture of LCD televisions to be reduced
from 10% to 5%.
! Full exemption from 4% special CVD on parts for manufacture of mobile phones
and accessories to be reintroduced for one year.
! List of specified raw materials/inputs imported by manufacturer-exporters of sports
goods which are exempt from customs duty, subject to specified conditions, to be
expanded by including five additional items.
! List of specified raw materials and equipment imported by manufacturer-exporters
of leather goods, textile products and footwear industry which are fully exempt
from customs duty, subject to specified conditions, to be expanded.
! Customs duty on unworked corals to be reduced from 5% to Nil.
! Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be
reduced from 10% to 5% with Nil CVD (by way of excise duty exemption).
! Customs duty on specified heart devices, namely artificial heart and PDA/ASD
occlusion device, to be reduced from 7.5% to 5% with Nil CVD (by way of excise
duty exemption).
! Customs duty on permanent magnets for PM synchronous generator above 500
KW used in wind operated electricity generators to be reduced from 7.5% to 5%.
! Customs duty on bio-diesel to be reduced from 7.5% to 2.5%.
! Concessional customs duty of 5% on specified machinery for tea, coffee and rubber
plantations to be reintroduced for one year, upto 06.07.2010.
! Customs duty on ‘mechanical harvester’ for coffee plantation to be reduced from
7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by
way of excise duty exemption.
! Customs duty on serially numbered gold bars (other than tola bars) and gold coins
to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on
other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10
gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per
Kg. These increases also to be applicable when gold and silver (including ornaments)
are imported as personal baggage.
! Customs duty on cotton waste to be reduced from 15% to 10%.
! Customs duty on wool waste to be reduced from 15% to 10%.
! Customs duty on rock phosphate to be reduced from 5% to 2%.
! CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn. Such
projects will now attract applicable CVD.
! Customs duty exemption on concrete batching plants of capacity 50 cum per hour
or more to be withdrawn. Such plants will now attract customs duty of 7.5%.
! On packaged or canned software, CVD exemption to be provided on the portion of
the value which represents the consideration for transfer of the right to use such
software, subject to specified conditions.
! Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and
other water sports equipment to be fully exempted.
Central excise duties
! Excise duty rate on items currently attracting 4% to be raised to 8% with following
major exceptions:
• Specified food items including biscuits, sharbats, cakes and pastries
• Drugs and pharmaceutical products falling under Chapter 30
• Medical equipment
• Certain varieties of paper, paperboard and articles thereof
• Paraxylene
• Power driven pumps for handling water
• Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair
• Pressure cookers
• Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb
• Compact Fluorescent Lamps
• Cars for physically handicapped
! Specific component of excise duty applicable to large cars/utility vehicles of engine
capacity 2000 cc and above to be reduced from Rs. 20,000/- per vehicle to Rs.15,000
per vehicle.
! Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise
duty on chassis of such trucks/lorries to be reduced from ‘20% + Rs.10000’ to
‘8% + Rs.10000’.
! Excise duty on Special Boiling Point spirits to be reduced to 14%.
! Excise duty on naphtha to be reduced to 14%.
! Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted
from excise duties.
! The ad valorem component of excise duty of 6% on petrol intended for sale with a
brand name to be converted into a specific rate. Consequently, such petrol would
now attract total excise duty of Rs.14.50 per litre instead of ‘6% + Rs.13 per litre’.
! The ad valorem component of excise duty of 6% on diesel intended for sale with a
brand name to be converted into a specific rate. Consequently, such diesel would
now attract total excise duty of Rs.4.75 per litre instead of ‘6% + Rs.3.25 per litre’.
! Excise duty on manmade fibre and yarn to be increased from 4% to 8%.
! Excise duty on PTA and DMT to be increased from 4% to 8%.
! Excise duty on polyester chips to be increased from 4% to 8%.
! Excise duty on acrylonitrile to be increased from 4% to 8%.
! The scheme of optional excise duty of 4% for pure cotton to be restored.
! Excise duty for man-made and natural fibres other than pure cotton, beyond the
fibre and yarn stage, to be increased from 4% to 8% under the existing optional
scheme.
! An optional excise duty exemption to be provided to tops of manmade fibre
manufactured from duty paid tow at par with tops manufactured from duty paid
staple fibre.
! Suitable adjustments to be made in the rates of duty applicable to DTA clearances
of textile goods made by Export Oriented Units using indigenous raw materials/
inputs for manufacture of such goods.
! Full exemption from excise duty to be provided on goods of Chapter 68 of Central
Excise Tariff manufactured at the site of construction for use in construction work
at such site.
! Excise duty exemption on ‘recorded smart cards’ and ‘recorded proximity cards
and tags’ to be made optional. Manufacturers have the option to pay the applicable
excise duty and avail the credit of duty paid on inputs.
! EVA compound manufactured on job work for further use in manufacture of
footwear to be exempted from excise duty.
! Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing
the brand name of others by excluding this item from the purview of the brand
name restriction.
! On packaged or canned software, excise duty exemption to be provided on the
portion of the value which represents the consideration for transfer of the right to
use such software, subject to specified conditions.
! Excise duty on branded articles of jewellery to be reduced from 2% to Nil.
Service tax
! Service Tax to be imposed on the following services:
• Service provided in relation to transport of goods by rail
• Service provided in relation to transport of coastal cargo; and goods through
inland water including National Waterways
• Advice, consultancy or technical assistance provided in the field of law (this
tax would not be applicable in case the service provider or service receiver is
an individual).
• Cosmetic and plastic surgery service
! Exemption from service tax being provided to inter-State or intra-State transportation
of passengers in a vehicle bearing ‘Contract Carriage Permit’ with specified
conditions.
! Exemption from service tax (leviable under Banking and other financial services
or under Foreign exchange broking service) being provided to inter-bank purchase
and sale of foreign currency between scheduled banks.
! Two taxable services, namely, ‘Transport of goods through road’ and ‘Commission
paid to foreign agents’ to be exempted from the levy of service tax, if the exporter
is liable to pay service tax on reverse charge basis. However, present cap of 10%
on commission agency charges is retained. Thus there would be no need for the
exporter to first pay the tax and later claim refund in respect of these services.
! For other services received by exporters, service tax exemption to be operated
through the existing refund mechanism based on self-certification of the documents
where such refund is below 0.25 per cent of FOB value, and certification of
documents by a Chartered Accountant for value of refund exceeding the above
limit.
! Export Promotion Councils and the Federation of Indian Export Organizations
(FIEO) to be exempt from service tax on the membership and other fees collected
by them till 31st March 2010.
Tax proposals on direct taxes to be revenue neutral. On indirect taxes, estimated net gain
to be Rs.2,000 crore for a full year.

Posted by Aliasgar at 3:46 PM 0 comments


Saturday, July 4, 2009
Besides the point ...
Art is both love and friendship and understanding: the desire to give. It is not charity, which is
the giving of things. It is more than kindness, which is the giving of the self. It is both the taking
and giving of beauty, the turning out to the light the inner folds of the awareness of the spirit.

Ansel Adams' touching and humanistic planetary trait is beautifully coined in his own defination
of art.

Posted by Aliasgar at 11:19 AM 0 comments


Wednesday, July 1, 2009
UTN is still miles away .....
The Central Board of Direct Taxes have further decided that the Notification No.
31 of 2009 dated 25.3.2009 amending or substituting Rules 30, 31, 31A and 31AA of the
Income Tax Rules, 1962 shall be kept in abeyance for the time being.
Taxpayers filing their income tax returns for assessment year (AY) 2009-10, or
any other earlier AY, may continue to file their returns without mentioning the Unique
Transaction Number (UTN) as required under the said Notification. The filing of such
returns shall be treated as valid and in compliance to the requirements under section 139
of the Income Tax Act, 1961.
Further, the date from which the Notification No. 31 / 2009 shall become
applicable on tax deducted at source (TDS) or tax collected at source (TCS) and
deposited during the current financial year shall be notified by the Central Board of
Direct Taxes subsequently.
All deductors / collectors of TDS / TCS may continue to deposit their TDS / TCS
and file their quarterly TDS / TCS returns as per procedure existing prior to issuance of
Notification No.31 / 2009 dated 25.3.2009.

Posted by Aliasgar at 10:06 AM 1 comments


Tuesday, June 30, 2009
Remittances to Non residents - TDS thereon
The CBDT has issued Circular No. 04/2009 dated 29th June, 2009 wherein clarifications on the
new rules governing remittances to persons out of India have been given. The newly introduced
Form 15CA and Form 15CB have been made available by the Govt. on the income-tax website.
However, it appears that the same have not yet been put up on the NSDL website. We await
further news about the same. However, in view of the latest Circular, it seems that the Govt. is
serious about implementing the new rules w.e.f. 1st July, 2009, that is, tomorrow.

Posted by Aliasgar at 5:42 PM 0 comments


Monday, June 22, 2009
Tax Information Network - an overview
Tax Information Network (TIN) has been established by NSDL on behalf of Income Tax
Department. The core of TIN is creation of a consolidated tax ledger (Form No. 26AS) for each
taxpayer giving the complete details of tax deducted (withholding tax) on his behalf by all
deductors (entity withholding tax) and the tax deposited by him directly with the banks. This
consolidated tax ledger is expected to help the tax department to ensure that the tax credit given
to the taxpayer is indeed against funds received into the government coffers. This also aids the
taxpayer to verify, well in advance, whether the deductors and the banks have done their jobs
properly to reflect a complete view of his tax credits in the tax ledger. Such a comprehensive tax
statement can remove the need for the taxpayers to collect Form 16s (Certificates giving details
of tax withheld from the entity withholding the tax) from all the deductors who have deducted
tax for getting credit of all the TDS.
TIN was inaugurated in January 2004. First challenge was to put in place the systems, procedure
and infrastructure for the 13000 odd tax collecting bank branches for uploading to the TIN
central system, details of the tax challans (for tax payment instrument identification) on a daily
basis. The second challenge was to establish a nationwide network of facilitation centres to
interface with the taxpayers and also an online facility for the deductors to furnish their returns
directly. (This infrastructure had to take care of the difference in ICT infrastructure of the large
and small companies across the country) The central system was also to be equipped to match
the TDS returns with the challan details (details of tax payment instruments) so that the tax
ledgers giving the details of all incomes and tax deducted could be created. Establishment of
infrastructure is the easier part. But ensuring high degree of compliance and data quality is an
uphill task of enablement, education, feedback and enforcement. It needs conviction, patience
and discipline. It also requires ability to keep the big picture in mind and taking one incremental
step at a time to reach the ultimate goal. It is easy to loose heart or get impatient on the way and
run after quick-fix solutions.
Like any other project that attempts significant transformation, TIN is also confronted by such
woes. There were many who were ready to condemn this. This crowd consisted of many
varieties. Some of them were taxpayers and taxmen getting scared of the increased transparency
and the resulting ‘loss of flexibility’ in tax compliance and tax enforcement. Some were those
who felt that they lost the lime light in this new initiative. There was turf war and professional
jealousies. Then there were those who were simply impatient and felt disappointed that the
change did not materialize like the transformation of Cinderella and they were too eager to keep
tinkering which was sometimes counterproductive.The encouraging thing is that in spite of these,
the project is going forward. This was possible only on account of the diligent and patient efforts
by some of the officers of the department. The Directorate of System being the nodal agency for
this project naturally took the lead. Many officers of the department from the field also played
active role. Office of the Principal Chief Controller of Accounts and the Reserve Bank were
some of the other agencies who extended helping hand.One of the most significant initiatives by
the department in this direction was the efforts it took to garner support from the taxpayers in
improving the compliance and data quality. TIN provides an online facility for the taxpayers to
view a comprehensive view of their tax credits over the net. But many taxpayers were unaware
of this and many did not feel it important to refer to this as they continued to get their credit on
the basis of the certificate provided by the deductor.
The department decided to address this issue in a taxpayer friendly fashion. It commenced
forwarding of the tax credit statement by email and letters for the current and past year directly
to the taxpayer with explanation on what to do to ensure that all the eligible credits have been
accounted.This has helped to educate the taxpayers that in future they may have little difficulty
in getting tax credit if they ensure that their tax credit statement is correct and complete.Similarly
the reminder letters that TIN forwards to the deductors have helped those forgetful souls about
their responsibility under the law to deposit tax deducted and file returns. The central system of
TIN where all the returns were consolidated made it easier for the Department to track the
defaulters and take appropriate action.Inconsistency letters sent by TIN to the deductors is
helping the deductors to identify their mistakes and to take necessary precautions to prevent such
errors in future. It also reminded those deductors who paid TDS but did not file returns and those
who filed returns but did not deposit tax. This information is also available online helping the
deductors to rectify their errors.This is a total cultural change for the department. For the first
time, instead of sending notices, the department is communicating with the taxpayer feedback on
information related to tax credit it has with respect to each taxpayer. Advising him to verify
whether it is correct and rectify errors, if any, much before the department look at these details
with the eye of an enforcer and start taking actions.These movements towards transparency and
more automated enforcement have helped the tax collection effort of the government. As per
newspaper reports, in the last three years (Till 2008) the direct tax collection grew by more than
30% per year overtaking the indirect tax collection first time in history. The contribution of these
efforts in strengthening the tax administration was acknowledged in a public function in August
2008 by Shri C Chidambaram who was the Finance Minister of India.I am sure that co-
coordinated efforts from various stakeholders can help to provide a tax administration system
that is efficient, effective and provides high standards of service to taxpayers, at the same time,
collects the revenues required by law to fund necessary public services.

Posted by Aliasgar at 2:41 PM 0 comments


Saturday, May 23, 2009
TDS compliance
The CBDT has issued Circular No. 2 of 2009 on 21st May seeking to clarify thevarious issues
that have arisen out of the newly notified Rules pertaining toTDS compliance. Several
clarifications affect the TDS for the current year (A.Y.2010-11)as well as the earlier year (A.Y.
2009-10).

Posted by Aliasgar at 10:20 AM 0 comments


No visits to the Tax Office to file your Returns
CBDT has issued circular No. 03/2009 dated 21-5-2009 containinginstructions for new Income
Tax Return forms for Assessment Year 2009-2010.
As per the circular, there are some important changes with respect to electronicfiling of return
forms (without digital signatures) and subsequent filing ofverification form in ITR-V, which are
summarized as under:
Hardcopy of verification form ITR-V can be filed within 30 days (instead of theearlier time limit
of 15 days) from date of electronic filing.Form ITR-V to be filed at a centralised address -
“Income Tax Department – CPC,Post Box No - 1, Electronic City Post Office, Bangalore -
560100, Karnataka”Form ITR-V shall not be received in any other office of the Income-tax
Departmentor in any other manner.
Thus, now, wherever an electronic return is filed without digital signature,the ITR-V will have to
be sent to Bangalore irrespective of the location of thetax payer and his jurisdictional assessing
officer.

Posted by Aliasgar at 10:19 AM 0 comments


Thursday, May 14, 2009
Supreme Court on Dharmendra Textiles
Finally, the hon'ble Supreme Court has clarified its position with respect to the judgement in case
of Dharmendra Textiles .. so often (mis)used by the Tax Administration. These observations are
very relevant -
"... At this stage, we need to examine the recent decision of this Court in
Dharamendra Textile (supra). In almost every case relating to penalty, the
decision is referred to on behalf of the Revenue as if it laid down that in every
case of non-payment or short payment of duty the penalty clause would
automatically get attracted and the authority had no discretion in the matter.
One of us (Aftab Alam,J.) was a party to the decision in Dharamendra Textile
and we see no reason to understand or read that decision in that manner.
Further observed that "... from the above, we fail to see how the decision in Dharamendra
Textile can be said to hold that section 11AC would apply to every case of
non-payment or short payment of duty regardless of the conditions expressly
mentioned in the section for its application. There is another very strong reason for holding that
Dharamendra Textile could not have interpreted section 11AC in the manner as suggested
because in that case that was not even the stand of the revenue."
Hope this puts the ghost of Dharmendra Textile to rest, while the rest of us can breathe easy.

Posted by Aliasgar at 4:09 PM 0 comments


Tuesday, May 12, 2009
Implementation of new TDS amendments deferred
No.402/92/2006-MC (11 of 2009)Government of IndiaMinistry of Finance Department of
RevenueCentral Board of Direct Taxes
New Delhi, Dated: April 11, 2009
PRESS RELEASE
The Central Board of Direct Taxes have decided to defer the implementation of Notification
No.31/2009 dated 25.3.2009 amending or substituting Rules 30, 31, 31A and 31AA of the
Income Tax Rules, 1962. The amended / substituted Rules will now come into effect on 1st July
2009 instead of 1st April 2009.

Tax deductors / collectors may continue to deposit TDS / TCS tax and file TDS / TCS returns as
per the pre-amended provisions in the interim period.

Posted by Aliasgar at 9:49 AM 0 comments


Saturday, May 9, 2009
FINMIN not to move SC on service tax issue
The finance ministry on Friday said it is yet to take a call on moving the Supreme Court over a
recent Delhi High Court judgement that said commercial renting of premises will not attract
service tax. “We have sixty days. We are examining the issue. The order is just two weeks old,”
Central Board of Excise and Customs member Rakesh Sharma said, adding, “it is too recent a
decision by the high court. It is still in the process of judicial scrutiny. We are under a judicial
process.”

Posted by Aliasgar at 6:37 PM 0 comments


I-T returns of candidates to come under lens after polls
With the final phase of the general elections approaching on May 13, the income-tax department
is gearing up to scrutinise all the income and assets details filed by the candidates before the
Election Commission. According to official sources, the department has asked its offices and
assessing officers across the country to start the scrutiny of the I-T returns as soon as elections
get over. “The department will get the bulk of the tax returns of the candidates from across the
country from the Election Commission soon. With the end of the polling on May 13 and
counting of votes on May 16, the data would be dispatched to the chief commissioners and
commissioners in various parts of the country,” a senior finance ministry official said.

Posted by Aliasgar at 6:36 PM 0 comments


Friday, May 8, 2009
Date for implementation of Form No. 17 extended
In a not-so-strange twist of events, the CBDT, it seems, has developed cold feet and has deferred
TDS challan Form No: 17 and Old form 281 can be used till 30/06/09. The new amendments to
TDS provisions will be implemented from July 2009 & onwards.

Posted by Aliasgar at 9:51 AM 1 comments


ICAI seeks clarity on crediting TDS to govt account
Accounting regulator ICAI today sought clarifications from the CBDT regarding tax deducted at
source, which as per the directions should be credited to the government&aposs account within
seven days from the end of a month.According to a communique by the Central Board of Direct
Taxes, TDS, tax deducted or collected at source has to be credited to the government within one
week from the end of a month in which the deduction or collection is made.
However, the ICAI said that the new Form No 17, in which the details have to be given, has not
been uploaded on the website of the CBDT.
" Only the old challan 281 is available on the website,"the ICAI said in a statement.
Hence, the accounting regulator has asked whether the old form can be used for crediting TDS to
the government & aposs account.

Posted by Aliasgar at 9:50 AM 0 comments


Views expressed in Dharmendra Textile case cannot be viewed as authority for
proposition that penalty is automatic consequence of addition
IN a mega order running into more than 25,000 words, with the authority, erudition and deep
understanding of not only the Income Tax law, but other complicated laws and drawing liberally
from scholarly pronouncements of various distinguished judges and writers and analysts, apart
from the well prepared Bar which includes the hardworking DRs, the ITAT Pune Bench has
given an exhaustive treatise on the judgement of the Supreme Court in Union of India Vs
Dharmendra Textile Processors - (2008-TIOL-192-SC-CX-LB)
That was actually an excise case regarding mandatory penalty under Section 11AC of the Central
Excise Act. In that case the Court also observed, “The Explanations appended to Section 271(1)
(c) of the IT Act entirely indicate the element of strict liability on the assessee for concealment or
for giving inaccurate particulars while filing return. The judgment in Dilp N. Shroof's case has
not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment
of Section 271 (1)(c) read with Explanations indicates that the said section has been enacted to
provide for a remedy for loss of revenue. The penalty under that provision is a civil liability.
Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the
matter of prosecution under Section 276C of the I.T. Act. It is of significance to note that the
conceptual and contextual difference between Section 271(1) (c) and Section 276C of the IT Act
was lost sight of in Dilip Shroff's case.”
The exposition of Law as laid down in Dharmendra Textile is the essence of the instant order. So
the facts of the case may be not very important, suffice it to say, the Appellant assessee is a
company engaged in the business of development and export of computer software. They have
been imposed a penalty of Rs. 2 Crores in connection with a claim, made by way of a revised
return, claiming a carry forward of loss of Rs 5,36,27,048 in respect of loss incurred by one of
the units and not claiming deduction under section 10A.
The ITAT started with the observation, “As we proceed to deal with the grievance raised in this
appeal, we may mention that in the recent past, we have witnessed a very lively, though at times
somewhat acrimonious, debate on paradigm shift in the scheme of section 271(1)(c), claimed to
have been brought about by Hon’ble Supreme Court’s landmark judgment in the case of Union
of India Vs Dharmendra Textile Processors (2008-TIOL-192-SC-CX-LB).”
The Tribunal further observed,
The perceptions of the taxpayers and the tax authorities about the impact of this judgment are at
times so diametrically opposed to each other that there is effectively no meeting ground between
these two extremes.
A plain reading of this provision of law makes it clear that so far as the scheme of penalty for
concealment of income is concerned, it is like this. It is sine qua non for imposition of penalty
that the Assessing Officer or the CIT(A), during the course of any proceedings before the him,
should be satisfied that the assessee has
(i) concealed his income , or
(ii) furnished inaccurate particulars of income.
As regards the quantum of penalty, the penalty imposed under section 271(1)(c) can range
between 100% to 300% of the tax sought to be avoided by the assessee, as a result of such
concealment of income or furnishing of inaccurate particulars. The third and most important
feature of this provision is deeming provision regarding concealment of income. Not only that
the penalty provisions cover the situations in assessee has concealed income or furnished the
inaccurate particulars, in certain situation, even without there being anything to indicate so,
statutory deeming fiction for ‘concealment of income’ comes into play.
There is a school of thought, however, to the effect that to successfully impose penalty under
section 271(1)(c) of the Act, the burden of the Revenue is not discharged simply by
demonstrating that the above conditions are satisfied and that the Revenue must also establish
mens rea on the part of the assessee.
Summary of what Supreme Court held in the case of Dharmendra Textile Processors:-
(i) The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element
of strict liability on the assessee for concealment or for giving inaccurate particulars while filing
return.
(ii) Object behind enactment of Section 271 (1)(c) read with Explanations indicate that the said
section has been enacted to provide for a remedy for loss of revenue. The penalty under that
provision is a civil liability.
(iii) Wilful concealment is not an essential ingredient for attracting civil liability as is the case in
the matter of prosecution under Section 276C of the I.T. Act.
(iv) It is of significance to note that the conceptual and contextual difference between Section
271(1) (c) and Section 276C of the IT Act was lost sight of in Dilip Shroff's case (supra).
(v) Mens rea is not essential element for imposing penalty for breach of civil obligations or
liabilities. There can be two distinct liabilities, civil and criminal under the same Act.
These are the observations of the Supreme Court which are being perceived as different things
by both the parties before the Tribunal.
On one hand, by and large, the assessee views the above observations as no more than limited
disapproval of Supreme Court’s judgment in the case of Dilip N Shroff on the question of
assessee’s mens rea being an essential requirement before penalty under section 271(1)(c) can be
imposed but leaving the pre Dilip N Shroff legal position intact.
On the other hand, the Income Tax Department sees this development as an authority to levy
penalty as somewhat consequential to an addition to returned income being made in almost every
case.
Shri Kaushal, Commissioner (DR) reiterated the observations made by the Supreme Court, and
politely reminded the Tribunal of its duty to respectfully follow the law so laid down by Their
Lordships, instead of resorting to a process of creative interpretation which dilutes or whittles
down the law so laid down.
The Revenue also submitted that the larger bench of the Supreme Court have held as follows:
i. Penalty under section 271(1)(c) is a strict liability.
ii. Penalty under section 271(1)(c) is a civil liability.
iii. Penalty under section 271(1)(c) is compensatory in nature i.e. it compensates the revenue.
iv. The element of mens rea is not required.
Now the question is that if penalty is mandatory, then why there are provisions for giving
opportunity (of hearing) to the assessee (before penalty is imposed) ?
The answer to this question is in the Explanations to Section 271(1)(c). For example, if any
addition is made on purely adhoc basis and no discrepancy was found, then the assessee can
argue before the Assessing Officer his case and the AO can consider whether the explanation of
the assessee is correct, but when the addition is specific then no explanation can be considered
and the AO has to levy the penalty. Now the assessee cannot say that all the details had already
been filed before the AO and hence the assessee had no intention to conceal the particulars. If
there are any types of revenue loss by making wrong claim of deductions, by change of head of
income, by wrong claim of expenses etc, penalty will be levied.”
It was in this context that Their Lordships have observed that a penalty under section 271(1)(c) is
a civil liability in contradistinction with prosecution under section 276 C which is a criminal
liability. On account of penalty under section 271(1)(c), only consequences in the civil law, i.e.
payment of a specified amount as damages or as compensation, follow, but on account of penalty
under section 276 C, consequences under criminal law, i.e. loss of individual liberty by jail
sentence, follow. It is, however, incorrect to infer that just because a liability has been held to be
‘civil liability’ it cannot be penal in character. There is no contradiction in a liability being a civil
liability and the same liability being penal liability as well, though a civil liability cannot
certainly be criminal liability as well.
The scheme of Section 271(1)(c), visualizes imposition of penalty when the assessee has
concealed income or when the assessee has furnished inaccurate particulars of income. In
addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed
to have concealed particulars of income under Explanation 1 to Section 271(1)( c). This
Explanation provides that the assessee will be deemed to have concealed particulars of income
where in respect of any facts material to the computation of the total income of any person under
this Act, (i) when the assessee fails to provide an Explanation, (ii) when the assessee provides an
Explanation which is found to be false, and (iii) when the assessee provides an Explanation
which he fails to substantiate and he fails to prove that the explanation was bonafide and that all
the facts necessary for the same and material for computation of income have been duly
disclosed by the assessee.
In any event, when an explanation is offered by the assessee in discharge of the onus cast upon
him by Explanation 1 to Section 271(1)(c), it is not for the Assessing Officer to ponder over what
should have happened in ideal circumstances, and reject the explanation because what has
actually happened is less than such an imaginary ideal situation; he is to consider the explanation
objectively and unless he finds the same against the human probabilities or unless there are any
real inconsistencies or factual errors in such an explanation, the Assessing Officer ought to
accept the same. It cannot always be feasible to prove the claim of bonafides to the hilt, nor, in
our considered view, the assessee can be expected to do so. Whether or not a person has acted
bonafide reflects the state of his mind in respect of his conduct, and, therefore, the assessee has
his inherent limitations in establishing this aspect of the manner. All that the assessee can do is to
explain the circumstances in which he has acted in a particular manner and set out the related
facts. The explanation for bonafides, at the cost of repetition, needs to be considered in a fair and
objective manner and in the light of human probabilities.
There was never a controversy about the necessary precondition for imposition of penalty by
way of Assessing Officer satisfying himself that there is concealment of income by the assessee,
or that there is furnishing of inaccurate particulars of income by the assessee, or that the case of
the assessee is covered by deeming fiction covered by one of the Explanations appended to
Section 271(1)(c). Unless the Assessing Officer is satisfied that the case of the assessee falls in
one of these categories, the very foundation for imposition of penalty does not exist. The
controversy was whether even after the Assessing Officer is satisfied that the assessee has
concealed income or the assessee has furnished inaccurate particulars, or even after the
Assessing Officer is satisfied that the case of the assessee is covered by deeming fiction by one
of the Explanations appended to Section 271(1)(c), is there anything further required to be done
by the Assessing Officer ? In Dilip N Shroff’s case, a Division Bench of the Supreme Court
thought so. It was their esteemed view that the onus of proof is on the Assessing Officer that
there was an element of mens rea. Obviously, this was in addition to the satisfaction of
conditions laid down in Section 271(1)(c) read with Explanations thereto. In Dharmendra Textile
Processor’s case, a larger bench of the Supreme Court did not share this perception and was of
the esteemed view this additional pre condition for imposition of penalty under section 271(1)(c),
i.e. establishing existence of mens rea, was wrongly being read into the provisions of the Act.
So this is what it is all about!
What follows is, once the mandate of section 271(1)(c), read with Explanations thereto, are
satisfied, there is no further onus on the Assessing Officer to establish mens rea. To that extent,
the law laid down by Their Lordships in the case of Dilip N Shroff was reversed.
It is thus clear that, in the considered view of Hon’ble Supreme Court, it is no longer necessary
that Revenue is required to prove mens rea and , therefore, independent finding about conscious
concealment is no longer a condition precedent for imposition of penalty under section 271(1)(c)
read with Explanation 1 thereto. The school of thought casting onus on Revenue to prove mens
rea, as advocated by large number of judicial precedents relied upon by the assessee, has been
thus specifically rejected by the Hon’ble Supreme Court. ‘’
The views expressed in Dharmedra Textile Processors’ case cannot be viewed as an authority for
the proposition that a penalty under section 271(1)(c) is an automatic consequence of an addition
being made to income of the taxpayer, for the reason that whether it is a civil liability or a
criminal liability, penalty under section 271(1)(c) can only come into play when the conditions
laid down under that section are to be satisfied.
By no stretch of logic or rationale it could be said that imposition of penalty under section 271(1)
(c) has a cause and effect relationship with addition being made to the returned income per se.
An addition being made to income does, because of impact of Explanation 1, effectively does
raise a presumption against the assessee but that is an entirely rebuttable presumption and the
scheme of rebuttal is provided in the Explanation itself.
All that the Explanation 1 to Section 271(1)(c) does is to shift the onus of proof from Assessing
Officer to the assessee; instead of Assessing Officer being under an obligation to establish the
malafides of the assessee, the onus is now on the assessee to establish his innocence and
righteous conduct. As a matter of fact, as a result of the Explanation 1 to Section 271(1)(c) in its
present form, the burden of proof has entirely shifted to the assessee, and it is this paradigm shift
which is one of the most important feature of rule of evidence in civil proceedings as distinct
from criminal proceedings.
The penalty of Rs. Two Crores was set aside.
Before parting, the Bench observed, “no matter how politely Shri Kaushal puts it, which is his
hallmark anyway, we were all along alive to his submission that, by resorting to a process of
interpretation, we must not dilute the law laid down by Their Lordships in Dharmendra Textile
Processors case.”
The Tribunal concluded with
· It is, therefore, indeed duty of every subordinate judicial forum to apply the ruling of the
superior courts in such a manner so as to enforce the true legal principles emerging from the
same, by putting the words and expression used in the ruling in the right perspective and by
taking a holistic legal view of the matter.
· Such an exercise is not to be viewed as diluting the law laid down in a ruling, but as a cerebral
judicial exercise and a call of duty in judicial offices.
· We have highest respects for the rulings by the higher judicial forums, but it would indeed be
inappropriate to use the words and expressions employed in these ruling, in isolation, as
complete exposition of law and as a blind man’s walking stick, rather than luminosity of judicial
knowledge with the benefit of which we have to perform our duties of office.

Posted by Aliasgar at 9:39 AM 0 comments


Wednesday, April 29, 2009
New TDS amendments to go?
A new form introduced by the Central Board for Direct Taxes (CBDT) to improve tax
deductions at source (TDS) has allegedly made the process more cumbersome, and may even
prompt the government to put the transition to the new regime in abeyance. The new form for tax
deductors — those responsible for deducting tax while making a payment — came into force
from April 1, 2009. According to the new rules, deductors have to deposit the tax amount
through online payment. The form prescribes tracking of every TDS transaction through a unique
transaction number (UTN) that is to be provided at the time of e-payment of such tax. However,
the government, a large deductor of tax itself, is not geared up for this change required by the tax
body and cannot switch to e-payment mode completely, according to an official who didn’t want
to be named.

Posted by Aliasgar at 9:52 AM 1 comments


Tuesday, April 28, 2009
Annual Tax Statement (Form 26AS)
I am reproducing hereunder a brief on Annual Tax Statement in Form No.26AS, as
provided by the Income Tax Department -

Annual Tax Statement (Form 26AS) is a statement, which is created financial year wise on the
basis of TDS/TCS returns filed by the Deductor/Collector and tax deposited in the bank.
Form 26AS includes details of:
a) All tax deducted at source (TDS) covered in Part A;
b) All tax collected at source (TCS) covered in Part B; and
c) All advance tax/self assessment tax/regular assessment tax etc., deposited in the bank by the
taxpayers (PAN holders) covered in Part C.

Kindly note that in PART A/B (Details of Tax deducted/collected at source), the 'Status of
Booking (P/F/U)' indicates the following:-
Provisional (P) - Only for TDS/TCS affected by Government deductors. Provisional tax credit is
effected on the basis of TDS/TCS returns filed only. On verification of the payment details by
the Pay & Accounts Officer (PAO), status will change to Final (F).
Unmatched (U) - Deductors have not deposited the taxes or have furnished incorrect particulars
of tax payment. Final credit will be reflected only when the payment details in the bank match
with the details of deposit in the TDS/TCS return.
Final (F) - In case of non-Government deductors, payment details of TDS/TCS deposited in bank
by the deductor have matched with the payment details mentioned in the TDS/TCS return filed
by the deductor.
In case of Government deductors, details of TDS/TCS booked in Government account have been
verified by the Pay and Accounts Officer (PAO).
In Part C, Details of Tax Paid (Other than TDS or TCS) related to Fringe Benefit Tax, Securities
Transaction Tax and Banking Cash Transaction Tax are not displayed.
Form 26AS will help you to verify the credits for taxes deducted from the income received and
the advance tax/ selfassessment tax deposited by you at the bank.
Possible reasons for mismatch/missing entry in Part A/B (Details of TDS or TCS) are as
follows:-
- Deductor/collector has not filed quarterly TDS/TCS return.
- Deductor /collector has not quoted or has wrongly quoted your PAN in the TDS/TCS return.
- You have not provided PAN or have provided wrong PAN to the deductor/collector.
- The TDS/TCS return filed by the deductor/collector is rejected in the system.

In case of entries with Status of Booking 'U' (Unmatched)


- Deductor has wrongly quoted the challan details in the return against which your TDS/TCS was
deposited.
- Deductor has provided correct challan details in TDS/TCS return but bank has made error
while digitising challan details.
Possible reasons for mismatch/missing entry in 'Part C' Details of tax paid (other than TDS or
TCS) are as follows:-
The Bank
- has digitized incorrect PAN in challan.
- has not uploaded the digitized challan.
- has made error in digitising amount/major head while digitizing the challan data.
- has made error in digitising CIN details in the challan data.
You
- have mentioned wrong A.Y. in the challan which will result in updation of Form 26AS for
wrong A.Y.
- have quoted incorrect PAN in the tax payment challan.
CIN consists of the BSR code of the bank branch where you deposited the tax, date on which
you deposited tax and the challan serial number which have been stamped on the counter foil of
the challan given to you.
Note:-
You can verify following at TIN web-site (www.tin-nsdl.com)
1. Status of the Challan through which tax deposited by you in the bank by clicking on link
'Challan Status Enquiry'.
2. The Status of return uploaded by deductor/collector by clicking on link 'Quarterly Statement
Status

Posted by Aliasgar at 5:09 PM 0 comments


Amendments in TDS Compliance
Recent changes in TDS compliance
The Central Board of Direct Taxes (CBDT) has issued Notification No.31 dated
25th March 2009, which seeks to bring out several changes in TDS compliance,
which will take effect from the 1st day of April 2009.
The impact of these changes is outlined below:
• Every deductor or collector is required to deposit tax only through internet
banking facilities (e-payment)
• The payment of tax is to be made in new challan – Form No.17. In this
new challan, the deductor/collector is required to submit deductee-wise
break-up of TDS and collectee-wise break-up of TCS
• An important feature of Form No.17 is the deductor/collector has to state
the PAN of deductee/collectee and also to state whether the PAN is valid
• In case the number of deductee/collectee records exceeds 10, then a
separate file needs to be uploaded. The facility to upload such file is
provided in the challan – Form No.17 itself, which is to be submitted
electronically
• Upon uploading of this challan, a ‘Transaction Reference Number’ – TRN
for the challan and a ‘Unique Transaction Number’ – UTN for each
deductee/collectee will be created
• This UTN will be quoted by the deductor/collector in Form Nos.16, 16A,
24Q, 26Q, 27Q and 27EQ. These forms have been accordingly
modified/amended
• The deductee/collectee will be required to quote this UTN in their
respective tax returns to claim credit in respect of the taxes deducted
and/or collected
• The TDS certificates will be issued in new Form Nos. 16 for salary and
16A for payments other than salary. For TCS, the corresponding form will
be 27D.
• Form No. 16AA has been omitted
• Interestingly, these new Form Nos. 16 and 16A do not contain certain
details like the erstwhile forms such as date of payment, cheque number,
BSR code, CIN etc. This is due to the fact that the entire system is now
going to be based on UTN, which will be provided by the Income-Tax
Department and will, henceforth, be a common link between challan, TDS
certificates and eTDS statement(s)
• The new Form No.17 (challan for payment of TDS and TCS) is applicable
only for payment of tax deducted or collected at source on or after 1st April
2009 (reference : BSC/BY/GN-105/09) – Ministry of Finance
• Therefore, in respect of any TDS or TCS made before the 1st April 2009,
the payment will continue to be made to the credit of the Central
Government by using challan in Form No.281 even after 31st March 2009
• For compliance under the new amendment, new Form No.24C is
introduced. This TDS and TCS Compliance Statement is required to be
submitted quarterly and on or before July 15, October 15, January 15 and
June 15, in electronic mode
• In case no tax has been deducted or collected during a quarter, then nil
return should be submitted in Form No.24C
• Over and above the quarterly statements, to be filed in Form No.24C
which will comprise details of payments in respect of salaries, payments
other than salaries and taxes deducted thereon, a quarterly statement of
deduction of tax will have to be filed in Form No.24Q (for salary), Form
No.26Q (for payment other than salary to a resident), Form No.27Q (for
payment other than salary to a non-resident) and Form No.27EQ for TCS
• Thus, the compliance on account of TDS and TCS will now necessitate a
visit to your friendly neighborhood TIN Facilitation Centre 5 times in a
year!
Posted by Aliasgar at 3:08 PM 0 comments
Saturday, April 25, 2009
Service tax is a value added tax – no tax on renting
IN this batch of writ petitions the legality, validity and vires of Service Tax Notification No.
24/2007 dated 22/05/2007 and circular no. 98/1/2008-ST dated 04/01/2008 is challenged. It is
alleged that by virtue of the said notification and circular a completely erroneous interpretation is
placed on section 65(90a) and section 65 (105) (zzzz) of the Finance Act, 1994 as amended by
the Finance Act, 2007. It is further alleged that because of this incorrect interpretation, service
tax is sought to be levied on the renting of immovable property as opposed to service tax on a
service provided "in relation to the renting of immovable property".
In essence, the petitioners have raised the question as to whether the Finance Act, 1994
envisages the levy of service tax on letting out / renting out of immovable property per se?
According to the petitioners, who are either landlords or tenants in respect of leased premises, no
such tax is envisaged under the said act. Consequently, the said notification dated 22/05/2007
and the said circular dated 04/01/2008 are sought to be set aside as being ultra vires the said act.
Alternatively, the petitioners have taken the plea that in case it is held that such a tax is
envisaged then the provisions of section 65(90a), section 65(105)(zzzz) and section 66 insofar as
they relate to the levy of service tax on renting of immovable property would amount to a tax on
land and would therefore fall outside the legislative competence of Parliament inasmuch as the
said subject is covered under Entry 49 of List I1 of the Constitution of India and would fall
within the exclusive domain of the state legislature. As such, the said provisions would have to
be declared as un-constitutional.
The said notification dated 22/05/2007 is an exemption notification. By virtue of the said
notification, the central government exempted the "taxable service of renting of immovable
property", referred to in sub-clause (zzzz) of clause (105) of section 65 of the Finance act, from
so much of the service tax levy as was in excess of the service tax calculated on a value which is
equivalent to the gross amount charged for renting of such immovable property less taxes on
such property, namely property tax levied or collected by local bodies. An example has also been
provided in the said notification by way of illustration.
It is the contention of the petitioners that though this notification speaks of an exemption it also
refers to the ''taxable service as a taxable service of renting of immovable property". This,
according to the petitioners, is not so provided under the said act. It is contended that section
65(105)(zzzz) refers to the service provided or to be provided to any person, by any other person,
in relation to renting of immovable property for use in the course or furtherance of business or
commerce. The reference in the said provision is not to the taxable service of renting of
immovable property but to the taxable service "in relation to" the renting of immovable property.
It is the petitioners' contention that while the Act does not treat renting of immovable property as
a taxable service, the notification proceeds on the basis that the taxable service is the renting of
immovable property itself. It is on this basis that it has been contended that service tax is sought
to be recovered from the petitioners on a pure misreading of the statutory provision.
Similarly, the impugned circular whilst giving a clarification in respect of commercial and
industrial construction service has purported to clarify that the "right to use immovable property
is leviable to service tax under the renting of immovable property service". Consequently, by the
said clarification, the Union of India is seeking to levy service tax on renting of immovable
property instead of on services in relation to renting of immovable property. According to the
petitioners, the clarification therefore travels beyond the provisions of the said act by
contemplating a service tax on the renting of immovable property itself.
The counsel appearing on both sides have sought to place reliance on T.N. Kalyan Mandapam -
2004-TIOL-36-SC-ST, ALL India Federation - 2007-TIOL-149-SC-ST and Doypack Systems
Pvt Ltd - 2002-TIOL-389-SC-MISC .
In T.N. Kalyan Mandapam, the Supreme Court considered the issue of the taxable service
provided by a mandap keeper.
The Supreme Court held that the taxable service provided as a caterer by a mandap keeper was
within the legislative competence of the Parliament and could not be construed as a tax on the
sale and purchase of goods. In this context, the Supreme Court observed that it was well-settled
that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that
service tax is levied as a percentage of the gross charges for catering did not alter or affect the
legislative competence of the Parliament in the matter.
The phrase "in relation to" has been construed by the Court to be of the widest amplitude. In
Doypack the Court observed as under:
"The expressions 'pertaining to', 'in relation to' and ‘arising out of', used in the deeming
provision, are used in the expansive sense. The expression 'arising out of' has been used in the
sense that it comprises purchase of shares and lands from income arising out of the Kanpur
Undertaking.”
The Supreme Court emphasized that a tax cannot be struck down on the ground of lack of
legislative competence by enquiring whether the definition accords with what the layman's view
of service is. It noted the well-settled principle that in matters of taxation, the courts permit
greater latitude to the statute to pick and choose objects and rates for taxation and has a wide
discretion with regard thereto.
At this juncture, the High Court noted that the main challenge in the present petitions is not on
the ground of lack of legislative competence, but on the ground that the impugned notification
and circular are ultra vires the Act itself. Therefore, the areas of discussion in the T.N. Kalyana
Kandapam and the present case are somewhat different.
The Supreme Court had also observed that a levy of service tax on a particular kind of service
could not be struck down on the ground that it does not conform to the common understanding of
the word "service" so long as it does not transgress any specific restriction contained in the
Constitution.
But, the scope of discussion in the present case is entirely different. It is the petitioners'
contention that the intention of the legislature in enacting Section 65(105)(zzzz) was not to tax
the activity of renting of immovable property, but only to levy a tax on a service which is
provided in relation to renting of immovable property.
The Supreme Court observed that a tax on services rendered by mandap keepers and outdoor
caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire-
purchase activities.
The High Court felt that this conclusion of the Supreme Court makes the distinction clear
between the case of a mandap keeper and that of a person who rents out an immovable property
for use in the course or furtherance of business or commerce. Consequently, the Supreme Court
decision in the case of Kalyana Mandapam does not advance the case of the respondents. On the
other hand, it does go towards clarifying the stand taken by the petitioners.
The High Court observed that it is apparent that service tax is a value added tax. It is a tax on
value addition provided by a service provider. It is obvious that it must have connection with a
service and, there must be some value addition by that service. If there is no value addition, then
there is no service.
With this in mind, the Court proceeded to analyse the provisions of Section 65(105)(zzzz).
1. It has ' reference to a service provided or to be provided to any person, by any other person in
relation to "renting of immovable property for use in the course or furtherance of business or
commerce".
2. The wordings of the provision are so structured as to entail - a service provided or to be
provided to 'A' by 'B' in relation to 'C'. Here, 'A' is the recipient of the service, 'B' is the service
provider and 'C' is the subject matter.
3. The expression "in relation to" may be of widest amplitude, but it has been used in the said
Act as per its context. Sometimes, "in relation to" would include the subject matter following it
and on other occasions it would not. As in the case of the service of dry cleaning, the expression
"in relation to dry cleaning" also has reference to the very service of dry cleaning. On the other
hand, the service referred to in Section 65(105)(v), which refers to a service provided by a real
estate agent "in relation to real estate", does not, obviously, include the subject matter as a
service. This is so because real estate by itself cannot by any stretch of imagination be regarded
as a service.
4. Going back to the structured sentence, i.e.- service provided or to be provided to 'A' by 'B' in
relation to 'C', it is obvious that 'C' can either be a service (such as dry cleaning, hair dressing,
etc.) or not a service by itself, such as real estate. The expression "in relation to" would,
therefore, have different meanings depending on whether 'C' is a service or is not a service. If 'C'
is a service, then the expression "in relation to" means the service 'C' as well as any other service
having connection with the service 'C'. Where 'C' is not a service, the expression "in relation to"
would have reference only to some service which has a connection with 'C'. But, this would not
imply that 'C' itself is a service.
From this analysis, it is clear that we have to understand as to whether renting of immovable
property for use in the course or furtherance of business or commerce by itself is a service. There
is no dispute that any service connected with the renting of such immovable property would fall
within the ambit of Section 65(105)(zm) and would be exigible to service tax. The question is
whether renting of such immovable property by itself constitutes a service and, thereby, a taxable
service. Service tax is a value added tax. It is a tax on the value addition provided by some
service provider. Insofar as renting of immovable property for use in the course or furtherance of
business or commerce is concerned, we are unable to discern any value addition. Consequently,
the renting of immovable property for use in the course or furtherance of business of commerce
by itself does not entail any value addition and, therefore, cannot be regarded as a service. Of
course, if there is some other service, such as air conditioning service provided along with the
renting of immovable property, then it would fall within Section 65(105)(zzzz).
So the High Court held that Section 65(105)(zzzz) does not in terms entail that the renting out of
immovable property for use in the course or furtherance of business of commerce would by itself
constitute a taxable service and be exigible to service tax under the Act. The obvious
consequence of this finding is that the interpretation placed by the impugned notification and
circular on the said provision is not correct. Consequently, the same are ultra vires the said Act
and to the extent that they authorize the levy of service tax on renting of immovable property per
se, they are set aside.
Before parting with this batch of cases, the High Court observed that it has not examined the
alternative plea taken by the petitioners with regard to the legislative competence of the
Parliament in the context of Entry 49 of List 11 of the Constitution of India. Such an examination
has become unnecessary because of the view it has taken on the main plea taken by the
petitioners.

Posted by Aliasgar at 4:01 PM 0 comments


Friday, April 10, 2009
Foreign Exchange fluctuation losses are allowable on accrual basis
CIT vs. Woodward Governor (Supreme Court)

Where the assessee carrying on the mercantile system of accounting claimed that:

(i) The additional liability arising on account of fluctuation in the rate of exchange in respect of
loans taken for revenue purposes was allowable as deduction u/s 37(1) in the year of fluctuation
in the rate of exchange and not in the year of repayment of such loans; and

(ii) The actual cost of imported assets acquired in foreign currency is entitled to be adjusted u/s
43A (prior to the amendment by the FA 2002) on account of fluctuation in the rate of exchange
at each balance sheet date, pending actual payment of the varied liability HELD approving the
claim that:

(a) The term “expenditure” in s. 37 covers an amount which is a “loss” even though the said
amount has not gone out from the pocket of the assessee. The “loss” suffered by the assessee on
account of the exchange difference as on the date of the balance sheet is an item of expenditure
u/s 37(1) ;

(b) Profits and gains are required to be computed in accordance with commercial principles and
accounting standards (AS-11);

(c) Accounts and the accounting method followed by an assessee continuously for a given period
of time needs to be presumed to be correct till the AO comes to the conclusion for reasons to be
given that the system does not reflect true and correct profits;

(d) The fact that the department taxed the gains on fluctuation on the basis of accrual while
disallowing the loss is important and indicates the double standards adopted by the Department;

(e) U/s 43A (pre-amendment), the change in the rate of exchange subsequent to the acquisition of
asset triggers the adjustment in the actual cost of the assets. Actual payment of the liability as a
consequence of the exchange variation is not required. The amendment of s. 43A by the FA 2002
w.e.f. 1.4.2003 is not clarificatory.

Note: The judgement of the ITAT Special Bench in ONGC vs. ITO 83 ITD 151 has the unique
distinction of being affirmed by the Delhi High Court in Woodward Governor 294 ITR 451 and
being reversed (after being termed “perverse”) by the Uttaranchal High Court in CIT vs. ONGC
301 ITR 415. With the present verdict of the apex court, the judgement of the Special Bench
stands approved and that of the Uttaranchal High stands impliedly overruled.

Posted by Aliasgar at 10:36 AM 1 comments


Wednesday, April 1, 2009
Amortization of Preliminary expenses
Amortization of Preliminary expenses
Commissioner of Income Tax Vs. Neha Proteins Limited 04/29/2008
{2008} 306 ITR 102 (Raj)

Case Fact: Whether interest earned on share application money can be set off with Public issue expenses?

Decision: Held by the Hon`ble Court that, interest accrued on the share application money, under the
mandate of section 73 of companies Act was lying with bank is not taxable as" Income form other sources "
and adjusting against the public issue expenses is rightly as per the provisions of section 35D of the Income
tax 1961.

Posted by Aliasgar at 5:35 PM 0 comments


Depreciation benefit on CVs may run till June 2009
The government plans to extend higher depreciation benefit of 50% on commercial vehicles
by three months till June 2009. The higher depreciation rate, which translates into lower tax
liabilities and lower insurance premiums for buyers of commercial vehicles, is set to lapse by
the end of March. "The finance ministry`s approval for the extension is expected this week,"
said an official with the ministry of heavy industry. Extension of the benefit will help
commercial vehicle makers such as Ashok Leyland, Eicher Motors and Tata Motors to sell
more units.

Posted by Aliasgar at 5:33 PM 0 comments


No banking cash transaction tax from Apr 1 2009
The slowdown may be pinching everyone’s pockets, but there’s a marginal tax relief in sight.
Come Wednesday, and the curtains will be drawn on the banking cash transaction tax (BCTT).
The withdrawal of the tax from April 1, 2009 was announced by former finance minister P
Chidambaram in Budget 2008-09. While the tax was introduced amidst heavy criticism in 2005,
it’s making a quiet exit. With the Finance Act, 2008 having provisions for withdrawing the tax,
the Central Board of Direct Taxes now does not have to issue a fresh circular or notification to
this end, a finance ministry official said. The objective behind introducing the tax was to keep
track of large cash withdrawals, “which leave no trail, and presumably become part of the black
economy.” The BCTT is a 0.1% levy on ‘taxable banking transaction.’

Posted by Aliasgar at 5:31 PM 0 comments


Wednesday, March 25, 2009
there is no requirement that there has to be a registered Deed of conveyance for
a person to be treated as an owner of property for the purpose of Sec
.....question before the High Court was
"Whether the Appellate Tribunal erred in law in holding that the property would stand
transferred only with effect from the date of registration of the Deeds of Conveyance of flats?"
The assessee had 1/3rd share in the property known as Bhaktawar building. The property
consists of five flats jointly owned by the co-owners and 32 flats occupied by the tenants.
Another three flats at the relevant time were in possession of the Court Receiver. Out of 32 flats,
9 flats were sold prior to the accounting year relevant to the assessment year 1976-77. This
transfer of 9 flats was accepted by the Income Tax Officer in assessment year 1975-76. Out of
remaining 23 flats, 19 were sold on different dates during the accounting year relevant to the
assessment year 1978-79 and in respect of the balance, conveyances were executed in the
subsequent accounting years. The Assessing Officer held that the assessee was the owner of the
23 flats in dispute as mere execution of conveyance deed was not enough without the deed being
registered as required under the provisions of the Registration Act. Since that has not been done,
the Assessing Officer held that the assessee continued to be the owner of the 23 flats. On
reference to the Commissioner under Section 146(3), the order of the Assessing Officer was
upheld.
The Commissioner held that the assessee was rightly treated as owner of the property.
The I.T.A.T. confirmed the orders of the Commissioner (Appeals).
And so this reference to the High Court.
At the threshold on behalf of the appellant, the counsel submits that the concept of ownership
considering the provisions of the Transfer of Property Act read with Registration Act is different
in the context of the provisions of the Income Tax Act. What is to be considered for the purpose
of Income Tax Act are the provisions of Section 22 of the Act of 1963. In support thereof, he has
placed reliance on the judgment of the Supreme Court in Commissioner of Income Tax Vs.
Podar Cement Pvt.Ltd. - 2002-TIOL-445-SC-IT.
In Podar Cement, the assessee was the owner of four flats in a building called as "Silver Arch",
Nepeansea Road, Bombay. The builder of the said building was M/s. Malabar Industries Pvt.
Ltd. Out of the four flats, two were directly purchased by the respondent company from the
builders and the other two were purchased by its sister concern and subsequently by the assessee.
The possession of the flats was taken after payment of consideration in full sometime in August,
1973. The flats in question in fact had been let out to various persons. The rental income from
these flats was included in the Return of the assessment for the assessment years in question,
namely, 1975-76 and 1976-77. It was submitted on behalf of the assessee that the rental income
of the flats was assessable as income from other sources under Section 56 of the Act and not as
Income from house property under Section 22 of the Income Tax Act. The submission was based
on the contention that the assessee was not the legal owner of the property in the flats and as
such the income from the flats could not be assessed as income from house property. The
Assessing Officer assessed the income as income from house property. In an appeal preferred,
the order of the Assessing Officer was upheld. In the appeal before the I.T.A.T. it held that
income from the flats cannot be taxed as income from house property under Section 22 of the
Act. Reference was made at the instance of the Revenue to the High Court. The High Court
confirmed the view taken by the tribunal and held that the income in question was assessable
under Section 56 of the Act. The matter was taken up in appeal before the Supreme Court. The
Supreme Court for the purpose of considering the contentions considered Section 9(1) of the Old
Act as also Section 22, 27 and 56 of the Act of 1961.The learned Supreme Court then from the
submissions of the parties observed as under:
"..... that the controversy revolves around the meaning to be given to the word "of which the
assessee is the owner" occurring in Section 22 of the Act."
After considering various authorities, the court observed as under :
"One of the most important of these powers is the right to exclude others."
What flows from this proposition is that the assessee should be in a position to exclude all other
persons from the use of the property. In other words the assessee must be in exclusive possession
in his own right to the exclusion of all others.
The High Court therefore held, “It would thus be clear from the law declared by the Supreme
Court in the case of Poddar Cement, that there is no requirement that there has to be a registered
Deed of conveyance for a person to be treated as an owner for the purpose of Section 22 of the
Income Tax Act”.
Coming to the facts of the present case, the High Court held, “On the facts noticed, in our
opinion, it may be possible to arrive at the conclusion that the assessee herein ceased to be the
owner. However, as relevant sale documents are not available before us, in our opinion, the
proper course would be to remand the matter back to the tribunal for answering the issue in the
context of the law as laid down in Poddar Cement (supra) and the observations made by us in
this judgment.”
So the question referred is answered in the affirmative in favour of the assessee and against
revenue.

Posted by Aliasgar at 4:34 PM 0 comments


Tuesday, March 24, 2009
I-T dept mulls tax on carbon credits
The Income-Tax department is mulling tax on carbon credit trade, estimated to yield for the
exchequer an estimated Rs 1,000 crore. The I-T department’s preliminary study has found that
large companies listed on stock exchanges are not making tax provisions against the profits out
of the sale of carbon credits and are putting the money thus earned in other businesses. India is
the largest producer of carbon credits in the world.

Posted by Aliasgar at 8:13 PM 0 comments


Sunday, March 22, 2009
New tax rule to usher in clarity on TDS credit
Tax deducted at source (TDS) credit can now be availed by persons other than the deductees.
This has been clearly articulated by the Central Board of Direct Taxes (CBDT) in a new rule on
TDS credit availment. Bringing relief and certainty to taxpayers, the CBDT has also spelt out the
situations and the procedure through which the tax credit will be made available for persons
other than deductees. The credit for TDS will be allowed to persons other than the deductees
only in cases where the relevant income is assessable to income tax in the hands of such other
person. The new CBDT rule has now settled the position that a person who is liable to pay the
tax should be eligible for the TDS credit, say tax experts.

Posted by Aliasgar at 10:26 AM 0 comments


Thursday, March 19, 2009
REDO OF ACCOUNTS LIKELY IF AUDITORS OBJECT
Companies will have to restate financial statements to accommodate auditors’ objections to any
figure in their annual accounts, if the country’s accounting rulemaker, the Institute of Chartered
Accountants of India (ICAI), has its way. If the government accepts the proposal, annual reports
will contain financial statements that fully satisfy the auditor’s scrutiny—signalling the end of
qualified company accounts.

Posted by Aliasgar at 6:25 PM 0 comments


Direct tax mop-up rises 19 per cent
Net direct tax collections grew at 19 per cent to touch Rs 3,12,800 crore till March 18 this year
because of better performance of banking, information technology and fast moving consumer
goods (FMCG) sectors. Advance tax payments, which is seen as a proxy for performance of
companies, grew at 17.5 per cent to Rs 1,23,400 crore, against Rs 1,05,100 crore till March 18 of
FY09. The total corporate tax collections are estimated at around Rs 2,00,000 crore, with
personal income tax (PIT) receipts accounting for Rs 1,12,000 crore.

Posted by Aliasgar at 6:23 PM 0 comments


Income from housing property or business income
Keyaram Hotels P. Ltd. Vs. Asst.C.I.T. 01/29/2008 [2008] 300 ITR 118 (Mad)
Case Fact: Whether income form lease of property is income form business or housing property?
Decision: Held by the Hon`ble Court that, assessee earned income by leasing the property,
however neither commercial activity nor business activity carried out by the assessee even the
object clause contained in MOA has not alter the nature of the activity of the assessee company.
Therefore income from lease assessable as income from property.

Posted by Aliasgar at 2:04 PM 0 comments


Cos get nod to hedge carbon credits, freight deals abroad
The Reserve Bank of India (RBI) has allowed Indian companies to hedge carbon credits and
freight contracts on overseas exchanges, a move that will help them cope with the intense
volatility in global markets. With this, carbon credits and freight have been recognised as
commodities by the RBI, and will join the ranks of metals, bullion, energy and agricultural
produce, which are already permitted to be hedged abroad

Posted by Aliasgar at 2:02 PM 0 comments


Sec 14A has no application to insurance business which is governed by special
provisions of Sec 44
14A is an interesting provision which gets attracted for making disallowance of expenditure in
the case of non-taxable income. However, in an equally interesting and significant decision the
ITAT has held that Sec 14A has no application to insurance companies which are governed by
the matrix of provisions of Sec 44 - a special provision coupled with non-obstante clause. It
further rules that Sec 14A contemplates an exception for deductions permissible under Ss 28 to
43B of the Act. Sec 44 applies notwithstanding anything contained within the provisions of the
Income-tax Act relating to computation of income chargeable under different heads and that
there is no requirement for head-wise bifurcation while computing the income u/s 44 of the Act
in the case of a insurance company. The income, of the business of insurance is essentially to be
at the amount of the balance of profits disclosed by the annual accounts as furnished to the
Controller of Insurance. The actual computation of profits and gains of insurance business will
have to be computed in accordance with Rule 5 of the First Schedule, adds the Tribunal's ruling.

Posted by Aliasgar at 1:57 PM 0 comments


Tuesday, March 17, 2009
ICAI TO SCHOOL CAs IN GOVERNANCE
The Government has roped in accounting and auditing rule-maker Institute of Chartered
Accountants of India (ICAI) to help public sector companies improve their corporate governance
track record. ICAI will now regularly conduct workshops for chartered accountants at senior
positions in public sector units and will closely monitor the effectiveness of the training. The
regulator will ensure the quality of education of key officials and board members. The idea is to
inculcate the spirit of good corporate governance in officials, even though there are many
systemic issues to be addressed before public sector companies can improve their performance.
The current initiative is to train officials on various aspects of corporate governance on a
continued basis, said an ICAI official. The government feels keeping senior officials of PSUs
abreast of the best governance practices will ensure that the companies do not receive flak on
account of wrong decisions. ICAI will also be helping the department of public enterprises
(DPE), the nodal department which oversees functioning of public sector enterprises, in updating
the corporate governance norms. A DPE official said all public sector enterprises had submitted
a progress report on implementation of corporate governance norms released in June 2007. In
January, the ministry of heavy industries also tied up with the accounting regulator to conduct a
workshop on International Financial Reporting Standards, which was attended by CEOs, CFOs
and senior officials of leading PSUs. IFRS is a new accounting format which will become
mandatory for Indian companies from April 2011.

Posted by Aliasgar at 3:24 PM 0 comments


Advance tax last installment for fiscal 200809 takes a beating
Many Indian companies expect to turn lower profits in the year ending 31 March compared with
last year, confirming fears of a significant slowdown in business in the wake of the global
economic crisis.
The lower expectations, manifested in lower advance tax payments made by these firms, will
likely increase the government’s deficit, and force it to increase borrowings as it tries to shore up
the economy.
Preliminary information on advance tax payments flashed by television channel CNBC-TV18
showed a general slowdown with companies from the real estate and manufacturing businesses
leading this trend. Consumer products and financial services companies, however, bucked the
trend and paid more tax than they did last year—an indication that they expect to turn higher
profits.

Posted by Aliasgar at 9:47 AM 0 comments


Monday, March 16, 2009
CBDT amends income tax rules for PF trusts
Private provident funds and superannuation funds, that channelise a larger chunk of their corpus
equity will not attract income tax, following a change in tax rules. The tax-free status would
allow more of retirement savings to flow into shares. The Central Board of Direct Taxes
(CBDT), the apex direct taxes body has now issued a notification, aligning the investment
pattern prescribed in its rules with the new one given out by the Department of Economic
Affairs, to allow these funds` equity investments tax-free status.

Posted by Aliasgar at 6:39 PM 0 comments


Saturday, March 14, 2009
No TDS on payments made to a hotel by a customer – CBDT Circular quashed:
Bombay HC
THERE are so many laws and complying with all of them is really a hard task. For instance did
you know that you were required to deduct TDS on payments you make for lodging/boarding in
a Hotel? Every time you checked into a hotel, you were violating this law! Well, there was a
Board Circular to that effect! Surprised? Perhaps even the High Court was, when it observed, If
the contention of the revenue is accepted, then it would mean that even the hair cutting work
done by a barber would be a ’work’ and the person making payment to the barber would be
covered under section 194C.”
Validity of the CBDT circular No.681 dated 8th March, 1994 is challenged in this Writ Petition.
The said circular provides that all service contracts are covered under section 194C of the
Income Tax Act, 1961.
As a result, every customer of the petitioner hotel, while making payment to the hotel for
occupying its room and availing other facilities / amenities provided by the hotel is required to
deduct income tax at the rate specified in section 194C of the Act.
The petitioner company operates a number of Five Star Deluxe Hotels all over India. The
company as a chain of hoteliers offers various facilities / amenities to its guests all of which are
essential for carrying on the hotel business. The services rendered by the petitioners apart from
boarding and lodging are, providing highly trained / experienced multi-lingual staff, 24-hour
service for reception, information and telephones, house-keeping of the highest standard, select
restaurants, bank counter, beauty saloon, barber shop, car rental, shopping centre, laundry / valet,
health club, business centre services etc. The question is whether these services would constitute
‘carrying out any work’ under section 194C of the Act?
Section 194C which deals with the liability of a person to deduct income tax while making
payments to contractors and sub contractors for the work done, was inserted into the Act with
effect from 1/4/1972. Section 194C as inserted did not define the word ‘work’. However, a
circular No.86 dated 29th May, 1972 was issued by the Deputy Secretary to the Government of
India, inter alia stating therein that section 194C would apply only in relation to "work contracts"
and "labour contracts" and that Section 194C would not apply to contracts for sale of goods. By
way of illustration, it was stated that contracts for the construction of the buildings or dams or
laying of roads and air fields or railway lines or erection / installation of plant and machinery
would be in the nature of contract for work and labour covered under Section 194C but, contract
for sale of sea or river crafts would be a contract for sale and as such would fall outside the
purview of section 194C of the Act.
It was further stated in the said circular that contracts for rendering professional services by
lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. would not be
regarded as contracts for "carrying out any work" under section 194C of the Act.
Another circular bearing No.93 dated 26th September, 1972 was issued by the Deputy Secretary
to the Government of India clarifying that service contracts which do not involve the carrying
out of any work would be outside the scope of section 194C of the Act.
Thus, since inception there was no dispute that all service contracts are outside the purview of
section 194C of the Act. Accordingly, no tax was required to be deducted by a person making
payment to the hotel for availing the facilities / amenities provided by the hotel.
However, by relying upon a decision of the Apex Court in the case of Associated Cement Co.
Ltd. V/s. Commissioner of Income Tax & Anr., the CBDT issued the impugned circular No. 681
on 8/3/1994 stating therein that section 194C would apply to all types of contracts including
transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting
contracts, labour contracts, material contracts and work contracts.
Challenging the circular No.681 dated 8/3/1994 various writ petitions were filed.
The Bombay High Court had in the case of Chamber of Income-Tax Consultants & Ors. V/s.
Central Board of Director Taxes & Ors. held that the circular No.681 is illegal to the extent it
holds that the tax is to be deducted from the amounts payable to lawyers, chartered accountants,
etc. towards their professional fees.
Similarly, in the case of Bombay Goods Transport Association & Anr. V/s. Central Board of
Direct Taxes & Ors. this Court held that the circular No.681 is illegal in so far as it applies to the
transport contracts.
Further, in the case of Advertising Agency Association of India & Anr. V/s. Central Board of
Director Taxes & Ors. this Court held that the circular No.681 is illegal in so far as it applies to
advertising agencies.
In the light of the aforesaid decisions, the Parliament deemed it fit to insert section 194J into the
Act by Finance Act, 1995 with effect from 1/7/1995 so as to bring the fees for professional or
technical services within the purview of deduction of tax at source.
Similarly, Parliament deemed it fit to insert Explanation III to section 194C by Finance Act,
1995 with effect from 1/7/1995 - the provisions relating to deduction of tax at source have been
enlarged by bringing in some of the service contracts within the purview of section 194C. In
other words, by inserting Explanation III the word ’work’ in section 194C has been expanded so
as to include four types of service contracts within the purview of section 194C.
The question, to be considered in this case is, whether the services rendered by a hotel to its
customers in providing hotel room with various facilities / amenities constitutes ‘carrying out
any work’ within the meaning of section 194C of the Act?
The High Court noted that as rightly contended by the Advocate appearing on behalf of the
petitioners, the issue is no longer res integra.
The Apex Court in the case of Birla Cements Works V/s. Central Board of Direct Taxes & Ors.
has considered the scope and ambit of section 194C of the Act, validity of circular No.681.
From the decision of the Apex Court, it is clear that the word ‘carrying out any work’ in section
194C is limited to any work which on being carried out culminates into a product or result. In
other words, the word ‘work’ in section 194C is limited to doing something with a view to
achieving the task undertaken or carry out an operation which produces some result.
As illustrated in the circular No.86, section 194C would apply to payments for carrying out the
work such as constructing buildings or dams or laying of roads and air fields or railway lines or
erection or installation of plant and machinery, etc. In all these contracts, the execution of the
contract by a contractor / subcontractor results into production of the desired object or
accomplishing the task under the contract.
The services rendered by a hotel to its customers by making available certain facilities /
amenities like providing multilingual staff, 24 hour service for reception, telephones, select
restaurants, bank counter, beauty saloon, barber shop, car rental, shopping centre, laundry / valet,
health club, business centre services, etc. do not involve carrying out any work which results into
production of the desired object and, therefore, would be outside the purview of section 194C of
the Act.
The fact that the contracts for supply of labour to carry out any work has been specifically
brought within the purview of section 194C and the fact that four categories of service contracts
have been specifically brought within the purview of section 194C by inserting Explanation III to
section 194C, it cannot be inferred that the services rendered by a hotel to its customers are also
covered under section 194C of the Act. In other words, as the services rendered by a hotel to its
customers by providing certain facilities / amenities do not constitute ‘work’ within the meaning
of section 194C, the impugned circular No.681 issued by the CBDT to the extent it applies to a
customer availing the services rendered by the hotel must be held to be contrary to section 194C
of the Act.
It is true that the word ’work’ in section 194C is not restricted to ’works contract’ only as held by
the Apex Court in the case of Associated Cement Co. Ltd. However, as held by the Apex Court
in the case of Birla Cement Works the word ’work’ in section 194C has to be understood in a
limited sense and would extend only to the service contracts specifically included in the said
section by way of Explanation III. Therefore, the argument of the revenue that the service
contracts between the petitioner hotel and its customers is covered under section 194C of the Act
cannot be accepted because, neither such a contract constitutes ’work’ within the meaning of
section 194C of the Act nor those contracts are covered under service contracts specifically
included by way of Explanation III to section 194C of the Act.
If the contention of the revenue that the word ’any work’ in section 194C is very wide enough to
include all types of work is accepted, then it would mean that even the hair cutting work done by
a barber would be a ’work’ covered under section 194C and the person making payment to the
barber would be covered under section 194C. Such a wider interpretation is uncalled for,
especially when the revenue itself had considered since inception that section 194C is restricted
to the works done by contractors / sub-contractors. Apart from the above, the CBDT by its
circular No.715 dated 8/8/1995 has clarified that the payments made by persons other than
individuals and HUF’s for hotel accommodation taken on regular basis will be in the nature of
’rent’ subject to TDS under section 194I of the Act. Thus, there is inconsistency in the stand of
the CBDT as to whether the services rendered by a hotel to its customers is covered under
section 194C or under section 194I of the Act.
The High Court held that the facilities / amenities made available by the petitioner No.1 hotel to
its customers do not constitute ’work’ within the meaning of section 194C of the Act.
Consequently, the circular No.681 dated 8/3/1994 to the extent it holds that the services made
available by a hotel to its customers are covered under section 194C of the Act must be held to
be bad in law.
So the petition is allowed by quashing the circular No.681 dated 8/3/1994 to the extent it holds
that section 194C of the Income Tax Act applies to payments by the customers to the petitioner
No.1 hotel for availing the facilities / amenities made available by the petitioners.

Posted by Aliasgar at 10:08 AM 0 comments


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Blog Archive
• ▼ 2009 (37)
○ ▼ August (2)
 Analysis of new Direct Taxes Code
 Direct Tax Code Bill 2009
○ ► July (4)
 Compensation for land acquisition + interest taxab...
 Budget 2009 highlights ...
 Besides the point ...
 UTN is still miles away .....
○ ► June (2)
 Remittances to Non residents - TDS thereon
 Tax Information Network - an overview
○ ► May (9)
 TDS compliance
 No visits to the Tax Office to file your Returns
 Supreme Court on Dharmendra Textiles
 Implementation of new TDS amendments deferred
 FINMIN not to move SC on service tax issue
 I-T returns of candidates to come under lens after...
 Date for implementation of Form No. 17 extended
 ICAI seeks clarity on crediting TDS to govt accoun...
 Views expressed in Dharmendra Textile case cannot ...
○ ► April (8)
 New TDS amendments to go?
 Annual Tax Statement (Form 26AS)
 Amendments in TDS Compliance
 Service tax is a value added tax – no tax on renti...
 Foreign Exchange fluctuation losses are allowable ...
 Amortization of Preliminary expenses
 Depreciation benefit on CVs may run till June 2009...
 No banking cash transaction tax from Apr 1 2009
○ ► March (12)
 there is no requirement that there has to be a reg...
 I-T dept mulls tax on carbon credits
 New tax rule to usher in clarity on TDS credit
 REDO OF ACCOUNTS LIKELY IF AUDITORS OBJECT
 Direct tax mop-up rises 19 per cent
 Income from housing property or business income
 Cos get nod to hedge carbon credits, freight deals...
 Sec 14A has no application to insurance business w...
 ICAI TO SCHOOL CAs IN GOVERNANCE
 Advance tax last installment for fiscal 200809 tak...
 CBDT amends income tax rules for PF trusts
 No TDS on payments made to a hotel by a customer –...
• ► 2008 (12)
○ ► December (1)
 Definition of ‘Charitable purpose’ under section 2...
○ ► June (2)
 Notification
 Guidelines for advertisement for CAs
○ ► May (1)
 Proposed amendments to Finance Bill 2008
○ ► April (2)
 Service Tax - Port services - Velji order of Ahmed...
 CAs can audit, Sales Tax lawyers can’t: HC
○ ► March (3)
 e-payment of direct taxes mandatory for corporates...
 Key features of Budget 2008
 Budget 2008 highlights ...
○ ► February (2)
 Threshold limit of PAN in TDS/TCS Returns raised
 Extension of Time for Filing of TDS/TCS Returns
○ ► January (1)
 Service Tax: Notification No. 45/2007 dated 28.12....
• ► 2007 (11)
○ ► December (11)
 FAQs on FBT - ESOP

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Aliasgar
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Definition of ‘Charitable purpose’ under section 2(15) of the Income tax Act,
1961
Circular No. 11/2008

F. No.134/34//2008-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(Tax Policy & Legislation Division)
……
New Delhi, the 19th December, 2008

Subject:-Definition of ‘Charitable purpose’ under section 2(15) of


the Income tax Act, 1961 – reg.

Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable
purpose” to

include the following:-

(i) Relief of the poor

(ii) Education

(iii) Medical relief, and

(iv) the advancement of any other object of general public utility.

An entity with a charitable object of the above nature was eligible for
exemption from tax under section 11 or alternatively under section 10(23C)
of the Act. However, it was seen that a number of entities who were engaged
in commercial activities were also claiming exemption on the ground that
such activities were for the advancement of objects of general public utility
in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore,
section 2(15) was amended vide Finance Act, 2008 by adding a proviso
which states that the ‘advancement of any other object of general public
utility’ shall not be a charitable purpose if it involves the carrying on of –

(a) any activity in the nature of trade, commerce or business; or

(b) any activity of rendering any service in relation to any trade,


commerce

or business;

for a cess or fee or any other consideration, irrespective of the nature of use
or application, or retention of the income from such activity.

2. The following implications arise from this amendment –


2.1 The newly inserted proviso to section 2(15) will not apply in respect of
the first three limbs of section 2(15), i.e., relief of the poor, education or
medical relief. Consequently, where the purpose of a trust or institution is
relief of the poor, education or medical relief, it will constitute ‘charitable
purpose’ even if it incidentally involves the carrying on of commercial
activities.

2.2. ‘Relief of the poor’ encompasses a wide range of objects for the welfare
of the economically and socially disadvantaged or needy. It will, therefore,
include within its ambit purposes such as relief to destitute, orphans or the
handicapped, disadvantaged women or children, small and marginal farmers,
indigent artisans or senior citizens in need of aid. Entities who have these
objects will continue to be eligible for exemption even if they incidentally
carry on a commercial activity, subject, however, to the conditions stipulated
under section 11(4A) or the seventh proviso to section 10(23C) which are
that

(i) the business should be incidental to the attainment of the objectives of


the entity,

and

(ii) separate books of account should be maintained in respect of such


business.

Similarly, entities whose object is ‘education’ or ‘medical relief’ would also


continue to be eligible for exemption as charitable institutions even if they
incidentally carry on a commercial activity subject to the conditions
mentioned above.

3. The newly inserted proviso to section 2(15) will apply only to entities
whose purpose is ‘advancement of any other object of general public utility’
i.e. the fourth limb of the definition of ‘charitable purpose’ contained in
section 2(15). Hence, such entities will not be eligible for exemption under
section 11 or under section 10(23C) of the Act if they carry on commercial
activities. Whether such an entity is carrying on an activity in the nature of
trade, commerce or business is a question of fact which will be decided
based on the nature, scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claim exemption from tax
u/s 11 on the ground that their objects are for charitable purpose as these
are covered under ‘any other object of general public utility’. Under the
principle of mutuality, if trading takes place between persons who are
associated together and contribute to a common fund for the financing of
some venture or object and in this respect have no dealings or relations with
any outside body, then any surplus returned to the persons forming such
association is not chargeable to tax. In such cases, there must be complete
identity between the contributors and the participants. Therefore, where
industry or trade associations claim both to be charitable institutions as well
as mutual organizations and their activities are restricted to contributions
from and participation of only their members, these would not fall under the
purview of the proviso to section 2(15) owing to the principle of mutuality.
However, if such organizations have dealings with non-members, their claim
to be charitable organizations would now be governed by the additional
conditions stipulated in the proviso to section 2 (15).

3.2. In the final analysis, however, whether the assessee has for its object
‘the advancement of any other object of general public utility’ is a question
of fact. If such assessee is engaged in any activity in the nature of trade,
commerce or business or renders any service in relation to trade, commerce
or business, it would not be entitled to claim that its object is charitable
purpose. In such a case, the object of ‘general public utility’ will be only a
mask or a device to hide the true purpose which is trade, commerce or
business or the rendering of any service in relation to trade, commerce or
business. Each case would, therefore, be decided on its own facts and no
generalization is possible. Assessees, who claim that their object is
‘charitable purpose’ within the meaning of Section 2(15), would be well
advised to eschew any activity which is in the nature of trade, commerce or
business or the rendering of any service in relation to any trade, commerce
or business.

(Pradip Mehrotra)
Director (TPL-I)

Posted by Aliasgar at 4:24 PM 0 comments


Thursday, June 26, 2008
Notification
PROCESSING OF RETURNS OF ASSESSMENT YEAR 2007-08 - STEPS TO CLEAR THE
BACKLOG
INSTRUCTION NO. 6/2008, DATED 18-6-2008

Kindly refer to above. The issue of processing of pending returns has been discussed by the
Board and following decisions have been taken in order to clear the backlog :—
(i) It has been decided that all CCsIT (CCA) should redeploy officers and staff to clear the
backlog in high pendency charges keeping in view the overall work load including pendency of
scrutiny cases. Concerned CCsIT may take recourse to outsourcing of data entry as per standing
instructions of the Board / Directorate of Systems on the subject. For this purpose, necessary
funds would be placed at the disposal of the CCIT (CCA) for outsourcing of data entry.
CCsIT(CCA) should send proposals to the Directorate of Income-tax (Systems) for outsourcing
of data entry.
(ii) It has also been decided that in order to clear the backlog of I-T returns for Assessment Year
2007-08 in networked stations, 2D based AST Software would continue to be used for
processing the returns in ITR 1, 2, 3, 4. For non-networked stations, TMS Software would
continue to be used.
(iii) Non-networked stations using TMS Software would be provided CDs with OLTAS data as
was done previously by the RCC so that the Assessing Officers could verify tax payments.
(iv) In all I-T returns for Assessment Year 2007-08 where the aggregate TDS claim does not
exceed Rs. 5 lakh and where the refund computed does not exceed Rs.25,000, the TDS claim of
tax payer should be accepted at the time of processing of returns. In all remaining returns, the
Assessing Officer shall verify the TDS claim from the deductor or assessee as the case may be,
before processing the return. In all cases selected for scrutiny, all TDS claims should be verified.
In all cases where PAN was earlier found to be duplicate or bogus and in cases where TDS
certificates were called for processing returns for the Assessment Year 2006-07 but were not
produced, the credit for TDS shall be given after full verification.
(v) The rules in AST Software for matching OLTAS data with the claim for credit made in the
return are being modified to take care of the common data deficiencies.
(vi) It has also been decided to launch a time bound TDS drive to make those deductors who
have not filed their TDS returns for Financial Year 2006-07 do so. The CsIT in charge of TDS
functions are requested to follow up cases where TDS returns were filed but PAN of some
deductors were not reported in TDS returns even though the TDS deducted from such deductees
exceeded Rs. l lakh. Information relating to such deductors / deductees will be provided by DIT
(Systems). This drive is to be an intensive two month campaign which is to be monitored weekly
by the Board and has to be completed by 31.8.2008. This drive should be followed up by a
concerted effort in improving TDS compliance. Proforma of sending compliance report after
TDS verification shall be sent separately by DIT (Systems), New Delhi.

Posted by Aliasgar at 1:04 PM 0 comments


Saturday, June 7, 2008
Guidelines for advertisement for CAs
1
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI)
(Set up under the Chartered Accountants Act, 1949)
ICAI Guidelines No.1-CA(7)/ Council Guidelines/01/2008, Dated 14th May,2008
GUIDELINES FOR ADVERTISEMENT FOR THE MEMBERS IN PRACTICE
(Issued Pursuant to Clause (7) of Part I of
the First Schedule to the Chartered Accountants Act, 1949.)
The Members may advertise through a write up setting out their particulars or of
their firms and services provided by them subject to the following Guidelines and
must be presented in such a manner as to maintain the profession’s good
reputation, dignity and its ability to serve the public interest.
1. The Member(s)/Firm(s) should ensure that the contents of the Write up are
true to the best of their knowledge and belief and are in conformity with
these Guidelines and be aware that the Institute of Chartered Accountants of
India does not own any responsibility whatsoever for such contents or claims
by the Writer Member(s) / Firm(s).
2. Definitions
For the purpose of these Guidelines:
(i) The “Act” means The Chartered Accountants Act, 1949.
(ii) “Institute” means the Institute of Chartered Accountants of India.
(iii) “write up” means the writing of particulars according to the information
given in the Guidelines setting out services rendered by the Members or firms
and any writing or display of the particulars of the Member(s) in Practice or of
firm(s) issued, circulated or published by way of print or electronic mode or
otherwise including in newspapers, journals, magazines and websites ( in Push
as well in Pull mode) in accordance with the Guidelines.
(The terms not defined herein have the same meaning as assigned to them in the Chartered
Accountants Act, 1949 and the Rules, Regulations and Guidelines made there under.)
2
3. The write-up may include only the following information:
(A) For Members
(i) Name ……………… Chartered Accountant
(ii) Membership No. with Institute
(iii) Age
(iv) Date of becoming ACA
(v) Date of becoming FCA
(vi) Date from which COP held
(vii) Recognized qualifications
(viii) Languages known
(ix) Telephone/Mobile/Fax No.
(x) Professional Address
(xi) Web
(xii) E-mail
(xiii) C A Logo
(xiv) Passport size photograph
(xv) Details of Employees (Nos. - )
(a) Chartered Accountants -
(b) Other Professionals –
(c) Articles/Audit Assistants
(d) Other Employees
(xvi) Names of the employees and their particulars on the lines allowed
for a member as stated above.
(xvii) Services provided
(a) ………………………………
(b) ………………………………
(c) ………………………………
(B) For Firms
(i) Name of the Firm …………………… Chartered Accountants
(ii) Firm Registration No. with Institute
(iii) Year of establishment.
(iv) Professional Address(s)
(v) Working Hours
(vi) Tel. No(s)/Mobile No./Fax No(s)
(vii) Web address
(viii) E-mail
(ix) No. of partners
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(x) Name of the proprietor/partners and their particulars on the lines
allowed for a member as stated above including passport size
photograph.
(xi) C A Logo
(xii) Details of Employees (Nos. - )
(a) Chartered Accountants -
(b) Other professionals –
(c) Articles/Audit Assistants
(d) Other employees
(xiii) Names of the employees of the firm and their particulars on the lines
allowed for a member as stated above.
(xiv) Services provided:
(a) ……………………………….
(b) ………………………………
(c) ………………………………
The write-up may have the Signature, Name of the Member/ Name of the
Partner signing on behalf of the firm, Place and Date.
4. Other Conditions
(i) The write-up should not be false or misleading and bring the profession into
disrepute.
(ii) The write-up should not claim superiority over any other Member(s)/Firm(s).
(iii) The write-up should not be indecent, sensational or otherwise of such
nature which may likely to bring the profession into disrepute.
(iv) The write-up should not contain testimonials or endorsements concerning
Member(s).
(v) The write-up should not contain any other representation(s) that may like to
cause a person to misunderstand and/or to be deceived.
(vi) The write-up should not violate the provisions of the ‘Act’, Rules made there
under and ‘The Chartered Accountants Regulations,1988’.
(vii) The write-up should not include the names of the clients (both past and
present)
(viii) The write-up should not be of font size exceeding 14.
(ix) The write-up should not contain any information other than stated in Para 3
hereinabove.
(x) The write-up should not contain any information about achievements /
award or any other position held.
(xi) The particulars of information required at para (ii) of 3(A) and para (ii) of
3(B) above is mandatory.
------------------

Posted by Aliasgar at 2:31 PM 0 comments


Tuesday, May 6, 2008
Proposed amendments to Finance Bill 2008
TEXT OF FURTHER PROPOSED AMENDMENTS TO FINANCE BILL, 2008
1. Page 6, for lines 5 and 6, substitute—
‘(aa) after clause (26AAA) as so inserted, the following clause shall be inserted
with effect from the 1st day of April, 2009, namely:—
“(26AAB) any income of an agricultural produce market committee or
board constituted under any law for the time being in force for
the purpose of regulating the marketing of agricultural produce;";
(b) in clause (29A) after sub-clause (g), the following sub-clause shall be
inserted and shall be deemed to have been inserted with effect from the
1st day of April, 2002, namely:—
2. Page 6, after line 10, insert—
Amendment of section 10A.
‘4A. In section 10A of the Income-tax Act, in'sub-section (1), in the fourth
proviso, for the figures “2010”, the figures “2011” shall be substituted.'.
3. Page 6 before line 11, insert—
Amendment of section 10B.
“4B. In section 10B of the Income-tax Act, in sub-section (1), in the third proviso,
for the figures “2010”, the figures "2011" shall be substituted.’.
4. Page 7, for lines 1 and 2, substitute—
‘8. In section 40 of the Income-tax Act, in clause (a),—
(a) in sub-clause (ia), with effect from the 1st day of April, 2005.—
(i) for the words, brackets and figures “has” not been paid during
the previous year, or in the subsequent year before the expiry
of the time prescribed under sub-section (1) of section 200", the
following words, brackets and figures shall be substituted and
shall be deemed to have been substituted, namely:—
“has not been paid,—
(A) in a case where the tax was deductible and was so
deducted during the last month of the previous year, on or
before the due date specified in sub-section (1) of section
139; or
(B) in any other case, on or before the last day of the previous
year”;
(ii) for the proviso, the following proviso shall be substituted and
shall be deemed to have been substituted, namely:—
“Provided that where in respect of any such sum, tax has been
deducted in any subsequent year, or has been deducted—
(A) during the last month of the previous year but paid after
the said due date; or
(B) during any other month of the previous year but paid after
the end of the said previous year,
such sum shall be allowed as a deduction in computing the
income of the previous year in which such tax has been paid.”;
(b) sub-clause (ib) shall be omitted with effect from the 1st day of April,
2009.’.
5. Page 7, after line 35, insert—
Amendment of section 44AB.
‘10A. In section 44AB of the Income-tax Act, in the Explanation, in clause
(ii), for the figures, letters and words “31st day of October”, the figures, letters
and words “30th day of September” shall be substituted.’.
6. Page 8, for lines 46 and 47, substitute—
“Provided also that where such undertaking begins refining of mineral oil on
or after the 1st day of April, 2009, no deduction under this section shall be
allowed in respect of- such undertaking unless such undertaking fulfils all
the following conditions, namely:—
(i) it is ‘wholly owned by a public sector company or any other company in
which a public sector company or companies hold at least forty-nine per
cent of the voting rights;
(ii) it is notified by the Central Government in this behalf on or before the
31st day of May, 2008; and
(iii) it begins refining not later than the 31st day of March, 2012.”.
7. Page 10, after line 44, insert—
‘(aa) in Explanation 1 as so numbered, after clause (vii), the following clause
shall be inserted and shall be deemed to have been inserted with effect
from the 1st day of April 2001, namely:—
“(viii) the amount of deferred tax,.If any such amount is credited to the
profit and loss account.”.’.
8. Page 11, for lines 38 and 39, substitute—
“25. In section 115WE of the Income-tax Act,—
(A) for sub-section (1), the following sub-section shall be substituted, namely
:—”.
9. Page 12, after line 32, insert-
‘(B) in sub-section (2) in the proviso, for the words “twelve months from
the end of the month”, the words “six months from the end of the financial
year” shall be substituted.’.
10. Page 13, line 26, for “reduced”, substitute “adjusted”.
11. Page 14, for lines 24 and 25, substitute
‘(b) in Explanation I,—
(i) in the proviso, for the brackets, figures, word and letter “(2) and (2A)”, the
brackets, figures, letter and word “(2), (2A) and (4)” shall be substituted
and shall be deemed to have been substituted with effect from the lst day
of June, 2003;
(ii) after the proviso, the following proviso shall be inserted and shall be
deemed to have been inserted with effect from the 1st day of June, 2007,
namely:—
12. Page 15, line 15, for “2003”, substitute “2007”.
13. Page 15, for lines 37 to 39, substitute—
‘40. In section 194C of the Income-tax Act, in sub-section (1), in clause (k), after
the words “Hindu undivided family”, the words “or an association of persons
or a body of individuals, whether incorporated or not, other than those falling
under any of the preceding clauses” shall be inserted with effect from the 1st
day of June, 2008.’.
14. Page 16, after line 27, insert—
Amendment of section 251
‘45A. In section 251 of the Income-tax Act, in sub-section (1), after clause (a),
the following clause shall be inserted, namely:—
“(aa) in an appeal against the order of assessment in respect of which the
proceeding before the Settlement Commission abates under section
245HA, he may, after taking into consideration all the material and other
information produced by the assessee before, or the results of the
inquiry held or evidence recorded by the Settlement Commission, in the
course of the proceeding before it and such other material as may be
brought on his record, confirm, reduce, enhance or annul the assessment;”.’.
15. Page 17, line 9, for “sub-section (1)”, substitute “clause (c) of sub-section
(1)”
16. Page 17, line 11, for “sub-section (1)”, substitute “the said clause (c)
17. Page 18, after line 13, insert—
“Provided that nothing contained in this section shall apply where the assessee
has raised such objection before the completion of such assessment or
reassessment.”.
18. Page 18, line 57, for “sub-section (1)”, substitute “clause (c) of sub-section
(1)”.
19. Page 18, line 59, for “sub-section (1)”, substitute “the said clause (c)”.
20. Page 19, after line 20, insert—
Amendment of section 23A
‘59A. In section 23A of the Wealth-tax Act, after sub-section (9), the following
sub-section shall be inserted, namely:—
“(9A) In disposing of an appeal against the order of assessment in respect of
which the proceeding before the Settlement Commission abates under section
22HA, he may, after taking into consideration all the material and other
information produced by the assessee before, or the results of the inquiry
held or evidence recorded by the Settlement Commission, in the course of the
proceedings before it and such other material as may be brought on his record,
confirm, reduce, enhance or annul the assessment.”.’.
21. Page 19, after line 52, insert—
“Provided that nothing contained in this section shall apply where the assessee
has raised such objection before the completion of such assessment or
reassessment.”.
22. Page 42, in line 6, in column (2), for “3,00,000”, substitute “2,25,000”.
1. Page 21, after line 21, insert—
‘(1A) in section 9A, for sub-section (2A), the following sub-section shall be
substituted, namely:—
‘(2A) Notwithstanding anything contained in sub-section (1) and sub-section
(2), a notification issued under sub-section (1) or any anti-dumping
duty imposed under sub-section (2), shall not apply to articles imported by a
hundred per cent export-oriented undertaking unless,—
(i) specifically made applicable in such notifications or such impositions, as
the case may be; or
(ii) the article imported is either cleared as such into the domestic tariff area
or used in the manufacture of any goods that are cleared into the
domestic tariff area, and in such cases anti-dumping duty shall be levied
on that portion of the article so cleared or so used as was leviable when
it was imported into India.
Explanation.- For the purposes of this sub-section, the expression “hundred
per cent export-oriented undertaking” shall have the meaning assigned
to it in Explanation 2 to sub-section (1) of section 3 of the Central Excise Act,
1944 (1 of 1944).
2. Page 47, for lines 3 and 4, the following shall be substituted, namely:—
‘In the Second Schedule to the Customs Tariff Act,—
(i) against heading No. 12, for the entry in column (3), the entry “Rs. 3000 per
tonne” shall be substituted;
(ii) after heading No. 26 and the entries relating thereto, the following
heading No. and entries shall be inserted, namely:—
Heading No. Description of article Rate of duty.
(1) (2) (3)
“27. Pig iron and spiegeleisen in pigs, blocks 20%
or other primary forms
28. Ferrous products obtained by direct reduc- 20%
tion of iron ore and other spongy ferrous
products, in lumps, pellets or similar
forms; iron having minimum purity by
weight of 99.946%, in lumps, pellets or similar
forms
29. Ferrous waste and scrap, remelting scrap 20%
ingots of iron or steel
30. Granules and powders, of pig iron, spieg- 20%
eleisen, iron or steel
31. Iron and non-alloy steel in ingots or other 20%
primary forms
32. Semi-finished products of iron or non- 20%
alloy steel
33. Flat rolled products of iron or non-alloy 20%
steel, hot rolled, not clad, plated or coated
34. Flat rolled products of iron or non-alloy 20%
steel, cold rolled (cold-reduced), not clad,
plated or coated
35. Flat rolled products of iron or non-alloy 20%
steel, plated or coated with zinc
36. Bars and rods, hot-rolled, in irregularly 20%
wound coils, of iron or non-alloy steel
37. Other bars and rods of iron or non-alloy 20%
steel, not further worked than forged,
hot-rolled, hot-drawn or hot-extruded,
but including those twisted after rolling
38. Otherbars and rods of iron or non-alloy 20%
steel
39. Angles, shapes and sections of iron or non- 20%
alloy steel
40. Wire of iron or non-alloy steel 20%
41. Tubes and pipes, of iron or steel 20%
42. Basmati rice Rs. 12000
per tonne”
3. Page 51, for line 7, insert—
‘(2) in Chapter 25,—
(i) in tariff item 2523 10 00, for the entry in column (4), the entry “Rs. 450 per
tonne” shall be substituted;
(ii) in tariff items 2523 29 10, 2523 29 20, 2523 29 30, 2523 29 40 and 2523 29
90, for the entry in column (4), the entry “Rs. 900*per tonne” shall be
substituted against each of them.”
Heading No. Description of article Rate of duty.
(1) (2) (3)

Posted by Aliasgar at 1:16 PM 0 comments


Wednesday, April 9, 2008
Service Tax - Port services - Velji order of Ahmedabad bench upheld : Supreme
Court
IN Homa Engineering Works - 2007-TIOL-769-CESTAT-MUM, the Tribunal had held that Ship
repairs done in port is not a port service : Board Circular not in accordance with law; In VELJI P
SONS (AGENCIES) PVT LTD - 2007-TIOL-1452-CESTAT-AHM CESTAT relying on the
Homa case held that Port Services - vis-à-vis Custom House Agent - Services rendered by the
appellant are hiring of the barges, cranes, forklifts etc., and as such services not required to be
rendered by the Port cannot be treated as ‘Port Services’. Against, this case, the Revenue is in
appeal before the Supreme Court.
As the Revenue had not filed any appeal against the Homa case, the Supreme Court dismissed
this appeal.

Posted by Aliasgar at 7:13 PM 0 comments


CAs can audit, Sales Tax lawyers can’t: HC
In a decision that will affect the lawyers specialising in Sales Tax laws as well as former Sales
Tax officers` who work as sales tax practitioners, Bombay High Court has held that only
Chartered Accountants (CAs) can audit and certify accounts for traders. Hitherto, traders had to
hire only sales tax lawyers or former sales tax officers as advisors in tax matters. But a recent
amendment to Maharashtra Value Added Tax Act made it mandatory for traders with sale of
over Rs 40 lakhs to get their accounts audited and certified by a professional CA.

Posted by Aliasgar at 7:12 PM 0 comments


Friday, March 21, 2008
e-payment of direct taxes mandatory for corporates
For the corporate sector in the country, electronic payment of direct taxes has become mandatory
from April 1. This payment norm would also apply to tax audit assessees. Official sources said
that such category of taxpayers can make electronic payment through the Internet banking
facility offered by any of the authorised banks. They also have the option of using credit or debit
cards for making the e-payment.source: www.thehindubusinessline.com

Posted by Aliasgar at 11:18 AM 0 comments


Tuesday, March 4, 2008
Key features of Budget 2008
Key Features of Budget 2008-2009
THE ECONOMY : AN OVERVIEW
! The Gross Domestic Product increased by 7.5 per cent, 9.4 per cent and 9.6 percent
in first three years, of the UPA Government resulting in an unprecedented average
growth rate of 8.8 per cent. The drivers of growth continue to be 'services' and
'manufacturing' which are estimated to grow at 10.7 per cent and 9.4 per cent
respectively.
! Growth rate in agriculture for 2007-08 is estimated at 2.6 per cent.
! Food grain production in 2007-08, estimated at 219.32 million tonnes-an all time
record. Rice production at 94.08 million tonnes, maize at 16.78 million tonnes,
soya bean at 9.45 million tonnes, cotton at 23.38 million bales each, an all time
record.
! Rashtriya Krishi Vikas Yojana launched with an outlay of Rs. 25,000 crore, National
Food Security Mission with an outlay of Rs. 4,882 crore under National Policy for
Farmers in the Eleventh Five Year Plan.
THE GROWTH STORY : FASTER AND MORE INCLUSIVE
! Agricultural credit poised to reach Rs. 2,40,000 crore by March, 2008.
! 11.4 crore children covered under Mid Day Meal Scheme, the largest school lunch
programme in the world.
! Under National Rural Health Mission 8,756 primary health centres have been made
24x7 .
! 1,82,000 girls enrolled in residential schools under Kasturba Gandhi Balika
Vidyalaya Scheme.
BHARAT NIRMAN
! Bharat Nirman has made impressive progress in 2007-08 with 290 habitations
provided with drinking water each day, 17 habitations connected through all weather
road, 52 villages provided telephones, 42 villages electrified & 4,113 rural houses
completed each day.
ELEVENTH FIVE YEAR PLAN: THE CRUCIAL SECOND YEAR
! GBS 2008-09 at Rs.2,43,386 crore higher by Rs. 38,286 crore over 2007-08. Central
Plan allocation at Rs.1,79,954 crore, an increase of 16 percent over 2007-08; Bharat
Nirman to get Rs. 31,280 crore.
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! Sarva Shiksha Abhiyan (SSA): Sarva Shiksha Abhiyan provided Rs.13,100 crore
with the focus to shift from access and infrastructure at the primary level to enhancing
retention and improving quality of learning. Mid-day Meal to get Rs. 8,000 crore;
secondary education to get Rs. 4,554 crore.
! Jawahar Navodaya Vidyalaya : Rs. 130 crore provided in 2008-09, to establish
Navodaya Vidyalaya in 20 districts having large concentration of Scheduled Castes
& Scheduled Tribes.
! Kasturba Gandhi Balika Vidyalaya: Funds (as part of SSA) provided for additional
410 Vidyalayas in educationally backward areas. Rs. 80 crore allocated to set up
new or upgrade existing hostels attached to Balika Vidyalaya.
! National Means-cum-Merit Scholarship: Rs. 750 crore allocated to build up a corpus
of Rs.3,000 crore in four years. 1,00,000 Scholarship to be awarded beginning
2008-09.
! Nehru Yuva Kendra: Rs. 10 crore allocated in 2008-09 to set up a Kendra in 123
districts, and to cover recurring expenditure in the first year.
! Mid Day Meal Scheme: Extended to upper primary classes in Government and
Government aided schools in all blocks which will benefit 2.5 crore children taking
the total number of children covered under the scheme to 13.9 crore.
! Institutes of Higher Education: India to become a knowledge society, three IISERs
at Mohali, Pune and Kolkata; and an IIIT at Kanchipuram have started
functioning.Government to set up 16 Central Universities in each of the hitherto
uncovered states; three IITs in Andhra Pradesh, Bihar and Rajasthan; two IISERs
at Bhopal and Tiruvananthapuram; and two Schools of Planning and Architecture
at Bhopal and Vijayawada: Rs. 5 crore grant provided to Deccan College, Postgraduate
and Research Institute, Pune.
! Science and Technology: Rs.85 crore allocated for Innovation in Science Pursuit
for Inspired Research (INSPIRE); which will include scholarships for young learners
(10-17 years), scholarships for continuing science education (17-22 years) and
opportunities for research careers (22-32 years); Rs. 100 crore provided for
establishing the National Knowledge Network.
! Health Sector: Rs.16,534 crore allocated, for the sector marking an increase of
15% over 2007-08.
National Rural Health Mission (NRHM): 462,000 Associated Social Health
Activitists have been trained, 177,924 villages have sanitation committees functional
and 323 district Hospitals have been taken up for upgradation. Allocation to NRHM
has been increased to Rs. 12,050 crore.
! HIV/AIDS: The National Aids Control Programme provided Rs.993 crore.
! Polio: Drive to eradicate polio continues with revised strategy and focus on the
high risk districts in Uttar Pradesh and Bihar. Rs. 1,042 crore allocated in 2008-09.
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! Rashtriya Swasthya Bima Yojana : Rashtriya Swasthya Bima Yojana to provide
health cover of Rs.30,000 for every worker in the unorganised sector falling under
the BPL category and his/her family. The Yojana will be launched in Delhi and in
the States of Haryana and Rajasthan on April 1, 2008. Rs.205 crore provided as the
Centre's share of the premia in 2008-09.
! National Programme for the Elderly: National Programme for the Elderly to be
started in 2008-09 with a Plan outlay of Rs.400 crore. Two National Institutes of
Ageing, eight regional centres, and a department for geriatric medical care in one
medical college/tertiary level hospital in each State to be established during the
Eleventh Plan period.
! Integrated Child Development Services (ICDS): Allocation for ICDS enhanced
from Rs.5,293 crore in 2007-08 to Rs.6,300 crore in 2008-09; Remuneration of
Anganwadi workers being increased from Rs.1,000 per month to Rs.1,500 per
month; remuneration of Anganwadi Helpers increased from Rs.500 per month to
Rs.750 per month; over 18 lakh Anganwadi workers and helpers to benefit; 5,959
ICDS projects and 932,000 Anganwadi and mini-Anganwadi centres functional
under ICDS at the end of December 2007.
Flagship Programmes
! National Rural Employment Guarantee Scheme (NREGS): NREGS to be rolled
out to all 596 rural districts in India with provision of Rs.16,000 crore; More money
will be provided to meet the legal guarantee of employment as demand rises.
! Jawaharlal Nehru National Urban Renewal Mission (JNNURM): Allocation for
JNNURM increased to Rs.6,866 crore in 2008-09 from Rs.5,482 crore in 2007-08.
! Rajiv Gandhi Drinking Water Mission: Allocation for Rajiv Gandhi Drinking Water
Mission enhanced to Rs.7,300 crore in 2008-09 as against Rs.6,500 crore in
2007-08;
! Total Sanitation Campaign to be provided Rs.1,200 crore in 2008-09.
! Desalination Plant near Chennai: Rs.300 crore in 2008-09 for a desalination plant
near Chennai to be set up under public private partnership.
! North Eastern Region (NER): Ministry of Development of North Eastern Region
to be provided Rs. 1,455 crore. Including this amount, total Budget allocation for
NER, to increase to Rs.16,447 crore in 2008-09 from Rs.14,365 crore in 2007-08.
! Development and Finance Corporations: Additional equity contributions proposed
for National Minorities Development and Finance Corporation Rs. 75.00 crore,
National Finance and Development Corporations for weaker sections
comprising Safai Karamcharis, Scheduled Castes and Backward Classes. Rs. 106.50
crore, National/State Scheduled Tribes Finance and Development Corporations
Rs. 50.00 crore, National Handicapped Development Corporation Rs. 9.00 crore.
! Scholarships: Pre- and post-matric scholarship programmes announced in previous
Budgets for SC, ST, OBC and minorities to get further funds in 2008-09: Scheduled
Castes (Rs.804 crore), Scheduled Tribes (Rs.195 crore), Other Backward Classes
(Rs.164 crore) and Minorities (post-matric) (Rs.100 crore).
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! Rajiv Gandhi National Fellowship Programme supporting SC and ST students
pursuing M.Phil and PhD courses allocated Rs.75 crore in 2008-09.
! Minorities: Allocation to the Ministry of Minority Affairs increased from Rs.500
crore in 2007-08 to Rs.1,000 crore in 2008-09; Report of the Justice Rajindar
Sachar Committee taken up for speedy implementation.
Women and Children
! Rs, 11,460 crore has been provided for 100% women specific programmes and
Rs. 16,202 crore for schemes where at least 30 per cent allocation is for women
specified programmes.
! Allocation for Ministry of Women and Child Development enhanced by 24% to
Rs. 7,200 crore in 2008-09.
Self Help Groups
! Life Insurance Corporation of India being asked to scale up Janashree Bima Yojana
scheme to cover all women self help groups that are credit-linked to the banks; of
Rs. 500 crore proposed to be contributed to the corpus of the Social Security Fund
with annual contributions to be made as the scheme is scaled up.
Supplement to GBS:
! Rs.8,365 crore provided as additional funds for Plan 'B' through two supplementaries
in 2007-08; additional resources to the tune of Rs.10,000 crore to be mobilized
under Plan 'B' for Plan Capital expenditure in 2008-09 also.
Agricultural Credit:
! Growth of agricultural credit set to exceed target set for 2007-08. For 2008-09,
target set at Rs.280,000 crore, with short-term crop loans continued to be disbursed
at 7 per cent per annum; initial provision of Rs.1,600 crore made for interest
subvention in 2008-09.
Investment in Agriculture:
! Gross Capital Formation (GCF) in agriculture as a proportion of GDP in the
agriculture sector improves from a low of 10.2 per cent in 2003-04 to 12.5 per cent
in 2006-07; Target to raise it to 16 per cent during the Eleventh Plan to achieve the
growth rate of 4 per cent.
Water Resources:
! Accelerated Irrigation Benefit Programme (AIBP): 24 major and medium irrigation
projects and 753 minor irrigation schemes to be completed in 2007-08, creating
additional irrigation potential of 500,000 hectare; Outlay for 2008-09 increased to
Rs. 20,000 crore, from Rs.11,000 crore in 2007-08.
! Rainfed Area Development Programme finalised and to be implemented in
2008-09 with an allocation of Rs.348 crore. Priority to those areas that have not
been beneficiaries of watershed development schemes.
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! Centrally Sponsored Scheme on Micro Irrigation: Rs.500 crore being allocated in
2008-09 with a target of covering 400,000 hectare.
! Water bodies: Agreements for a total sum of US$738 million signed with the World
Bank by the Governments of Tamil Nadu, Andhra Pradesh and Karnataka to repair,
renovate and restore water bodies. Similar agreements to be signed between the
World Bank and the Governments of Orissa, West Bengal and some other States.
! Irrigation and Water Resources Finance Corporation: 14 irrigation projects
approved as National Projects by Government; Irrigation and Water Resources
Finance Corporation (IWRFC) proposed to be set up with initial capital of Rs.100
crore contributed by the Central Government, to fund long-gestation major and
medium irrigation projects.
! National Horticulture Mission (NHM): NHM covering 340 districts in 18 States
and two Union Territories, provided Rs.1,100 crore in 2008-09.
! Soil testing: 500 soil testing laboratories to be set up during the Eleventh Plan with
Government assistance of Rs.30 lakh per laboratory; one-time allocation of Rs.75
crore to the Ministry of Agriculture in order to provide one fully-fitted mobile soil
testing laboratory each to 250 districts of the country.
! Plantation Crops: Special Purpose Tea Fund for re-plantation and rejuvenation to
be provided Rs.40 crore in 2008-09; similar support to cardamom, rubber and coffee;
crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and
cardamom to be introduced.
! National Plant Protection Training Institute at Hyderabad to be converted and
upgraded into an autonomous National Institute of Plant Health Management.
! Crop Insurance: National Agriculture Insurance Scheme (NAIS) to be continued
in its present form for Kharif and Rabi 2008-09. Rs.644 crore provided for the
scheme.
! Weather Based Crop Insurance Scheme implemented as a pilot scheme in selected
areas of five States to be continued; Rs.50 crore provided for this purpose in 2008-09.
! Subsidy for Fertilizers: Government to continue to provide fertilisers to farmers at
subsidized prices; Proposals to move to a nutrient based subsidy regime and
alternative methods of delivery being examined.
! Cooperative Credit Structure: Prof. Vaidyanathan Committee's report on reviving
the short-term cooperative credit structure under implementation in 17 states.
Rs. 1185 crore has been released so far by the Central Government to four States.
Central Government and State Government have reached an agreement to implement
the report on reviving the long term cooperative credit structure. Central
Government’s share will be Rs. 2,642 crore or 86 per cent of the total burden.
! Scheme of Debt Waiver and Debt Relief for farmers:
" Scheme to cover all loans disbursed by scheduled commercial banks, regional
rural banks and cooperative credit institutions up to March 31, 2007 and
overdue as on December 31, 2007 are covered under the scheme;
" Complete waiver of all loans that were overdue on December 31, 2007 and
which remained unpaid until February 29, 2008 for marginal farmers and
small farmers;
" one time settlement (OTS) scheme in respect of other farmers for all loans
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that were overdue on December 31, 2007 and which remained unpaid until
February 29, 2008; Rebate of 25 per cent against payment of the balance of
75 per cent under OTS;
" Agricultural loans restructured and rescheduled by banks in 2004 and 2006
through special packages also eligible, either for a waiver or an OTS on the
same pattern;
" Implementation of the debt waiver and debt relief scheme to be completed
by June 30, 2008; Farmers availing the relief would be entitled to fresh
agricultural loans from banks in accordance with normal rules.
" About 3 crore small and marginal farmers and about one crore other farmers
to benefit from the scheme; Total value of overdue loans being waived
estimated at Rs.50,000 crore and the OTS relief estimated at Rs.10,000 crore.
INVESTMENT, INFRASTRUCTURE, INDUSTRY AND TRADE
! Saving rate and investment rate estimated to be 35.6 per cent and 36.3 per cent,
respectively, by the end of 2007-08; between April- December 2007-2008. FDI
amounted to US$ 12.7 billion and FII to US$ 18 billion.
! Support to Central Public Sector Enterprises (CPSEs): Government to provide
Rs.16,436 crore as equity support and Rs.3,003 crore as loans to CPSEs in 2008-
09; 44 CPSEs listed as on date; Government policy is to list more CPSEs in order
to unlock their true value and improve corporate governance.
Rural Infrastructure Development Fund
! Corpus of RIDF-XIV to be raised in 2008-09 to Rs.14,000 crore, with a separate
window for rural roads.
Manufacturing Sector
! Growth in capital goods still very high at 20.2 per cent. Goal to take manufacturing
growth rate to double digit through more reforms.
Power
! Against Eleventh Plan target for additional power generation capacity of 78,577
MW Commercial Operation Date (COD) on about 10,000 MW to be achieved by
end March 2008.
! Ultra Mega Power Project (UMPP): Fourth UMPP at Tilaiya to be awarded shortly;
Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu urged to bring five
more UMPPs to the bidding stage by extending the required support.
! Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the Eleventh Plan
period with a capital subsidy of Rs.28,000 crore; allocation of Rs.5,500 crore for
2008-09.
! Accelerated Power Development and Reforms Project: Rs.800 crore to be provided
in 2008-09, A National Fund for transmission and distribution reform to be created.
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Roads
! National Highway Development Programme (NHDP): Allocation for NHDP
enhanced to Rs.12,966 crore in 2008-09 from Rs.10,867 crore in 2007-08;
Completion rate in the Golden Quadrilateral is 96.48 per cent and in the North
South, East West Corridor project is 23.36 per cent; Special attention being paid to
SARDP-NE; programme devised for the North Eastern region; 180 kms of roads
completed in 2007-08 and 300 kms. of road targetted for completion in 2008-09.
Oil and Gas
! Seventh round of bidding under the New Exploration Licensing Policy; bids invited
for 57 exploration blocks; estimated to attract investment of the order of US$3.5
billion to US$8 billion for exploration and discovery.
Coal
! 53 coal blocks with reserves of 13,842 million tonnes allotted during April-January
2007-08 to Government and private sector companies; new Coal Distribution Policy
notified in October 2007; coal regulator to be appointed.
Information Technology
! Allocation to the Department of Information Technology enhanced to Rs.1,680
crore in 2008-09 from Rs.1,500 crore in 2007-08; Two Schemes for establishing
100,000 broadband internet-enabled Common Service Centres in rural areas and
State Wide Area Networks (SWAN) with Central assistance under implementation;
new scheme for State Data Centres also approved; Rs.75 crore provided for the
common service centres; Rs.450 crore provided for SWAN and Rs.275 crore for
the State Data Centres.
Textiles
! Schemes for Integrated Textile Parks (SITP) and the Technology Upgradation Fund
(TUF) to be continued in the Eleventh Plan period; Provision for SITP being
maintained at Rs.450 crore in 2008-09; Provision for TUF to be increased to
Rs.1,090 crore in 2008-09 from Rs.911 crore in 2007-08.
! Handloom sector: 250 clusters being developed and 443 yarn banks established
under the cluster approach to the development of the handloom sector; Over 17
lakh families of weavers to be covered under the health insurance scheme by March
2008; Allocation being increased to Rs.340 crore in 2008-09; Infrastructure and
production being scaled up by taking up six centres for development as megaclusters;
Varanasi and Sibsagar to be taken up for handlooms, Bhiwandi and Erode
for powerlooms, and Narsapur and Moradabad for handicrafts; Each mega-cluster
to require about Rs.70 crore; Initial provision of Rs.100 crore made in 2008-09.
Micro, Small and Medium Enterprises
! A risk capital fund being created in the Small Industries and Development Bank of
India (SIDBI); Credit Guarantee Trust with SIDBI had extended guarantees to
89,129 units for an amount of Rs.2,479 crore as on January 31, 2008; SIDBI to
reduce the guarantee fee from 1.5 per cent to 1 per cent and the annual service fee
from 0.75 per cent to 0.5 per cent for loans up to Rs.5 lakhs.
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Foreign Trade
! Relief given to exporters in three tranches amounting to over Rs.8,000 crore; Interest
cost of sterilization through market stabilization bonds (MSS), which is in a sense,
subsidy to the export sector, estimated at Rs.8,351 crore for the year 2007-08.
FINANCIAL SECTOR
! Financial Inclusion: Two recommendations of the Committee on Financial Inclusion
proposed to be accepted viz (i) to advise commercial banks, including RRBs, to
add at least 250 rural household accounts every year at each of their rural and
semi-urban branches; and (ii) to allow individuals such as retired bank officers,
ex-servicemen etc to be appointed as business facilitator or business correspondent
or credit counselor; banks to be encouraged to embrace concept of Total Financial
Inclusion; Government to request all scheduled commercial banks to follow the
example set by some public sector banks and meet the entire credit requirements
of SHG members, namely, income generation activities, social needs like housing,
education, marriage etc., and debt swapping.
! (i) Fund of Rs.5,000 crore to be created in NABARD to enhance its refinance
operations to short term cooperative credit institutions;
(ii) Two funds of Rs.2,000 crore each to be created in SIDBI - one for risk capital
financing and other for enhancing refinance capability to the MSME sector.
(iii) Fund of Rs.1,200 crore to be created in NHB to enhance its refinance operations
in the rural housing sector.
These funds are to be governed by the general guidelines that are now applicable
to RIDF with some modifications.
! Differential Rate of Interest (DRI) scheme: Borrower's eligibility criteria for loan
under the DRI scheme to the weaker sections of the community engaged in gainful
occupations enhanced.
Capital Markets
! Measures to expand the market for corporate bonds: Exchange-traded currency
and interest rate futures to be launched and transparent credit derivatives market to
be developed with appropriate safeguards; Tradability of domestic convertible bonds
to be enhanced through the mechanism of enabling investors to separate the
embedded equity option from the convertible bond, and trade it separately;
Development of a market-based system for classifying financial instruments based
on their complexity and implicit risks to be encouraged.
! Permanent Account Number (PAN): Requirement of PAN extended to all
transactions in the financial market subject to suitable threshold exemption limits.
! National market for securities: Empowered Committee of State Finance Ministers
to be requested to work with the Central Government to create pan Indian market
for securities that will expand the market base and enhance the revenues of the
State Governments.
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OTHER PROPOSALS
! Skill Development Mission: A non-profit corporation to be established with the
entrusted mission to address the challenge of imparting the skills required by a
growing economy; Rs.15,000 crore proposed to be garnered as capital from
Governments, public and private sector, and bilateral/multilateral sources;
Government's equity in the proposed non-profit corporation to be Rs.1,000 crore
to begin with.
! Industrial Training Institutes: 238 ITIs being upgraded under the World Bank
assisted scheme; Under the PPP scheme, 309 ITIs have been identified in 29 States
with corresponding industry partners and agreements signed in 244 cases; Rs.750
crore set apart in 2008-09 in anticipation of upgrading 300 more ITIs.
! Sainik Schools: Rs.44 crore allocated to the 22 Sainik Schools at the rate of Rs.2
crore each, for immediate improvement of infrastructure including classrooms,
laboratories, libraries and facilities for physical education.
! Public Distribution System: Rs.32,667 crore being provided next year for food
subsidy under PDS and other welfare programmes; State of Haryana and the Union
Territory of Chandigarh to introduce, on a pilot basis, a smart card based delivery
system to deliver food grains under the PDS.
! Unorganised Sector Workers: In anticipation of the Unorganised Sector Workers'
Social Security Bill, 2007 being made into law, three schemes designed to provide
social security to workers in unorganised sector in a phased manner introduced;
(i) Aam Admi Bima Yojana to provide insurance cover to poor households; in the
first year of the Yojana, LIC to cover one crore landless households by September
30, 2008; Rs.1,500 crore placed with LIC; Additional sum of Rs.1,000 crore to be
placed with LIC in 2008-09 to cover another one crore poor households in the
second year;
(ii) Rashtriya Swasthya Bima Yojana to be implemented with effect from April 1,
2008; Indira Gandhi National Old Age Pension Scheme enlarged with effect from
November 19, 2007 to include all persons over 65 years falling under the BPL
category expanding beneficiary cover from 87 lakh to 157 lakh; Rs. 3,443 crore
being allocated in 2008-09 as against Rs.2,392 crore in 2007-08.
! Housing for the Poor: 41.13 lakh houses constructed up to December 2007 under
Indira Awas Yojana (IAY) against a target of 60 lakh houses; Cumulative number
of houses constructed under IAY to be 51.77 lakh by end March 2008; Subsidy per
unit in respect of new houses sanctioned after April 1, 2008 to be enhanced from
Rs.25,000 to Rs.35,000 in plain areas and from Rs.27,500 to Rs.38,500 in hill/
difficult areas to reflect the higher cost of construction; Subsidy for upgradation of
houses to be increased from Rs.12,500 per unit to Rs.15,000; Public sector banks
to be advised to include IAY houses under the differential rate of interest (DRI)
scheme and lend up to Rs.20,000 per unit at an interest rate of 4 per cent.
! Defence: Allocation for Defence to be increased by 10 per cent from Rs.96,000
crore to Rs.105,600 crore.
! Backward Regions Grant Fund: Allocation for 2008-09 kept at same level as current
year at Rs.5,800 crore; 45 per cent of the amount likely to be allocated to the States
of Bihar, Orissa and Uttar Pradesh.
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! Climate Change: Permanent institutional mechanism to be established for
development and coordination role in exploration and implementation of ideas.
! Sixth Central Pay Commission: to submit its report by March 31, 2008.
! Commonwealth Games: to be provided Rs.624 crore in 2008-09.
! Institutions of Excellence: Special grant of Rs.100 crore awarded to three institutions
of excellence for 2008-09
(i) Mahatma Phule Krishi Vidyapeeth, Rahuri, Maharashtra;
(ii) University of Mysore, Mysore; and
(iii) Delhi University, Delhi.
! India's Soft Power: Rs.75 crore grant to Indian Council of Cultural Relations to
design and implement a programme to achieve the objective of projecting the 'soft
power' of India in music, literature, dance, art, cuisine and especially films.
! Tiger Protection: One time grant of Rs.50 crore to the National Tiger Conservation
Authority to redouble efforts to protect the tiger; Bulk of grant to be used to raise,
arm and deploy a special Tiger Protection Force.
! Monitoring and Evaluation: Central Plan Schemes' Monitoring System (CPSMS)
to be put in place and implemented as Plan scheme; a comprehensive Decision
Support System and Management Information System also to be established to
generate and monitor scheme-wise and State-wise releases for about 1,000 Central
Plan and centrally sponsored schemes in 2008-09; Concurrent evaluation started
by some ministries to be supplemented by independent evaluations conducted by
research institutions.
BUDGET ESTIMATES
! Plan Expenditure estimated at Rs.243,386 crore.
! Non-Plan Expenditure estimated at Rs.507,499 crore.
! Revenue deficit for 2007-08 to be 1.4 per cent (against a BE of 1.5 per cent) and
the fiscal deficit to be 3.1 per cent (against a BE of 3.3 per cent); Revenue receipts
of Central Government for 2008-09 projected at Rs.602, 935 crore and revenue
expenditure at Rs.658,119 crore; Revenue deficit for 2008-09 estimated at Rs.55,184
crore, which amounts to 1.0 per cent of GDP; Fiscal deficit for 2008-09 estimated
at Rs.133,287 crore which is 2.5 per cent of GDP; elimination of Revenue Deficit
may need one more year; because of the conscious shift in expenditure in favour of
health, education and the social sector.
! Thirteenth Finance Commission to be requested to revisit the roadmap for fiscal
adjustment and suggest a suitably revised roadmap, after the obligations on
account of the Sixth Central Pay Commission become clear.
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TAX PROPOSALS
! Tax to GDP ratio that was 9.2 per cent in 2003-04, set to rise to 12.5 per cent at the
end of 2007-08.
! Set to achieve the Budget Estimates of indirect taxes and exceed the Budget
Estimates of direct taxes.
Indirect Taxes
Customs duties
! No change in the peak rate of customs duty.
! Customs duty on Project Imports to reduce from 7.5 per cent to 5 per cent; 4 per
cent special CVD to be imposed on a few specified projects in the power sector.
! Customs duty being reduced on steel melting scrap and aluminium scrap from 5
per cent to nil.
! Customs duty to be reduced from 10 per cent to 5 per cent on certain specified life
saving drugs and on the bulk drugs used for the manufacture of such drugs. They
are also being exempted from excise duty or countervailing duty.
! Customs duty is being reduced on vitamin premixes and mineral mixtures from 30
per cent to 20 per cent and on phosphoric acid from 7.5 per cent to 5 per cent to
reduce cost of manufacture of dairy and poultry feeds
! Customs duty being reduced on bactofuges from 7.5 per cent to nil for the benefit
of dairy industry and to increase shelf life of milk
! Specified parts of set top boxes and specified raw materials for use in the IT/
electronic hardware industry to be exempted from customs duty.
! Customs duty on convergence products to be reduced from 10 per cent to 5 per
cent to establish parity between devices used in the information/ communication
sector and the entertainment sector
! Customs duty being reduced on specified machinery from 7.5 per cent to 5 per cent
to provide fillip to the manufacture of sports goods; duty also being exempted on
specified raw materials for sports goods.
! Customs duty to be exempted on rough cubic zirconia and being reduced on polished
cubic zirconia from 10 per cent to 5 per cent, in order to encourage value addition
and exports by gem and jewellery industry; Customs duty on rough coral being
reduced from 10 per cent to 5 per cent.
! Customs duty removed on helicopter simulators to facilitate training of helicopter
pilots
! Customs duty reduced on crude and unrefined sulphur from 5 per cent to 2 per
cent, in order to support domestic fertiliser production
! Customs duty exemption is proposed to be withdrawn on naphtha for use in the
manufacture of polymers in order to correct price distortions and revenue losses.
Naphtha for use in the manufacture of polymers will be subjected to normal rate of
5 per cent. Naphtha imported for the production of fertilisers will continue to be
exempt from import duty.
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! Export duty on chrome being increased from Rs.2,000 per metric tonne to Rs.3,000
per metric tonne in order to conserve and make it available for value added
manufacture in India.
Excise duty
! General CENVAT rate on all goods reduced from 16 per cent to 14 per cent to give
a stimulus to the manufacturing sector.
! Excise duty on all goods produced in the pharmaceutical sector reduced from 16
per cent to 8 per cent.
! Excise duty reduced on buses and their chassis from 16 per cent to 12 per cent.
! Excise duty reduced on small cars from 16 per cent to 12 per cent and on hybrid
cars from 24 per cent to the general revised rate of 14 per cent.
! Excise duty reduced on two wheelers and three wheelers from 16 per cent to
12 per cent.
! Excise duty to be reduced on paper, paper board and articles made therefrom
manufactured out of non-conventional raw materials by units not having an attached
bamboo/wood pulp making plant from 12 per cent to 8 per cent with a further
reduction on clearances up to 3,500 MT from 8 per cent to nil. Excise duty on
certain varieties of writing, printing and packing paper is to be reduced from 12
per cent to 8 per cent.
! Excise duty is to be reduced from 16 per cent to nil on a few mass consumption
items including composting machines, wireless data cards, packaged coconut water,
tea and coffee mixes, and puffed rice.
! Excise duty reduction from 16 per cent to 8 per cent on a few more items including
water purification devices, veneers and flush doors, sterile dressing pads etc,.
specified packaging material and breakfast cereals.
! Anti AIDS drug, Atazanavir, as well as bulk drugs for its manufacture are to be
exempted from excise duty.
! Excise duty being exempted on end-use basis, on refrigeration equipment (consisting
of compressor, condenser units, evaporator, etc) above 2 TR (tonne refrigeration)
utilising power of 50 KW and above.
! Excise duty rates on bulk cement and packaged cement brought on par; bulk cement
to attract excise duty of Rs.400 per Metric Tonne or 14 per cent ad valorem,
whichever is higher; cement clinkers excise duty at Rs.450 per Metric Tonne.
! Excise duty being increased on packaged software from 8 per cent to 12 per cent,
bringing at par with customised software attracting a service tax of 12 per cent.
! Excise duty on both filter and non-filter cigarettes brought on par by applying
higher rates on non-filter cigarettes.
! Ad valorem part of the excise duty on unbranded petrol and unbranded diesel being
abolished and replaced by an equivalent specific duty of Rs.1.35 per litre; there
will be only a specific duty of Rs.14.35 per litre on unbranded petrol and Rs.4.60
per litre on unbranded diesel; there will be no impact on retail prices.
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! NCCD of 1 per cent removed on polyester filament yarn and the levy shifted to
cellular mobile phones.
Service tax
! Four services brought under service tax net namely, asset management service
provided under ULIP, services provided by stock/commodity exchanges and clearing
houses; right to use goods, in cases where VAT is not payable; and customised
software, to bring it on par with packaged software and other IT services.
! Threshold limit of exemption for small service providers increased from Rs.8 lakhs
per year to Rs.10 lakh per year; about 65,000 small service providers go out of the
tax net.
Direct Taxes
! Threshold limit of exemption from personal income tax in the case of all assesses
increased to Rs.150,000. The slabs and rates of tax are :
Up to Rs.150,000 NIL
Rs.150,001 to Rs.300,000 10 per cent
Rs.300,001 to Rs.500,000 20 per cent
Rs.500,001 and above 30 per cent
! In case of a woman assessee, the threshold limit increased from Rs.145,000 to
Rs.180,000; for a senior citizens, the threshold limit increased from Rs.195,000 to
Rs.225,000.
! No change in the corporate income tax rates.
! No change in the rate of surcharge.
! Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account
added to the basket of saving instruments under Section 80C of the Income Tax
Act.
! Additional deduction of Rs.15,000 allowed under Section 80D to an individual
paying medical insurance premium for his/her parent or parents.
! Income Tax Act to be amended to provide that reverse mortgage would not amount
to "transfer"; and the stream of revenue received by the senior citizen would not be
"income".
! Tax income arising from saplings or seedlings grown in a nursery exempted.
! Business of production of seeds and manufacture of agricultural implements added
to the list of companies allowed weighted deduction of 150 per cent on any
expenditure on in-house scientific research.
! Benefit of amortisation of certain preliminary expenses under Section 35D allowed
to assessees in the services sector.
! Corporate debt instruments issued in demat form and listed on recognised stock
exchanges exempted from TDS.
! Crèche facilities, sponsorship of an employee-sportsperson, organising sports events
for employees and guest houses excluded from the purview of FBT.
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! Parent company allowed to set off the dividend received from its subsidiary company
against dividend distributed by the parent company; provided that the dividend
received has suffered DDT and the parent company is not a subsidiary of
another company.
! Insert a new sub-section (11C) in Section 80-IB to grant a five year tax holiday to
hospitals located in any place outside the urban agglomerations especially in tier-
2 and tier-3 towns; this window will be open for the period April 1, 2008 to March
31, 2013.
! Five year holiday from income tax being granted to two, three or four star hotels
established in specified districts having UNESCO-declared 'World Heritage Sites';
the hotel should be constructed and start functioning during the period
April 1, 2008 to March 31, 2013.
! Coir Board included in Section 10(29A) and exempted from income tax.
! Rate of tax on short term capital gains under Section 111A & Section 115AD
increased to 15 per cent.
! STT paid to be treated like any other deductible expenditure against business income;
Levy of STT, in the case of options to be only on premium, where the option is not
exercised; liability to be on the seller; where the option is exercised, levy to be on
the settlement price and the liability on the buyer; no change in the present rates.
! Commodities Transaction Tax (CTT) to be introduced on the same lines as STT on
options and futures.
! Law being amended to exclude entities carrying on regular trade, commerce or
business or providing services in relation to any trade, commerce or business and
earning incomes from claiming that their purposes also fall under "charitable
purpose"; Genuine charitable organisations not to be affected in any way.
! Banking Cash Transaction Tax (BCTT) being withdrawn with effect from
April 1, 2009.
CST and a Roadmap towards GST
! Central Sales Tax rate being reduced from 3 per cent to 2 per cent from
April 1, 2008.
! Roadmap for Goods and Service Tax being prepared for introduction of GST from
April 1, 2010.

Posted by Aliasgar at 11:08 AM 0 comments


Budget 2008 highlights ...
Short term capital gains raised to 15% from 10%
STT to be treated as business expenditure
No change in corporate tax rate
Minor changes announced in Fringe Benefit Tax
Income of Rs1,50,000 to Rs3,00,000 to be taxed at 10%
Income of Rs3,00,000 to Rs5,00,000 to be taxed at 20%
Income above Rs5,00,000 to be taxed at 30%
Exemption limit raised to Rs1,50,000
Excise duty on cement reduced
General Cenvat rate for all goods decreased from 16% to 14%
Excise duty on Pharma products decreased from 16% to 8%
Duty on small cars reduced from 16% to 12%
Duty on Two-wheelers reduced from 16% to 12%
Some parts of set-top boxes to be exempt from customs duty
Customs duty benefit provided to Gems and Jewellery industry
No change in peak rate of customs duty
Revenue deficit for FY 2008-09 to be 1% of GDP
Budget deficit for FY 2008-09 to be2.45% of GDP
Revenue deficit for FY2007-08 to be1.47% of GDP
Budget deficit for FY2007-08 to be 3.1% of GDP
Govt announces setting up of Tiger Protection Force
Allocation for Defence increased from Rs9,6000 cr to Rs1,05,000 cr
1,000 crore provided to LIC for Aam admi bima yojana
PAN to be sole identification for financial markets
Rs800 crore to be spent on power sector reforms
Rs450 crore provided for development of textile parks
Rs800 crore to be spent on power sector reforms
Govt hopes to open bidding for 5 more Ultra Mega Power Projects
Rs40 crore provided to special support fund for tea.
Similar funds to be set up for cardamom, rubber and coffee
Agri loan waiver scheme: 3 crore marginal and small farmers and 1 crore other farmers to benefit
from waiver scheme.
Agri loan waiver scheme: Rs60,000 crore liability waived off, says FM
One-time settlement scheme for other farmers not covered by the waiver scheme
Massive investment needed in irrigation projects: FM
Crop insurance scheme for plantation crops to be announced next year
Additional irrigation potential of 5 lakh hectares to be set up in FY2008-09
Govt to set up Irrigation and Water Resources Finance Corporation
I&WRFC to have an initial capital of Rs100 crore
Additional irrigation potential of 5 lakh hectares to be set up in FY2008-09
NREGS to be extened to all rural districts of the country
Growth of agriculture credit impressive: FM
Target of agriculture credit set at Rs2,80,000 crore for FY 2008-09
Allocation for North-eastern states increased
Remuneration of Anganwadi workers, helpers increased
NREGS to be extened to all districts of the country
Govt to set up 3 new IITs this year
New schemes for the aged announced in budget
Midday meal scheme extended to upper-primary classes in backward districts
Govt to establish 16 central universities this year
410 more Kasturba Gandhi Balika Vidyalayas to be opened
Allocation increased for all social sector schemes
FY 2008-09 a year of consolidation: FM
Determined to become self-sufficient in food grains: FM
Growth in financial, housing, realty services is projected at 11.7%
Above 8% GDP growth in 12 successive quarters
Keeping inflation under check is priority: FM
9.1% growth in first half of FY 2007-08: FM
Mid-day meal scheme largest school meal scheme in the world: FM%
Social sector schemes of govt a success: FM
Confident of achieveing 9% growth: FM

Posted by Aliasgar at 10:57 AM 0 comments


Thursday, February 14, 2008
Threshold limit of PAN in TDS/TCS Returns raised
No.402/92/2006-MC (10 of 2008)Government of India / Ministry of FinanceDepartment of
RevenueCentral Board of Direct Taxes
New Delhi dated the 12th February 2008
PRESS RELEASE
All tax deductors / collectors are required to file the TDS/TCS returns in Form No.24Q (for
salaries), Form No.26Q (for payments other than salaries) or Form No.27EQ (for TCS). These
forms require details of all tax deductions with name and permanent account number (PAN) of
parties from whom tax was deducted.
It had earlier been decided that Form No.24Q with less than 90% of PAN data and Form No.26Q
& Form No.27EQ with less than 70% of PAN data will not be accepted for the quarter ending on
30.09.2007 and thereafter.
The said decision has since been reviewed. It has now been decided to enhance the threshold
limit for PAN quoting without which TDS/TCS returns will not be accepted. The limit has been
enhanced to 95% from 90% n case of Form 24Q and to 85% from 70% in case of Forms 26Q and
27EQ. The enhanced limits will be applicable for and from the quarter ending 31.03.2008. These
threshold limits will also apply to all those TDS/TCS returns, which are filed for any of the
earlier quarters on or after 01/04/2008.
Tax deductors and tax collectors are, therefore, advised to obtain correct PAN of all deductees
and quote the same in their TDS / TCS returns. Deductees are also advised to furnish their
correct PAN with their deductors, failing which they will not only have difficulty in getting
credit of TDS/TCS in their income tax assessments but will also face penal proceedings under
the Income Tax Act.

Posted by Aliasgar at 10:35 AM 0 comments


Saturday, February 2, 2008
Extension of Time for Filing of TDS/TCS Returns
F.No. 275/6/2008-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Tax
*****
New Delhi dated 28th January 2008

Subject :- Order under section 119(2)(a) of the Income –Tax Act, 1961 regarding extension of
time for filing of Tax Deduction/Collection at source Returns for the 2nd quarter and non-levy of
penalty for delay in filing for the same.

In exercises of the powers conferred by clause (a) of sub-section (2) of section 119 of the
Income-Tax Act’1961, the Central Board of Direct Taxes hereby extends the due date for filing
of quarterly statements of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) for
the quarter ending 30th September 2007 of financial year 2007-08 as per the provisions of
section 200(3) and proviso to section 206C(3) respectively, to 29th February 2008.

(Ansuman Pattnaik)
Deputy Secretary (Budget)
Tele Fax No 2309 2641
Copy to:-

1. All Chief Commissioner and Director General of Income Tax.


2. All Officer and Technical Sections of CBDT
3. Director of inspection (Inv)/IT/Audit/Vigilance/ RSP&PR / Recovery/Spl.Inv.
4. Dy. Director of Inspection (P&PI)/ Asstt. Director of Inspection (Bulletin) N.D
5. C & AG of India (40 copies).
6. Competent Authority, Chennai, Delhi, Mumbai,& Calcutta. 7. JS & Legal Adviser, Ministry
of Law & Justice, New Delhi,
8. Director (DOMS) (IT) New Delhi,
9. Director General, NADT,
10. Commissioner (AAR).

(Ansuman Pattnaik)
Deputy Secretary (Budget)
Posted by Aliasgar at 10:12 AM 0 comments
Thursday, January 17, 2008
Service Tax: Notification No. 45/2007 dated 28.12.2007
NOTIFICATION NO
45/2007 – Service Tax, Dated : December 28, 2007
In exercise of the powers conferred by sub-sections (1) and (2) of section 94 of the Finance Act,
1994 (32 of 1994), the Central Government hereby makes the following rules further to amend
the Service Tax Rules, 1994, namely :-
1. (1) These rules may be called the Service Tax (Sixth Amendment) Rules, 2007.
(2) They shall come into force on date of their publication in the official gazette.
2. In the Service Tax Rules, 1994,-
(A) in rule 5,-
(a) for sub-rule (2), the following sub-rule shall be substituted, namely:-
“(2) Every assessee shall furnish to the Superintendent of Central Excise at the time of filing of
return for the first time or the 31st day of January, 2008, whichever is later, a list in duplicate, of-
(i) all the records prepared or maintained by the assessee for accounting of transactions in regard
to,-
(a) providing of any service, whether taxable or exempted;
(b) receipt or procurement of input services and payment for such input services;
(c) receipt, purchase, manufacture, storage, sale, or delivery, as the case may be, in regard of
inputs and capital goods;
(d) other activities, such as manufacture and sale of goods, if any.
(ii) all other financial records maintained by him in the normal course of business.”;
(b) sub-rule (4) shall be omitted;
(B) after rule 5 of the said rules, following rule shall be inserted, namely:-
“Rule 5A. Access to a registered premises. (1) An officer authorised by the Commissioner in this
behalf shall have access to any premises registered under these rules for the purpose of carrying
out any scrutiny, verification and checks as may be necessary to safeguard the interest of
revenue.
(2) Every assessee shall, on demand, make available to the officer authorised under sub-rule (1)
or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India,
within a reasonable time not exceeding fifteen working days from the day when such demand is
made, or such further period as may be allowed by such officer or the audit party, as the case
may be,-
(i) the records as mentioned in sub-rule (2) of rule 5;
(ii) trial balance or its equivalent; and
(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 ( 43 of
1961), for the scrutiny of the officer or audit party, as the case may be.’’.
[F. No.137/26/2007-CX.4]
(Ashima Bansal)Under Secretary to the Government of India
Note.- The principal rules were notified vide notification no. 2/94-Service Tax, dated the 28th
June 1994 and published in the Gazette of India, Extraordinary vide number G.S.R.546 (E),
dated the 28th June 1994 and were last amended vide notification No.39/2007-Service Tax,
dated the 12th September, 2007 vide G.S.R. 586 (E), dated the 12th September, 2007.

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• ► 2009 (37)
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 FINMIN not to move SC on service tax issue
 I-T returns of candidates to come under lens after...
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Preliminary expenses after commencement of business
allowed to non industrial undertaking too
Apr 2, 2009 Income Tax

11. Extending the provision of section 35D relating to amortization of preliminary expenses
to all undertakings
11.1 Section 35D provides for deduction of certain specified preliminary expenses. After the
commencement of business, the deduction was being allowed to only an industrial undertaking
or unit. In order to provide a level playing field to the services sector, the section has been
amended to provide the benefit of amortization to all assessees after commencement of his
business, in connection with the extension of his undertaking or in connection with his setting up
a new unit.
11.2 Applicability: This amendment has been made applicable with effect from 1st April, 2009
and shall accordingly apply for assessment year 2009-10 and subsequent assessment years.

Note:-
Extract from Explanatory Notes to The Provisions of the Finance Act, 2008 vide circular no. 1/
2009, dated 27th Mar, 2009.