Alchemist

BUDGET 2013 DIRECT TAX PERSPECTIVE

2013-02-28T07:13:00.001-08:00

Highlights of Union Budget 2013 – Direct Tax perspective:

Section /Schedule

Head

Amendment/New Provision

Effective date

Part III to Schedule I

Advance taxes & TDS u/s 192

Advance taxes for the FY 2012-13 and TDS u/s 192 from salary shall be made at the following rates:

· In case of Individuals, HUF, AOP/BOI & Artificial juridical person:

Slab of Income	Rate of Income tax
Upto Rs. 200,000#	Nil
Rs. 200,001 to Rs. 500,000@	10%
RS. 500,001 to Rs. 10,00,000	20%
Rs. 10,00,001 & above	30%
Surcharge irrespective of the total income	Nil

# In case of individual being woman resident in India and below the age of 60 years at any time during the PY, the basis exemption limit has been retained at Rs. 200,000 [in par with men assesses].

#In case of individual, being resident in India, who is age of 60 years or more but less than 80 Years at any time during the PY, the basic exemption limit is same i.e., Rs. 2,50,000.

@ In case of individual, being resident in India, who is age of 80 years or more at any time during the PY, the basic exemption limit is same at Rs. 5,00,000.

In case of Partnership firms [Including LLP], the rate of tax shall be 30%.
In case of companies, the rate of taxes shall be same as specified in the Finance Act 2012. Surcharge shall be levied @ 5% [2% in case of non domestic company] in case of domestic companies if total income exceeds Rupees One Crore but does not exceed Rs 10 Crores. If Total Income exceeds Rupees Ten Crores, surcharge shall be levied @ 10% [5% in case of non domestic company]
Surcharge has been increased to 10% in all cases if total income of the assessee exceeds Rs. One crore subject to marginal relief.

Education cess and SHEC shall be continued to be levied in all cases.

1-4-2013

Commodity Transaction tax

Levied on Taxable Commodity Transactions entered into in a recognised Institution.
Taxable Commodity Transaction is defined to mean sale of commodity derivatives in respect of non agricultural commodities
Rate of Tax is 0.01%
Deduction u/s 36 allowed in respect of CTT paid if income is taxable under chapter IV D [w.e.f AY 2014-15]

Date of Enforcement of Finance Bill 2013

115A

Royalty or Fees of Technical Services

Rate of Tax on Royalty or Fees for technical services received by Non Resident Tax Payer under an agreement entered after 31.03.76 has been increased to 25%

AY 2014-15

32AC

Incentive for New Investment

Deduction allowed to Company which manufactures article or thing
It invests a sum of more than Rs. 100 Crores in New Plant & Machinery during the period from 1.4.2013 to 31.3.2015
Deduction @ 15% of Actual Cost of new assets acquired and installed during 2013-14 shall be allowed for AY 2014-15;
Deduction @ 15% of actual cost of new assets acquired and installed during the period from 1.4.2013 to 31.3.2015 as reduced by deduction already allowed for AY 2014-15 shall be allowed in AY 2015-16
Definition of “New Asset” is same as provided in Section 32(1) – Additional Depreciation
New assets cannot be transferred for 5 Years except pursuant to amalgamation or merger

AY 2014-15

80IA

Deduction to Power Sector

Deduction u/s 80IA to power sector is allowed to undertaking if it generates power or starts transmission or distribution or undertakes substantial renovation or modernisation before 31.3.2014

1-4-2013

Rebate

Available to Individual Resident Tax Payers
Total Income should not exceed Rs. 5,00,000
Rebate shall be Rs. 2,000 or actual tax liability whichever is Less

AY 2013-14

80EE

Interest on Housing Loan

Available to Individual Resident Tax Payers
Deduction is allowed in respect of Interest on Housing Loan taken from Financial Institution
Benefit allowed to Buyers in respect of acquisition of House Property
The buyer should not own any other residential property as on the date of sanction of loan
The loan amount should not exceed Rs. 25 Lakhs
The value of residential house property should not exceed Rs. 40 Lakhs
Maximum Deduction allowed is Rs. 100,000
Deduction is allowed on Interest Payable for the PY 2013-14and if the deduction is less than Rs. 1 Lac the balance can be utilised in next AY
Loan is sanctioned during PY 2013-14

AY 2014-15

80C

Life Insurance Premium

Deduction in respect of premium paid shall be allowed to the extent of 15% [earlier 10%] of the actual capital sum assured in the case of persons suffering from disability or severe disability as referred to in Section 80U or suffering from disease or ailment as specified in the rules made u/s 80DDB

1-4-2013

80CCG

Deduction for Investment

Presently, Deduction allowed to resident individuals to the extent of 50% of amount invested or Rs. 25,000, WEH
Rajiv Gandhi Equity Scheme was notified
Deduction extended to investment in listed units of Equity Oriented Fund as specified in 10(38).
Deduction allowed for three consecutive AYs
The Gross total income of investor not to exceed Rs. 12 lakhs during the first year of investment.

1-4-2013

80G

Deduction

100% deduction allowed in respect of donation to National Children Fund

1-4-2013

115BBd

Dividend from Foreign Associate

Dividend received from Foreign Company [in which shareholding is 26% or more] is taxed @ 15% if such dividend is included in the total income.

1-4-2013

STT

STT on purchase of delivery based units of EOF in RSE is reduced to NIL
STT on Sale of delivery based units of EOF in RSE is reduced to 0.001%
STT on Sale of Futures in Securities in RSE is reduced to 0.01%
STT on Sale of Units of EOF to Mutual Fund is reduced to 0.001%

1-6-2013

194IA

TDS on Immovable Properties

TDS to be deducted on transfer of immovable property other than agricultural land
Transferree is required to deduct TDS @ 1% at the time of making payment or crediting consideration
TDS not applicable if total consideration ius less than Rs. 50 Lakhs

1-6-2013

XII DA

Additional Income Tax on Buy Back

Applicable to Unlisted Companies
Taxability arises when the company buy back its own unlisted shares at a value more than original Issue price.
Additional Income Tax @ 20% of such surplus to be paid by the company
Such Income shall be exempt in the hands of recipient shareholder

1-6-2013

43CA

Stamp Value of Immovable property

If Land or Buildings or both are held as stock in trade and the same are transferred at a value lesser than the value adopted for payment of stamp duty, the stamp duty value shall be deemed to be the full value of consideration for computing income under PGBP

1-4-2013

56(2)(vii)

Gift of Immovable Property

Transfer of Immovable property for Inadequate Consideration
Gift received by Individual or HUF
Consideration is less than stamp duty value by an amount exceeding Rs. 50,000
Stamp Duty value as in excess of consideration shall be taxable in the hands of recipient

1-4-2013

Annexure Less Return of Wealth tax

Return of Wealth tax can be filed online without any annexures

1-6-2013

2(14)

Definition of Capital Asset

Sub Clause (iii) of sub section (14) of Section 2has been amended to provide that an agricultural land shall be an capital asset if:

It is situated in any area within the jurisdiction of a municipality or cantonment board having a population of not less than 10,000 according to last preceding census; or
If the land is situated in any area

*Shortest Aerial* Distance from local limits of ......	Population of the area
Not more than 2 Kms	More than 10,000 but not exceeding 1,00,000	Both Conditions to be satisfied
Not more than 6 Kms	More than 100,000 but not exceeding 10,00,000	Both Conditions to be satisfied
Not more than 8 Kms	More than 10,00,000	Both Conditions to be satisfied

1-4-2013

10(10D)

Exemption to sum received on maturity of Insurance

Keymen Insurance Policy assigned to any person during its term shall be continued to be treated as keymen insurance policy and maturity amount shall not be exempt

1-4-2013

80GGB and 80GGC

Contribution to Political parties

Deduction to be allowed only if donation is paid otherwise than by way of cash

1-4-2013

179

Tax Due from Private Company

If tax due cannot be recovered from private company, then it can be recovered from all its directors jointly and severally.

Clarification is issued that the tax due shall include interest and penalties

1-6-2013

Expl to 139(9)

Defective Return

Return of Income shall be treated as defective if the tax payable along with interest in accordance with Section 140A has not been paid on or before the due date of furnishing the return

1-6-2013

LEGAL PRACTIONERS REGULATION OF STANDARDS - STATUTE

2012-06-08T22:36:00.000-07:00

MOST IMMEDIATE

F.No.A-60011/70/2010-Admn.III (LA)

Government of India

Ministry of Law and Justice

Department of Legal Affairs

Admn.III (LA) Section

****

Sub:- Draft for ‘ Legal Practitioners (Regulations and Maintenance of Standards in Professions, Protecting the Interest of Clients and Promoting the Rule of Law) Act, 2010’ on the website – request for suggestions – reg.

*****

With reference to the above cited subject, it is informed that “ Legal Practitioners (Regulations and Maintenance of Standards in Professions, Protecting the Interest of Clients and Promoting the Rule of Law), Act,2010” is proposed for establishment of Legal Services Board on the lines of the Legal Services Board in U.K. suiting the Indian situation. A copy of the proposed Act is available on the website of Ministry of Law and Justice.

Comments are invited from all the Stake Holders (Public in general/Legal Fraternity/Educationalist etc.) on the aforementioned proposal.

Any other suggestions regarding amendments in the proposed Act may also be sent within 30 days. The comments can be sent to the undersigned.

Sd/-

[M.A.Khan Yusufi]

Joint Secretary & Legal Adviser

Tel. No. 23385383

Room No.406- A. Wing, Shastri Bhawan

New Delhi-110001.

Legal Practitioners (Regulation and Maintenance of Standards in Profession, Protecting the Interest of Clients and Promoting the Rule of Law) Bill, 2010.

A Bill for the establishment of the Legal Services Board and in respect of its functions; to make provision for, and in connection with, the regulation of persons who carry out the activities of legal practitioners; to make provisions for the establishment of an ombudsman for complaints against the professionals and for a scheme to consider and determine complaints against the legal practitioners; to make provision in respect of providing legal services free of charge and for connected purposes.

Be it enacted by the Parliament in the 60 year of the Republic of India, as follows: -

CHAPTER I

PRELIMINARY

1. Short title, extent and commencement.—This Act may be called The Legal Practitioners (Regulation and Maintenance of Standards in Profession Protecting the Interest of Clients and Promoting the Rule of Law) Act, 2010.

(2) It extends to the whole of India, except the State of Jammu and Kashmir.

(3) It shall come into force on such date as the Central Government may, by notification, appoint; and different dates may be appointed for different provisions of this Act and for different States, and any reference to commencement in any provision of this Act in relation to any State shall be construed as a reference to the commencement of that provision in that State.

2. Definitions.—In this Act, unless the context otherwise requires, –

(a) “Board” means Legal Services Board constituted under this Act.

(b) “Clients” means the clients of the Legal Professionals who engaged such Legal Professionals by executing a vakalatnama / letter of authority, by whatever name it may be known.

(c) “Consumer of Legal Profession” includes the clients of legal professionals and anyone who might have recourse to legal services because of a legal issue and those who are using or are may be contemplating using services provided by the legal professionals in relation to the legal services arising out of a legal issue.

(d) “Legal Professionals” means the Advocates as defined in the Advocates Act, 1961 and includes the qualified lawyers engaged in legal practice confined to their chamber, engaged in drafting and conveyancing, practitioner of income tax and sale tax and those appearing before the relevant authorities, giving advise to the clients for a fee, gain or reward in the areas of customs, immigrations, trademark and patent services and all other professional services where legal issues are involved;

(e) “Ombudsman” means the Ombudsman appointed under this Act for redressing the grievances of the clients and consumers of Legal Professionals.

(f) “Professional Principles” include –

(i) that the Legal Professionals should act with independence and integrity;

(ii) that the Legal Professionals should maintain proper standards of work;

(iii) that the Legal Professionals should act in the best interest of their clients;

(iv) that the Legal Professionals who are authorise to appear before a court or tribunal, by virtue of being such authorisation should comply with their duty to the court / tribunal to act with independence in the interest of justice;

(v) that the affairs of clients should be kept confidential.

(g) “Prescribed” means prescribed by rules made under this Act.

(2) Any reference in this Act to any other enactment or any provision thereof shall, in relation to an area in which such enactment or provision is not in force, be construed as a reference to the corresponding law or the relevant provision of the corresponding law, if any, in force in that area.

CHAPTER II

THE REGULATORY OBJECTIVES

3.The Regulatory objectives. – (1) In this Act a reference to “the regulatory objectives” is a reference to the objectives of—

(a)protecting and promoting the public interest;

(b)supporting the constitutional principle of the rule of law;

(c)improving access to justice;

(d)protecting and promoting the interests of the clients of the legal practitioners;

(e)promoting healthy competition amongst the legal practitioners for improving the quality of service;

(f)encouraging an independent, strong, diverse and effective legal profession with ethical obligations and with a strong sense of duty towards the courts and tribunals where they appear;

(g)creating legal awareness amongst the general public and to make the consumers of the legal profession well informed of their legal rights and duties;

(h)promoting and maintaining adherence to the professional principles.

CHAPTER III

LEGAL SERVICES BOARD

PART – 1

4. Constitution of Legal Services Board. – (1) The Central Government shall constitute a body to be called the Legal Services Board to exercise the powers and perform the functions conferred on, or assigned to it under this Act.

(2) The Legal Services Board shall consist of –

(a) a Chairman appointed by the President of India in consultation with the Chief Justice of India and the Chairman of the Bar Council of India.

(b) a Member-Secretary appointed by the Central Government in consultation with the Chief Justice of India and the Chairman of the Bar Council of India possessing such experience and qualifications, as may be prescribed by the Central Government, to exercise such powers and perform such duties under the Chairman of the Legal Services Board.

(c) such number of other members, possessing such experience and qualifications, as may be prescribed by the Central Government, to be nominated by the Government in consultation with the Chief Justice of India and Chairman of the Bar Council of India. Out of these five members shall be the Chairmen of the State Bar Councils, representing the Northern, Southern, Western, Eastern and North-Eastern regions of the country.

(3) The Chairman of the Legal Services Board shall not, during the appointment carry on any activity relating to practice of law for or in expectation of any fee, gain or reward.

(4) While appointing members of the Legal Services Board, other than from the category of Chairman of the State Bar Councils, regard shall be had such members have experience or knowledge of in the field of –

(a) a legal professional; or

(b) imparting of legal education; or

(d) having been a Judge of the High Court; or

(e) experienced in competition law; or

(f) had been the member of a grievance redressal body at the National level or State level; or

(5) The terms of office and other conditions relating thereto, of Chairman, Member-Secretary and other members shall be such as may be prescribed by the Central Government in consultation with the Chief Justice of India and the Chairman of the Bar Council of India.

(6) The Legal Services Board may appoint such number of other employees as may be prescribed by the Central Government, in consultation with the Chief Justice of India and the Chairman of the Bar Council of India, for the efficient discharge of its function under this Act.

(7) The officers and other employees of the Legal Services Board shall be entitled to such salary and allowances and shall be subject to such other conditions of service as may be prescribed by the Central Government in consultation with the Chief Justice of India and Chairman of the Bar Council of India.

(8) The administrative expenses of the Legal Services Board including the salaries, allowances and pensions payable to the Chairman, Member-Secretary, Officers and other employees of the Legal Services Board shall be defrayed out of the Consolidated Fund of India.

(9) All orders and decisions of the Legal Services Board shall be authenticated by the Member-Secretary, members or other officers of the Legal Services Board duly authorized by the Chairman of the Board.

(10) No act or proceeding of the Central Authority shall be invalid merely on the ground of the existence of any vacancy in, or any defect in the constitution, of the Legal Services Board.

5. Arrangements for Assistance. – (1) The Board may make arrangements with such persons as it considers appropriate for assistance to be provided to it.

(2) Arrangements may include the paying of fees of such persons.

6. Committees. – (1) The Board may establish committees.

(2) Any committee so established may establish sub-committees.

(3) Only members of the Board may be members of a committee or subcommittee.

7. Proceedings. – (1) The Board may regulate its own procedure, and the procedure of its committees and sub-committees.

(2) The quorum of a committee or sub-committee must not be less than 3.

(3) The Board shall publish any rules of procedure made under this Section.

8. Quorum for the Meetings of the Board. – (1) Quorum for the meetings of the Board shall be 3.

(2) The Member-Secretary is entitled to participate in the meetings with a right to vote.

(3) In case of a division the Chairman of the Board may exercise his casting vote.

9. Delegation of Function. – (1) The Board may authorise –

(a) the Chairman, the Member-Secretary or any other Member of the Board;

(b) a Committee or sub-committee of the Board; or

(c) a member of staff appointed by the Board, to exercise on behalf of the Board, such of its functions, in such circumstances as it may determine.

10. Accounts. – (1) The Board must –

(a) keep proper accounts and proper records in relation to the accounts; and

(b) prepare in respect of each financial year a statement of accounts including the income and expenditure account and a balance sheet in such forum and in such manner as may be prescribed by the Central Government in consultation with the Comptroller and Auditor General.

(2) The accounts of the Board shall be audited by the Comptroller and Auditor General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Board concerned to the Comptroller and Auditor General of India.

11. Levy of Contribution from the Members of Legal Profession. – (1) The State Bar Councils Bar Council of India and the Legal Services Board as the case may be, shall levy an amount not exceeding Rs.25/- from the Legal Professionals by insisting an affixing adhesive stamps on the vakalatnama / letter of authorisation filed by the Legal Professionals in the Courts /Tribunals or the institutions / officers where they represent their client in the capacity of a legal professional.

(2) The Board shall from time to time by notification fix the rate of such contributions.

12. Board’s Power for Issuing Schemes & Guidelines to Promote the Regulatory Objectives. – (1) In discharging its functions for promoting the regulatory objectives, the Board may issue guidelines or schemes.

(2) The guidelines and regulations shall be made in a way –

(a) which is compatible with the regulatory objectives; and

(b) which the Board considers most appropriate for the purpose of meeting those objectives; and

(c) The Board must have regard to the principles under which the legal professional activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed; and

(d) any other principle appearing to it to represent the best legal professional practice.

13. Standards of Regulation, Education and Training. – (1) Notwithstanding anything contained in the Advocates Act, 1961 the Board must assist in the maintenance and development of standards in relation to –

(a) the regulation approved by the Bar Council of India in relation to the activities of the advocates; and

(b) the education and training of the legal professionals.

14. Supplementary Powers. – (1) The Board may do anything calculated to facilitate, or incidental or conducive to, the carrying out of any of its functions.

15. Annual Report. – (1) The Board shall prepare an Annual Report dealing with the discharge of Board’s functions, the extent to which the Board has met the regulatory objectives and such other matters as the Central Government may from time to time direct.

(2) A copy of the Annual Report shall be laid before both houses of Parliament.

PART – II

CONSUMER PANEL

16. Consumer Panel. – (1) The Board shall establish and maintain a panel of persons to be known as “the Consumer Panel” to represent the interests of consumers and the clients of the legal professionals.

(2) The consumer panel shall consist of such consumers or persons representing the interest of consumers as the Board may appoint with the approval of the Central Government. The Board may appoint one of the members of the consumer panel to be the Chairman of the panel. The consumer panel shall have a fair degree of representation of both the consumers / clients of the legal professionals and those who are using or may be contemplating using the services of the legal professionals as consumers / clients.

(3) The consumer panel shall not include –

(a) a member of the Board or its staff;

(b) an Ombudsman for legal complaints or of the staff of such Ombudsman;

(d) legal professionals.

(4) The term of office and mode of removal of the Chairman and members of the consumer panel shall be similar to those of Chairman, Member-Secretary and Member of the Board.

17. Procedure of the Consumer Panel. – (1) The consumer panel may make such arrangements for regulating its own procedure, as it thinks fit for relating its procedure.

(2) The consumer panel may establish committees or sub-committees.

(3) If the services of any other person is availed of by the consumer panel or its committee, the Board may pay to that person such remuneration and expenses as the Board may determine.

18. Representations made by the Consumer Panel. – (1) Representations made by the consumer panel shall be considered by the Board.

(2) If the Board disagrees with the views expressed, or proposal made, in the representations, it must give the consumer panel a notice to that effect stating its reasons for such disagreeing.

(3) The consumer panel may publish such information as it thinks fit about any representations made by it to the Board.

(4) The Board must publish any notice it gives under sub-section (2) in respect of those representations.

19. Advice and Research Functions of the Consumer Panel. – (1) The consumer panel may, at the request of the Board –

(a) carry out research for the Board;

(b) give advice to the Board;

(c) publish such information as it thinks fit about the advice it gives and about the results of research carried out by it.

(2) The Board shall consider any advices given and results of any research carried out under this section.

(3) All expenditures in relation to the consumer panel shall be borne by the Board.

PART III

OMBUDSMAN

20. Ombudsman. – (1) The Board may appoint a Chief-Ombudsman at its office and Ombudsmen for each States for dealing with the complaints against the legal professionals at the State level.

(2) The State Governments shall provide the requisite staff and infrastructural facilities for running the office of the Ombudsman in each States.

21. Qualification and Selection of Ombudsman. – (1) No persons shall be appointed as Chief Ombudsman unless he has held the post of a Judge of the High Court.

(2) The Ombudsman for the State shall have held the post of a District Judge.

(3) The Ombudsman shall be selected by in consultation with the Chief Justice of the State High Court and the Chairman of the State Bar Council.

(4) The Ombudsman shall hold office for a term of five years and shall not be eligible for re-appointment.

(5) The Ombudsman may resign his office at any time by writing under his hand and address to the Chairman of the Board.

(6) The Ombudsman may be removed from his office in accordance of the provisions relating to the removal of the Chairman, Member-Secretary and members of the Board.

22. Procedure Before the Ombudsman. – (1) On receipt of a complaint relating to a legal professional, the Ombudsman shall issue notice to the legal professional concerned and also to the complainant and shall fix a date for inquiry into the complaint.

(2) The Ombudsman shall examine the documents and the witnesses, if any, on both sides and shall prepare his findings after hearing both sides.

(3) The report of the Ombudsman shall be forwarded to the Disciplinary Committee of the Bar Council of the State with a copy to the Board.

(4) The report of the Ombudsman shall contain his own findings about the allegations against the Legal Professional and the proposals for taking necessary action.

(5) The report of the Ombudsman shall be published in the manner prescribed by the Rules.

(6) The Disciplinary Committee of the Bar Council of the State shall consider the report of the Ombudsman and if such report is not accepted by the Bar Council reasons thereof shall be recorded in writing and such reasons shall be published in the manner prescribed by Rules with sufficient justification.

(7) The reasons for rejection of the recommendation of Ombudsman shall be explained in detail which it is so published.

23. Status of Ombudsman. – (1) The Ombudsman and the employees of his, shall be deemed to be public servants within the meaning of Section 21 of Indian Penal Code (45 of 1860).

PART IV

STATUS OF THE BOARD

24. Status.—(1) The Board is not to be regarded –

(a) as a subordinate to any Government Department or as the agent of the Government; or

(b) as enjoying ay status, immunity or privilege as provided by any other law.

(2) The Board shall be entitled to hold and purchase movable and immovable properties for its efficient functioning and shall have a body incorporate having a perpetual succession with a common seal.

25. Disqualification. – (1) The President of India or the Central Government as the case may be may remove, Chairman or Member-Secretary or members from office who –

(a) has been adjudged as insolvent; or

(b) has been convicted of an office which, in the opinion of the President of India or the Central Government as the case may be, involved in moral turpitude; or

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as Chairman or Member-Secretary or members; or

(e) has or so abused his position as to render his continuance in office prejudicial to the public interest;

Provided that the Chairman, Member-Secretary or members shall not be removed from his office on the grounds specified in clauses (d) and (e), except on inquiry held in accordance with the procedure prescribed.

26. Procedure for Inquiry. – (1) Whenever the President of India or the Central Government is of the opinion that an allegation under clauses (d) or (e) of Section 19 is required to be inquired, they may hold an inquiry conducted by sitting judge of the High Court.

(2) A copy of the inquiry report along with a copy of the allegations and a list of documents and witnesses shall be delivered or cause to be delivered to the Chairman, Member-Secretary or member against whom such inquiry was conducted and shall require him to submit within such time as may be allowed, a written reply or statement of his defence.

(3) If the allegations are admitted by the Chairman, Member-Secretary or members, the President or Central Government as the case ay be, record reasons and remove such person.

(4) Where the charges have been denied by the Chairman, Member-Secretary or member, the President of India or the Central Government as the case may be, appoint a sitting or retried judge of the Supreme Court of India to inquire into the truth of the allegation. A Presenting Officer may be appointed to present the case on behalf of the President of Indian or as the case may be, Central Government before the judge so appointed.

(5) The Inquiring Judge shall give opportunity to the Presenting Officer to present the case and to examine witnesses and to present evidence, if any. Thereafter the Chairman, Member-Secretary or member shall be given opportunity to present his defence.

(6) The Inquiring Judge shall have power to call witnesses and record their statements or receive evidence on affidavits or call for production of documents or other relevant records, which may be necessary for the inquiry.

(7) Inquiring Judge may submit his report within a period of six months or within such time as may be extended by the President of India, as the case may be, by the Central Government.

(8) If the President of India or, as the case may be, Central Government is satisfied that the charges are proved on the basis of the report submitted by the Inquiry Judge, the delinquent Chairman, Member-Secretary or member, as the case may be, shall be removed.

CHAPTER IV

LEGAL AID TO THE FINANCIALLY WEAKER CONSUMERS.

PART – I

27. Free Legal Services to the Financially Weaker Consumers / Clients. – (1) Every Legal Practitioner shall be duty bound to give free legal services to the financially weaker consumers/clients who fall just above the income levels prescribed under Section 12(h) of the Legal Services Authorities Act, 1987.

28. The Duty of Legal Professionals to provide honest and true legal advice to the consumers/clients. – (1) Every legal professional shall provide full information regarding the legal position to consumer / client relating his case. The services of the legal professional shall be in such a manner as to give an opportunity to the consumer / client to make informed choices about the quality, access and value of the legal services he requires.

PART –II

RELATIONSHIP BETWEEN THE LEGAL SERVICES BOARD WITH THE BAR COUNCILS.

29. Legal Services Board and the Bar Councils. – (1) The Legal Services Board shall have full authority to deal with the regulatory objectives in this Act and the Bar Council of India and State Bar Councils shall continue to exercise the functions assigned to them by Advocates Act, 1961.

(2) The directions of the Legal Services Board relating to the regulatory objectives of this act shall be the guiding principles in so far as functioning, performance and professional principles to be followed by all legal professionals.

(3) In discharging its regulatory functions assigned by the Advocate Act, 1961, the Bar Council of India and the State Bar Councils shall comply with the requirements of the regulatory objectives in this act.

(4) The Bar Council of India and State Bar council, shall, so far as is reasonably practicable, act in a way –

(a) which is compatible with the regulatory objectives, and

(b) which the Bar Councils consider most appropriate for the purpose of meeting those objectives.

30. Directions. – (1) This section applies if the Board is satisfied –

(a) that an act or omission of the Bar Councils has and, or is likely to have an adverse impact on one or more of the regulatory objectives, and

(b) that the Bar Council has failed to comply with any requirement imposed on it by or under this Act or any other enactment; and

(i) has failed to ensure that the exercise of its regulatory functions is not prejudiced by any of its other functions, or

(ii) has failed to ensure that decisions relating to the exercise of its regulatory functions are, so far as reasonably practicable, taken independently from decisions relating to the exercise of its representative functions.

(2) If, in all the circumstances of the case, the Board is satisfied that it is appropriate to do so, it may direct the Bar Council to take—

(a) in a case within subsection (1)(a), such steps as the Board considers will counter the adverse impact, mitigate its effect or prevent its occurrence or recurrence;

(b) in a case within subsection (1) (b) or (c), such steps as the Board considers will remedy the failure, mitigate its effect or prevent its recurrence.

(3) In a case within subsection (1)(a), before giving a direction under subsection (2) the Board must in particular consider the impact of giving the direction on the other regulatory objectives.

(4) A direction under subsection (2)—

(a) may only require the Bar Council to take steps which it has power to take;

(b) may require a Bar Council to take steps with a view to the modification of any part of its regulatory arrangements.

(5) The Board may not exercise its powers under this section so as to give a direction requiring a Bar Council to take steps in respect of a specific disciplinary case or other specific regulatory proceedings (as opposed to all, or a specified class of, such cases or proceedings).

(6) For the purposes of this section a direction to take steps includes a direction which requires a Bar Council to refrain from taking a particular course of action.

(7) The power to give a direction under this section is subject to any provision made by or under any other enactment.

(8) The Board may take such steps as it regards as appropriate to monitor the extent to which a direction under this section is being, or has been, complied with.

(9) Where the Board revokes a direction under this section, it must—

(a) give the Bar Council to which the direction was given notice of the revocation, and

(b) publish that notice.

31. Enforcement of Directions. – (1) If the Bar council failed to comply with a direction given under section 30, the Board may make an application to the High Court under this section.

(2) On an application under sub-section (1) of this Section, if the High Court decides that the Bar Council has failed to comply with the direction in question, it may order the Bar Council to take such steps as the High Court directs for securing that the direction is complied with.

32. Public Censure. – (1) If the Board is satisfied—

(a) that an act or omission of the Bar Council has had, or is likely to have, an adverse impact on one or more of the regulatory objectives, and

(b) that it is appropriate to act under this section in all the circumstances of the case.

(2) The Board may publish a statement censuring the Bar Council for the act or omission.

(3) Before publishing a statement of censure the Board shall give notice to the Bar Council that it intends to publish such a statement and setting out the terms of the proposed statement indicating the acts or omissions of the Bar Council.

(4) The notice under Section (3) shall specify that the Bar Council has 30 days time before the expiry of which the representations with respect to the proposed statement of censure may be made. (5) Before publishing the statement the Board must consider any representations which are duly made.

(6) The above procedure shall be followed in the case of any variations proposed to be made in the statement of censure.

33. Intervention Directions. – (1) The Board has power to issue directions by way of interventions in relation to any of the functions of the Bar Councils. If the circumstances mentioned in sub-section (1) of Section 32 appear in relation to such functions.

(2) If the Bar Council does not obey such directions of interventional nature, the Board may approach the High court for orders for implementation of such directions by the Bar Council.

34. Revocation of Directions. – (1) The Board may revoke at any time the directions or intervention directions issued to the Bar Council.

CHAPTER V

THE BOARD’S POWER TO REGULATE THE LEGAL PROFESSIONALS OTHER THAN THOSE COVERED BY THE ADVOCATES ACT, 1961

35. Board Powers to Function as Regulator. – (1) Until competent regulatory bodies are established by the Central Government or State Government as the case may be, the Legal Services Board shall function as the regulator for the regulatory objectives under this act for legal professionals other than those covered by the Advocates Act, 1961 as enumerated in Schedule I.

(2) The Central Government or the State Government as the case may be appoint or designate regulatory with powers of granting licence to such legal professionals.

(3) The Central Government may by notification add or delete any profession in Schedule-I.

36. The Board may encourage multi-disciplinary services for the Legal Professionals. – (1) In order to make the services of the legal professionals to be more holistic and effective, the Legal Services Board shall encourage the legal professionals to join hands with other disciplines and professions to give comprehensive services to the clients or consumers.

CHAPTER VI

MISCELLANEOUS

37. Act to have overriding effect. – (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force in any instrument having effect by virtue of any law other than this Act.

38. Power to remove difficulties. – (1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions not inconsistent with the provisions of this Act as appear to it to be necessary or expedient for removing the difficulty:

Provided that no such order shall be made after the expiry of a period of two years from the date on which this Act receives the assent of the President.

(2) Every order made under this section shall, as soon as may be after it is made, be laid before each House of Parliament.

39. Power of Central Government to make rules. – (1) The Central Government in consultation with the Chief Justice of India may, by notification, make rules to carry out the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: -

(a) the experience and qualifications of the Member-Secretary of the Board;

(b) the condition of service and the salary of the Chairman, Member-Secretary and members of the Board and the Ombudsman;

(c) the number of officers and other employees of the Legal Services Board and the Chief Ombudsman and other Ombudsman in the States;

(d) any other matter which is to be, or may be prescribed.

40. Laying of rules and regulations. – (1) Every rule made under this Act by the Central Government shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of 30 days which may be comprised in one session, or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive session aforesaid, or both Houses agree in making any modification in the rule, or both House agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation.

SCHEDULE – I

(See Section 35)

1. Qualified lawyers who are not practicing advocates, doing legal services in their Chambers.

2. Qualified lawyers engaged in drafting and conveyancing.

3. Income-Tax Practitioners.

4. Sales-Tax Practitioners.

5. Practitioners in Revenue Courts.

6. Customs clearance agents.

7. Customs and Immigration Law Practitioners.

8. Trademark attorneys / lawyers.

9. Patent attorneys / lawyers.

-------------

SECTION 30 OF KVAT - OMITTED

2012-05-27T01:25:00.000-07:00

The Karnataka VAT (Amendment) Act, 2012 has omitted Section 30 of Karnataka VAT Act w.e.f. 1.4.2012. The effect of the said omission that a dealer can no more issue credit notes or debit notes altering his sales turnover. The amendment has been brought to nullify the judgement of Karnataka High Court in re Reliance Industries case wherein the Honourable High Court has clearly upheld that a dealer can give trade discount subsequent to issue of sales Invoice by way of issue of credit note which can have the effect of reducing the taxable turnover under the Act.

The effect of the said amendment is that trade discount can now be given by the dealer in the sales invoice only at the time of sale as laid down in Rule 3(2) of Karnataka VAT Rules. Such discounts can be given subsequent to issue of sales invoice also but the same shall not have effect of reducing the taxable turnover i.e., the selling dealer shall be not be entitled to vat credit in respect of such trade discount given.

Since the entire section has been omitted, a question now arises that if there any is a post sale event which has effect of reduction in sales turnover, how the same needs to be tackled? For Example, In case of sale of goods CIF, if the quantity or quality of goods received by the buyer is not as per the sale contract, then it shall have the effect of reduction of Invoice Price and must, therefore, result in reduction of corresponding VAT Liability also. But the same cannot happen pursuant to omission of Section 30 since it was the only provision which enabled the adjustment in taxable sales turnover pursuant to events arising after sale. There are many commodities whose prices fluctuates on daily basis. In such cases, it is not possible for the selling dealer to guard the effect of downward fluctuation in prices without issuing debit notes or credit notes.

The question remaining unanswered is as to how a dealer will be able to save loss of VAT on such transactions which were earlier allowed under section 30? While the Act provides that if there is any upward revision in price pursuant to post sale event, the same need to be brought within the purview of taxable turnover by issue of supplementary invoice but the vice versa is not true... the Government do not intend to pass on the tax benefit of reduction in price to the consumers.

This amendment is bound to be questioned before the court of law as to its validity and till then more litigations and harrassments are expected on the said issue until the same is settled by Judiciary or the Government.

RATE OF SERVICE TAX WEF 1.4.12- CLARIFICATION

2012-05-14T00:04:00.002-07:00

Circular No. 158/9/ 2012 – ST

F.No 354/69/2012- TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

Tax Research Unit

Room No 146, North Block, New Delhi

Dated : 8^th May 2012

Chief Commissioner of Customs and Central Excise (All)

Chief Commissioner of Central Excise & Service Tax (All)

Director General of Service Tax

Director General of Central Excise Intelligence

Director General of Audit

Commissioner of Customs and Central Excise (All)

Commissioner of Central Excise and Service Tax (All)

Commissioner of Service Tax (All)

Madam/Sir,

Subject: - Clarification on Rate of Tax - regarding.

1. The rate of service tax has been restored to 12% w.e.f. 1^st April 2012. Representations have been received requesting clarification on the rate of tax applicable wherein invoices were raised before 1^st April 2012 and the payments shall be after 1^st April 2012. Clarification has been requested in case of the 8 specified services provided by individuals or proprietary firms or partnership firms, to which Rule 7 of Point of Taxation Rules 2011 was applicable and services on which tax is paid under reverse charge.

2. The rate of service tax prevalent on the date when the point of taxation occurs is rate of service tax applicable on any taxable service. In case of the 8 specified services and services wherein tax is required to be paid on reverse charge by the service receiver the point of taxation is the date of payment. Circular No 154/5/2012 – ST dated 28^th March 2012 has also clarified the same. Thus in case of such 8 specified services provided by individuals or proprietary firms or partnership firms and in case of services wherein tax is required to be paid on reverse charge by the service receiver, if the payment is received or made, as the case maybe, on or after 1^st April 2012, the service tax needs to be paid @12%.

3. The invoices issued before 1^st April 2012 may reflect the previous rate of tax (10% and cess). In case of need, supplementary invoices may be issued to reflect the new rate of tax (12% and cess) and recover the differential amount. In case of reverse charge the service receiver pays the tax and takes the credit on the basis of the tax payment challan. Cenvat credit can be availed on such supplementary invoices and tax payment challans, subject to other restrictions and conditions as provided in the Cenvat Credit Rules 2004.

4. Trade Notice/Public Notice may be issued to the field formations accordingly.

5. Please acknowledge the receipt of this circular. Hindi version to follow.

(Dr. Shobhit Jain)

OSD, TRU

Fax: 011-23093037

Service Tax Liability both for Receiver and Provider

2012-05-13T23:22:00.002-07:00

Government of India

Ministry of Finance

(Department of Revenue)

New Delhi, the 17^th March 2012

Notification No.15/2012-Service Tax

GSR. (E).—In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 36/2004-Service Tax, dated the 31^st December, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 849 (E), dated the 31^st December, 2004, except as respects things done or omitted to be done before such supersession, the Central Government hereby notifies the following taxable services and the extent of service tax payable thereon by the person liable to pay service tax for the purposes of the said sub-section, namely:—

I. The taxable services,—

(A) (i) provided or agreed to be provided by an insurance agent to any person carrying on the insurance business;

(ii) provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the consignor or the consignee is,—

(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

(d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder;

(e) any body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons;

(iii) provided or agreed to be provided by way of sponsorship, to anybody corporate or partnership firm located in the taxable territory;

(iv) provided or agreed to be provided by an arbitral tribunal or an individual advocate or the support service provided or agreed to be provided by Government or local authority, to any business entity located in the taxable territory;

(v) provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger or supply of manpower for any purpose or works contract by any individual, Hindu Undivided Family or proprietary firm or partnership firm, whether registered or not, including association of persons; located in the taxable territory to any company formed or registered under the Companies Act, 1956 (1 of 1956) or a business entity registered as body corporate located in the taxable territory;

(B) in relation to any taxable service provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory;

(II) the extent of service tax payable by the person who receives the service and the person who provides the service for the taxable services specified in (I) shall be as specified in the following Table, namely:-

Table

Sl.No.	Description of a service	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1	in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Nil	100%
2	in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Nil	100%
3	in respect of services provided or agreed to be provided by way of sponsorship	Nil	100%
4	in respect of services provided or agreed to be provided by an arbitral tribunal	Nil	100%
5	in respect of services provided or agreed to be provided by individual advocate	Nil	100%
6	in respect of services provided or agreed to be provided by way of support service by Government or local authority	Nil	100%
7	(a) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.	Nil 60%	100 % 40%
8.	in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	25%	75 %
9.	in respect of services provided or agreed to be provided by way of works contract	50%	50%
10	in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%

2. Person who pays or is liable to pay freight either himself or through his agent for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification.

3. This notification shall come into force from the date on which section 66B of the Finance Act, 1994 comes into effect.

[F.No. 334/1/2012- TRU]

(Samar Nanda)

Under Secretary to the Government of India

BUDGET 2011 - INCOME TAX PERSPECTIVE

2011-02-28T04:41:00.000-08:00

Section /Schedule

Head

Amendment/New Provision

Effective date

Part III to Schedule I

Advance taxes & TDS u/s 192

Advance taxes for the FY 2011-12 and TDS u/s 192 from salary shall be made at the following rates:

· In case of Individuals, HUF, AOP/BOI & Artificial juridical person:

Slab of Income	Rate of Income tax
Upto Rs. 180,000#	Nil
Rs. 180,001 to Rs. 500,000@	10%
RS. 500,001 to Rs. 800,000	20%
Rs. 800,001 & above	30%
Surcharge irrespective of the total income	Nil

# In case of individual being woman resident in India and below the age of 60 years at any time during the PY, the basis exemption limit is Rs. 190,000.

#In case of individual, being resident in India, who is age of 60 years [Senior Citizen Age Criteria Reduced from 65 Years to 60 Years] or more but less than 80 Years at any time during the PY, the basic exemption limit is Rs. 2,50,000.

@ In case of individual, being resident in India, who is age of 80 years or more at any time during the PY, the basic exemption limit is Rs. 5,00,000.

In case of Partnership firms [Including LLP], the rate of tax shall be 30%. Surcharge shall be NIL.
In case of companies, the rate of taxes shall be same as specified in the Finance Act 2010. Further, Surcharge has been reduced to 5% in case of domestic companies [and reduced to 2% in case of non domestic companies continues], if total income of the company exceeds Rs. One crore.

Education cess and SHEC shall be continued to be levied in all cases.

1-4-2011

2(15)

Definition of Charitable purpose

The term ‘Charitable Purpose” has been amended as follows:

“advancement of any other object of general public utility” included in definition is not a charitable purpose if the activity involves carrying of trade, commerce or business or rendering any service in relation thereto for consideration irrespective of nature of use or application, or retention of income from such activity.

However, if total receipts from aforesaid activity do not exceed Rs. 25 Lakhs [Earlier Rs. 10 Lakhs] in the PY, the said activity shall continue to be charitable in nature.

1-4-2011

10(45)

Exemption from Perquisities

Notified Special Allowances and Perquisites received by Serving or retired chairman and members of the Union Public Service Commission

Retrospective

1-4-07

10(47), 115A and 194LB

Exemption of Infra Debt Fund

Income of Notified Infrastructure Debt Funds shall be Exempt from tax subject to following Conditions:

# It shall file its Return of Income.

# Interest received by Non Resident shall be taxed u/s 115A @ 5% of Gross Amount

#TDS shall be made u/s 194LB @ 5% on interest paid to non resident.

1-6-2011

35(2AA)

Contribution to approved institutions for scientific research

Deduction eligibility has been increased from 175% to 200%

1-4-2011

35AD

Investment linked deduction

100% deduction shall be allowed in respect of any capital expenditure [other than on land, goodwill or financial instrument] incurred for the purposes of specified business:

The list of specified business has been extended to include :

Production of Fertilizer in India
Developing and Building Affordable Housing Project under notified schemes.

Loss from business of Hotels & hospitals specified u/s 35AD shall be allowed to be set off u/s 73A against profit of another specified business whether or not claiming deduction u/s 35AD.

1-4-2011

Deduction of Contribution to NPS

Contribution not exceeding 10% of salary of employee made to NPS by Employer on account of Employee allowed as deduction

1-4-2011

80CCE

Deduction above Rs. 1 Lakh

Contribution made by Central Government or Employer to pension scheme specified u/s 80CCD shall be excluded from the limit of Rs. 1,00,000/- specified for 80C, 80CCC and 80CCD

1-4-2011

80CCF

Deduction in respect of investment in LT Infra Bonds

Deduction is allowed to Individual & HUF only in respect of investment in notified long term infrastructure bonds to the extent of Rs. 20,000/-. This deduction is over and above the limit of Rs. 1,00,000/- specified u/s 80CCE.

Deduction Extended for further period of One Year.

1-4-2011

80IA(4)

Deduction for Power Generating Units

Terminal date for setting up of generation or distribution of power or transmission or distribution thereof or undertaking substantial renovation or modernization of existing network has been extended to 31.3.2012

1-4-2011

115BBD

Rate of Tax for Dividend

Dividend received by Indian Company from its Foreign Subsdiary Company shall be taxable @ 15% of Gross Amount without allowing any deduction in respect thereof

1-4-2011

115JB

MAT

- Rate of MAT is increase to 18.5% of Book Profits.

MAT to be made applicable to developer of SEZ and Units in SEZs in the Income Tax Act as well as SEZ Act

1-4-2011

115O

Dividend Distribution Tax

Exemption from DDT to SEZ Developers and Units in SEZ has been removed

1-6-2011

115R(2)

Tax on Distribution by MF

Mutual Fund shall be liable to pay additional income tax @ 30% on distributed income [from Money Market Mutual Funs or Liquid Fund or any debt fund] , if recipient is any person other than individual or HUF.

1-6-2011

139(1C)

Filing of Return of Income

Salaried persons not having any other source of income and whose tax liability has been discharged by way of TDS u/s 192, are not required to file their return of income.

1-6-2011

XII BA

AMT

- Alternate Minimum Tax [AMT] @ 18.5% to be levied on Adjusted Total Income of LLP.

- Adjusted Total Income shall be Total Income of the LLP before giving effect to provisions of Chapter XII BA and Deduction u/c VI-A - deduction relating to incomes and deduction u/s 10AA.

- Tax credit shall be allowed in respect of AMT Paid for a period of 10 Years.

1-4-2011

INCOME TAX BUDGET 2011 HIGHLIGHTS

2011-02-28T00:30:00.001-08:00

The budget 2011 proposed following changes in relation to Income Tax:

1. The age for the purposes of recognizing senior citizen under the Act has been reduced to 60 Years from 65 Years.

2. The Basic Exemption Limit has been raised as follows:

For Senior Citizens (=> 80 Years): rs. 5,00,000

For Senior Citizens (=>60 < 80 Years) - Rs. 2,50,000

For Woman Assessees: Rs. 1,90,000

For others: Rs. 1,80,000

Slab rates remain unchanged

3. Surcharge on Domestic Companies reduced to 5% and Other Companies to 2%

4. The limit for regarding a receipt from trade, commerce or business as non charitable has been raised from Rs. 10 Lakhs to Rs. 25 Lakhs [From Ay 2012-13].

5.Weighted Deduction for Approved Scientific Research U/s 35 (2AA) has been raised from 175% to 200% [from AY 2012-13]

6. DDT to be applicable to SEZ Units w.e.f. 1.6.11

7. MAT to be applicable to SEZ Units w.e.f. AY 2012-13

8. Exemption to Power Sector u/s 80IA(4) extended till 31.3.2012.

9. MAT Increased to 18.5%. Alternate Minimum Tax @ 18.5% levied on LLP.

10. Salaried Class not having any other source of Income are not required to file their return of income w.e.f 1.6.11 subject to provision of s. 139(1C)

Rejection of Claim U/s 197 - Whether Order appealable u/s 264?

2010-05-18T04:53:00.001-07:00

Income tax - TDS - Does rejection of application u/s 197 amount to an 'Order' maintainable u/s 264? - YES, rejection does not lie in absolute discretion of AO - reasons must be indicated: Bombay HC THE issue before the High Court is that whether rejection of an application u/s 197 for lower TDS rate or no TDS certificate amounts to an 'order'. Whether such an 'order' as per Sec 264 is maintainable. And the answer to the first question is that the rejection of an application u/s 197 does amount to an 'Order' u/s 264, and the same is maintainable for revisionary proceedings. Facts of the case Petitioner is a consortium consisting of an Indian company and a Malaysian company - awarded a contract for the design, development, construction, commissioning, operation and maintenance of the Mumbai Monorail Project by MMRDA - petitioner is assessable as an AOP - files an application u/s 197, requesting the Revenue to deduct tax at the rate of 0.11% from the payments made to it under the contract - AO rejects the application on two grounds (i) The calculation mechanism provided in Rule 28AA fails as figures for three previous years are unavailable; and (ii) No eTDS returns were filed by the assessee The Petitioner moves the Commissioner of Income Tax (TDS), in revision under Section 264 - the Commissioner rejected the Revision Application holding that where the AO rejects an application under Section 197, no approval of the Commissioner is necessary. The Commissioner cites two reasons for the rejection. Firstly, if the benefit of a lower rate for withholding tax is not granted under Section 197 to the assessee, no hardship or prejudice would be caused to the assessee as a result of the rejection of the application because, the assessee would be entitled to get a refund of excess tax paid, if any, together with interest. The second reason is that when the Assessing Officer rejects an application under Section 197, he does not pass an ‘order’ as envisaged in Section 264 and consequently, a revision under Section 264 is not maintainable. Having heard the parties the High Court has held that, ++ it would be far fetched to accept the view that the rejection of an application must lie in the absolute discretion of the Assessing Officer or that the Assessing Officer is not bound to indicate reasons or a basis for the rejection of the application. The fact that Parliament has empowered the Board to frame Rules under subsection 2A, having due regard to the convenience of assessees and the interests of the Revenue specifying the cases and circumstances under which an application can be made and the conditions subject to which such a certificate may be granted is sufficient to indicate that the exercise of powers by the Assessing Officer is intended to be structured in accordance with the provisions of Section 197 and the Rules framed by the Board under subsection 2A. ++ The Assessing Officer cannot be heard to urge that though an assessee fulfills all the requirements which are stipulated in Rule 28AA or, as the case may be, in Rule 29B, he possesses an unguided discretion to reject the application; ++ the Assessing Officer when he rejects an application is bound to furnish reasons which would demonstrate an application of mind by him to the circumstances which are mandated both by the Statute and by the Rules to be taken into consideration; ++ the expression “order” for the purposes of Section 264 has a wide connotation. Subsection (1) of Section 264 provides that in the case of any order other than an order to which Section 263 applies, passed by an authority subordinate to him, the Commissioner may either of his own motion or on application by the assessee for revision, call for the record of any proceeding under the Act in which any such order has been passed and after making an enquiry, pass such order thereon not being an order prejudicial to the assessee as he thinks fit. Parliament has used the expression “any order”; ++ hence, any order passed by an authority subordinate to the Commissioner, other than an order to which Section 263 applies, is subject to the revisional jurisdiction under Section 264. A determination on an application under Section 197 requires an order to be passed by the Assessing Officer after application of mind. The Commissioner was, therefore, manifestly in error when he held that there was no order which would be subject to his revisional jurisdiction under Section 264; ++ The Assessing Officer in the present case, was in error in coming to the conclusion that the mechanism that is contemplated under Rule 28AA would break down in the case of the assessee on the ground that the financial statements of the assessee in the previous three years were not available. In this case, sub clause (ii) would not apply and the rate would be computed under subclause (i); ++ The failure of the assessee, if any, to file eTDS returns may result in independent consequences which are provided in law. That however, cannot justify the rejection of the application made by the assessee for the determination of withholding of tax at a lower rate on payments which are to be received by the assessee. ++ The Commissioner has rejected the application of the assessee on the ground that a revision was not maintainable under Section 264. The Commissioner also observed that in the event that the assessee has paid excess tax, it would be entitled to a refund of the tax paid together with interest and hence, no prejudice would be caused to the assessee. The entire approach of the Commissioner is, with respect, specious; ++ The Assessing Officer was required, in the first instance, to apply his mind to the fact that the conditions for the grant of a certificate under Section 197 are duly fulfilled. If those conditions are duly fulfilled, it would be impermissible for the Assessing Officer to reject the application merely on a whim and on caprice and for the Commissioner to hold that no prejudice would be caused to the assessee since tax would be refunded later together with interest. The application filed by the assessee has been rejected in a rather cavalier manner and without application of mind; ++ the Revision Application is restored to the CIT for a fresh determination.

Is Caste Based Census 2011 acceptable?

2010-05-13T22:36:00.000-07:00

With an uproar at the centre as to whether the demand for caste based census in 2011 is tenable, the recent judgement of Madrass HC came as relief.

IN A development that could provide legitimacy to the demand for caste-based census, the Madras High Court has issued a fresh direction to the Centre to conduct caste-wise enumeration in the country.

Allowing a PIL by lawyer R Krishnamoorthy, a division bench directed the Census Commissioner to take all steps to hold caste-wise enumeration. The bench comprising acting chief justice Elipe Dharma Rao and justice T S Sivagnanam said the relief sought by the petitioner had already been answered in the affirmative by the court in an earlier verdict on a writ petition.

In its October 2009 judgement, the court had noted that after 1931 there had never been any caste-wise enumeration or tabulation. “When there cannot be any dispute that there is an increase in the population of Scheduled Castes/Scheduled Tribes and Other Backward Classes manifold after 1931, the percentage of reservation fixed on the basis of population in 1931 has to be proportionately increased by conducting caste-wise census,” it had then held.

In the 2009 order, the court had asked the central government to conduct a fresh castewise census “at the earliest and in a time-bound manner” to help achieve “the goal of social justice in its true sense”. Justice Elipe Dharma Rao, who was part of the division bench that issued the order, had said that such an exercise would be in the interest of the weaker sections.

According to the bench, a caste-wise enumeration has become important as various state governments have introduced new categories — OBCs and MBCs — in the “reserved” category. “Given this backdrop, the percentage of reservation for various categories based on 1931 population figure is unfair. Quota should be proportionately increased by conducting a fresh caste-wise census,” the court said.

Incidentally, the Supreme Court had, in last April, rejected the Tamil Nadu-based PMK’s demand for castebased census. The court felt that such an exercise could “cause immense strife”.

Mr. Amitabh Bachhan has strongly opposed the caste based census and reiterated that if the officials asked him a question regarding his caste, he would reply saying as Indian. The veteran actor cited that all the spouses of his family members belongs to different caste and community.

Consensual sex sans adultery no offence

2010-05-07T05:27:00.000-07:00

Consensual heterosexual relation between adults, including pre-marital sex, is no offence except in cases where the partners are liable to be charged for “adultery”, ruled the Supreme Court. It said the courts attach a lot of importance to personal autonomy and a person indulging in an immoral act need not necessarily be a culprit in the eyes of law. “Morality and criminality are non-co-extensive,” said a bench of CJI K G Balakrishnan and Justices Deepak Verma and B S Chauhan on Wednesday.

The SC said in the present social milieu, some view premarital sex as an attack on the centrality of marriage while a significant number see nothing wrong in it. This conflict of opinion on morality did not make pre-marital sex an offence, it ruled. “Notions of social morality are inherently subjective and criminal law cannot be used as a means to unduly interfere with the domain of personal autonomy,” it said. This clear finding and the judicial logic supporting it got substantial space in the SC’s judgment on Wednesday quashing 23 complaint cases against actress Khushboo, who was harassed through litigation for her remarks on prevalence of pre-marital sex in cities.

Justice Chauhan, writing the 41-page judgment for the bench, said, “While it is true that the mainstream view in our society is that sexual contact should take place only between marital partners, there is no statutory offence that takes place when adults willingly engage in sexual relations outside the marital setting, with the exception of ‘adultery’ as defined under Section 497 of the IPC.”

Section 497 provides, “Whoever has sexual intercourse with a person who is and whom he knows or has reason to believe to be the wife of another man, without the consent or connivance of that man, such sexual intercourse not amounting to the offence of rape, is guilty of the offence of adultery, and shall be punished with imprisonment of either description for a term which may extend to five years, or with fine, or with both. In such case, the wife shall be punishable as an abettor.

SC Bans Narco, Lie Detector tests in criminal offences

2010-05-05T22:27:00.000-07:00

THE Supreme Court has held that narco-analysis, polygraph and brain mapping tests on an accused are illegal. The court, however, permitted use of such techniques in criminal cases on consent and with some safeguards.

“If we were to permit the forcible administration of these techniques, it could be the first step on a very slippery-slope as far as the standards of police behaviour is concerned,” the apex court said in a significant judgement on Wednesday.

“We hold that no individual should be forcibly subjected to any of the techniques in question, whether in the context of investigation in criminal cases or otherwise. Doing so would amount to an unwarranted intrusion into personal liberty,” said a bench comprising chief justice K G Balakrishnan, Justice R V Raveendran and Justice J M Panchal.

The bench said, “our conclusion is that the results obtained through the involuntary administration of either of the impugned tests (the narcoanalysis technique, polygraph examination and BEAP test) come within the scope of `testimonial compulsion,’ thereby attracting the protective shield of Article 20(3).”

The court rejected the plea of various state governments which had said that administering these techniques on the accused does not cause any bodily harm and that the extracted information will be used only for strengthening investigation.

It was pleaded before the court that such techniques were in alternative to third degree of torture and should be permitted.

“This is a circular line of reasoning since one form of improper behaviour is sought to be replaced by another. What this will result in is that investigators will increasingly seek reliance on the impugned techniques rather than engaging in a thorough investigation.

The widespread use of `third-degree’ interrogation methods so as to speak is a separate problem and needs to be tackled through long-term solutions such as more emphasis on the protection of human rights during police training, providing adequate resources for investigators and stronger accountability measures when such abuses do take place” remarked Justice Balakrishnan writing the verdict for the bench.

“Therefore, it is our considered opinion that subjecting a person to the impugned techniques in an involuntary manner violates the prescribed boundaries of privacy. Forcible interference with a person’s mental processes is not provided for under any statute and it most certainly comes into conflict with the right a gainst self-incrimination,“ the court said in its elaborate 251 page of judgement.

“However, we do leave room for the voluntary administration of the impugned techniques in the context of criminal justice, provided that certain safeguards are in place,” the court said.

It further said, “even when the subject has given consent to undergo any of these tests, the test results by themselves cannot be admitted as evidence because the subject does not exercise conscious control over the responses during the administration of the test. However, any information or material that is subsequently discovered with the help of voluntary administered test results can be admitted, in accordance with Section 27 of the Evidence Act, 1872.”

The issue of the legality of such techniques to extract information from the accused had received considerable attention since it involves tensions between the desirability of efficient investigation and the preservation of individual liberties.

Compulsory administration of these techniques violated the indivudual rights against self incrimination.

With this judgement, the high profile satyam scamster, B Ramalinga Raju will be amongst others who will escape the tests. The AP police was planing to conduct such tests on him as he was not revealing facts.

Judges Cannot dictate judgements in Part

2010-05-05T21:58:00.000-07:00

Judges cannot do with merely dictating a portion of the judgement as such a practice would render the entire judgement invalid, the Supreme Court has said.

A judgement has to be pronounced in an open court by the judge to the shorthand writer in the form of a dictation wherever it is permissible as stipulated under Order 20, Rule 1 of the CPC (Civil Procedure Code), a bench of Justices Arijit Pasayat and P Sathasivam observed.

"The mere fact that a major portion has been dictated by the learned judge in the judgment already dictated will not by itself lead to the conclusion that the judgement had been delivered," the Apex Court observed while dismissing an appeal.

The appeal was filed by K V Rami Reddy who challenged a Madras High Court judgment which had quashed a judgment in a civil dispute after noting that the Seventh Assistant Civil Judge, Chennai had passed the same without dictating the whole text in the open court as prescribed by the CPC.

The Assistant Civil Judge committed the said irregularity while dealing with suit for specific performance filed by a woman Prema who subsequently challenged his action before the Madras High Court.

A single judge of the Madras High Court upheld Prema's argument that when a judgement was not dictated in full in the open court it was "non-est in the eye of law" (an invalid judgment) and the remitted the matter back to the said judge to hear the arguments afresh upon which Reddy appealed in the Apex Court.

Source: Economic Times

Amendments in KVAT in Budget 2010

2010-03-05T22:13:00.001-08:00

Major Changes in Karnataka Value Added Tax Act, 2003 effective from April 1, 2010:

• VAT exemption on paddy, rice, wheat, pulses and products of rice and wheat extended for one more year from 1.4.2010.

• Tax on Masala Powder Mixtures, Macaroni, Sports Trophies, Shields and Medals, all kinds of scrap, Electric generators of less than 15 KVA, railway concrete sleepers, school bags costing up to Rs. 200, reduced from 12.5 per cent to 5 per cent.

• The minimum annual turnover limit for registration increased from Rs. 2 lakhs to Rs. 5 lakhs.

• The maximum annual turnover limit for opting for Composition Tax Payment Scheme increased from Rs.15 lakhs to Rs.25 lakhs.

• Annual turnover limit for compulsory audit of accounts of dealers increased from Rs. 40 lakhs to Rs.60 lakhs.

• Optional scheme for dealers in medicines to pay tax based on the MRP even on sale of other goods.

• Advance Ruling Mechanism for dealers to seek clarifications and advance rulings to be introduced.

• VAT rate 4 per cent increased to 5 per cent on all goods except declared goods.

• VAT rate of 12.5 per cent increased to 13.5 percent.

• VAT rate of 12.5 per cent on tobacco products increased to 15 per cent.

• Levy of VAT on tobacco products on MRP basis. and

• VAT at rate of 13 per cent on sale of motor car exceeding 5 Lakhs.

Major Changes in Luxury Tax:

• Luxury tax on hotels with daily room rents from Rs. 1,000 to Rs.2000 increased from 6 per cent to 8 per cent.

• Luxury tax on hotels with daily room rents exceeding Rs. 2,000 increased from 10 per cent to 12 per cent.

Major Changes in Entry Tax:

• Provision for collection of Entry Tax on sugar at the point of sale by sugar factories.

Depreciation - a interesting facet

2010-03-05T21:35:00.000-08:00

Depreciation – a non cash expenditure allowed under Income Tax Act, 1961 following block concept. Under the block concept, all the assets falling within the same class and subject to same rate of depreciation are clubbed together and considered as single asset. Any alterations to the value of the block have to be strictly in accordance with the provisions of Chapter IV D of Income Tax Act, 1961.

As per section 32 of Income Tax Act, 1961, a assessee is entitled to claim depreciation on fixed assets only if the following conditions are satisfied:

1. Assessee must be owner of the asset – registered owner need not be necessary.

2. The asset must be used for the purposes of business or profession.

3. The asset must be used during the previous year.

The use of the asset during the previous year may be active use or passive [ie., kept ready for use]. I shall elaborate this topic at later part of this article.

As per the provisions of section 43(6) of the Income Tax Act, the WDV of block of assets as at start of the year has to be adjusted as follows so as to arrive at closing WDV:

• It has to be increased by actual cost [as per section 43(1)] of any asset falling within in the block acquired during the previous year.

• Thereafter, It shall be reduced by ‘moneys payable’ in respect of asset sold/discarded/demolished or destroyed during the previous year.

It has been held in Ashok Betelnut Case [mad.] that moneys payable represents gross sale consideration where as the contrary has been held in the case of Essar Shipping Limited case.

No deletion is permitted from the value of the block except when the asset is sold, discarded, demolished or destroyed. e.g., in case of theft of an asset, no deletion is permitted from the block of asset since the asset is neither sold nor demolished nor destroyed nor discarded.

• Further, scrap value, if any of any asset has to be reduced.

The question of deduction of scrap value from the block arises only when the asset is not sold.

Now lets analyse a interesting concept arising in relation to claiming of depreciation. In earlier part of this article, I have laid down the essential for claiming depreciation. One of the requirements was that asset must be used during the previous year. For the purposes of Income Tax Act, a previous year is a distinct unit. In case an asset is discarded by the business but not sold, section 43(6) permits the scrap value of the asset to be reduced from the block in the previous year in which such asset is discarded. The assessee is entitled to claim depreciation on the residual value of such discarded asset [ie., Opening WDV of such asset less scrap value] even though such discarded asset is not used for the purposes of business or profession in such year and subsequent years.

In case of CIT v. Yamaha Motor India Private Limited (2009) 226 CTR (Del) 304, the assessee claimed depreciation on discarded assets which were written off during the previous year. The AO disallowed the claim on the ground that the assets were not used for the purposes of business during the previous year. It was held that that the term ‘used’ appearing in section 32(1) comprise of both active use and passive use. Further, the expression ‘used for the purposes of business’ used in section 32(1) has to be read harmoniously with the term “discarded” meaning thereby that the assessee is entitled to claim depreciation as far as discarded asset is concerned if the asset has been used for the purposes of business in earlier years. Adopting a realistic approach and harmonious construction, the expression ‘used for the purposes of business’ appearing in section 32 when used in respect of discarded asset would mean that the use in the business need not necessarily be in the relevant previous year but in earlier previous years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation is allowed on discarded asset after allowing inter alia adjustment for scrap value, yet, on the other hand use would be required of the discarded machinery which use is not possible.

To conclude, the decision of the delhi high court is logical considering the existing provisions of the Act as regards allowability of depreciation on discarded asset. Either the Act must permit the residual value of the discarded asset to be written off completely in the year in which the asset is discarded or the interpretation adopted in the aforesaid judgement has to be accepted.

Concept of Deemed Dividend

2010-03-02T05:25:00.000-08:00

Deeming fiction – a fiction resorted to by parliament for defying the law of literal interpretation. Whether it be Central Excise Act, 1944 [concept of deemed manufacture u/s 2(f)(iii)] or Income Tax Act, 1961 [concept of deemed dividend u/s 2(22)(e)], the weapon of deemed concept is adopted either for plugging the loopholes in the Act, or to depart from the natural and ordinary meaning of a so called ‘revenue yielding’ term used in the Act so that the government is not deprived of the revenue from any alluring activity which cannot be other wise brought into the tax net in ordinary sense.

Everything said and done, whenever the law infuses the deemed concept in any provision of law, the same shall be subject to rule of strict construction.

Section 2(22)(e) is one such deeming provision which covers within its ambit the receipt of certain securities or money from a closely held company under certain situation and subject to fulfilment of certain conditions and subject to certain exceptions.

As per clause (e) of section 2(22), any payment made by a closely held company by way of loans or advance shall be deemed to be dividend taxable u/s 56 provided the following conditions are satisfied:

• Payment is made to a shareholder having substantial interest [i.e., holding >10%] of voting power in the company and is beneficial holder of equity shares; and/or

• Payment is made to a concern in which aforesaid substantial shareholder is a member or partner and in which he has substantial interest [i.e., holding or owning >20%]; and/or

• Payment is made on behalf of or for the individual benefit of such substantial shareholder; and

• The company must possess accumulated profits.

The exceptions to the same is discussed in later part of this article.

Now, lets discuss some intricate queries arising out of the aforesaid definition.

Q 1. What kinds of advances are covered within the scope of section 2(22)(e)?

It has been held by Rajasthan High Court in re CIT v. Raj Kumar (2009) 23 DTR (Del) 304 that the word ‘advance’ has to be read in conjunction with the word ‘loan’ i.e., a payment shall be construed as a loan or advance if it involves following attributes–

• Positive act of lending coupled with acceptance by the other side of the money as a loan;

• Generally carries interest

• Obligation of repayment is inherent.

Considering the rule of construction viz., noscitur a sociis and keeping in view the intent of introducing the provisions [i.e., to plug the evasion of tax by payment of dividends in the guise of loans & advances to the principal shareholders], any advance which does not carry with it the obligation of repayment cannot fall within the four corners of the deeming provision. Consequently, trade advances made in then ordinary course of business that are adjusted against supply of goods/services do not fall within the ambit of section 2(22)(e).

Q 2. In whose hands will the payment deemed to be dividend if the loans or advances are made to concern or person on behalf of or for the benefit of substantial shareholder?

It is general principle that a payment can be taxed as dividend only in the hands of a shareholder. The same cannot be taxed as such in the hands of a non shareholder. This view has been reiterated by Rajasthan High Court in re CIT v. Hotel Hilltop (2008) 217 CTR (Raj.) 527 wherein it was held that the essential requirement of section 2(22)(e) is that payment should be made on behalf of or for the individual benefit of substantial shareholder. Thus, the provision is intended to attract the liability of tax on the person on whose behalf or for whose benefit the amount is paid by the company.

In re CIT v. Bhaumik Colour P. Ltd (2009), the special bench of Mumbai tribunal held that the inclusive definition of section 2(22)(e) enlarges the scope of the term dividend by including loans & advances. The legal fiction created by the said section is operative only so long as the deemed dividend is taxed in the hands of the shareholder. If the legal fiction is extended to loans & advance to a non shareholder, the very term ‘dividend’ will lose its identity.

One of the exceptions to section 2(22)(e) is that dividend shall not include any dividend paid by the company which is set off by the company against the whole or any part of the sum previously paid by it and treated as dividend within the meaning of sub clause (e) to the extent it is so set off.

In the event of the payment of loan or advance by a company to a concern being treated as dividend and taxed in the hands of the concern then the benefit of set off cannot be allowed to the concern, because the concern can never receive dividend from the company which is only paid to the shareholder, who has substantial interest in the concern. The above provision, further, contemplate that deemed dividend be taxed in the hands of shareholder only.

Q 3. One of the exceptions to section 2(22)(e) is that dividend shall not include any loans or advance made to a shareholder or the said concern by the company in the ordinary course of its business, where lending money is substantial part of the business of the company. Elaborate?

The term ‘substantial’ appearing in the aforesaid exception is not defined. But the same is defined in explanation 3(b) to section 2(22)(e) as not less than 20% of the income of such concern. Following the judgement of supreme court in CIT v. Venkateshwara Hatcheries (237 ITR 174) wherein it was held that the definition in one section can be used for understanding the meaning of the word in another section if the context justifies it, it can be concluded the definition of term ‘substantial’ used in the aforesaid section means 20% or more of the income of a concern.

Thus, if the income from money lending is 20% or more of the total income of the closely held company and the turnover of the loan funds to total funds of the company is above 20%, any loans or advance made by the said company to its principal shareholder cannot be deemed to be dividend. The same was upheld by Delhi Tribunal in Mrs. Rekha Modi v. ITO (2007) (13 SOT 512) and the same was not further challenged by the revenue.

Further, in deciding whether the company is engaged in money lending business, factual position only for the relevant previous year in question has to be considered i.e., the year in which the loan or advance has been given to principal shareholder holding 10% or more of voting power. The same has been upheld in the aforesaid judgement of the tribunal.

2010-03-01T05:11:00.000-08:00

INTRODUCTION:

The concept of CENVAT credit was introduced with an intention to avoid cascading effect of taxes. The Central Value Added Tax [CENVAT] allows the credit of the duty paid on the inputs and capital goods and service tax paid on input services, which is to be utilized for the payment of excise duty on final products or service tax on output services.

FEATURES:

• No one-to-one correlation required between input/input services and final product/output service.

• Excise duty and Additional duty of customs paid on Inputs and capital goods and service tax paid on Input services used in or in relation to the manufacture of final product or rendering output service are eligible for credit.

• No credit shall be allowed in respect of Basic Customs duty paid on inputs or capital goods.

• No credit shall be allowed if the final product or out put service are wholly exempted.

• CENVAT credit shall be allowed only on the basis of specified duty paying documents.

• Credit of excise duty shall be allowed only on receipt of inputs and/or capital goods in the premises of manufacturer or provider of output service irrespective of the fact whether payment is made or not.

• Credit of service tax on input services shall be allowed only on making of payment to service provider.

• Credit of duty paid on capital goods shall be allowed to the extent of 50% in the year of receipt of capital goods and balance in subsequent years subject to the availability of possession of said capital goods. However, the duty component shall be allowed as credit in the subsequent year(s) if the capital goods are in the nature of tools, dies, jigs, etc irrespective of the possession of the said capital goods in such years.

DEFINITION AND ANALYSIS OF DEFINITION OF INPUT SERVICE:

As per section 2(l) of CENVAT Credit Rules, 2004, the term “Input Service” means any service:

a. used by the provider of taxable service for providing output service.

b. Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal.

and includes:

a. services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises

b. services relating to advertisement, sales promotion, market research, storage up to the place of removal, procurement of inputs.

c. Services used in relation to inward transportation of inputs and capital goods and outward transportation up to the place of removal.

d. Activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security.

The term “Input Service” is broadly in two parts – first i.e., main part and second i.e., inclusive part. First part of the definition is restrictive in scope and covers all services directly or indirectly used in providing output service or used in relation to manufacture or clearance of final products. However, second part of the definition expands the scope much beyond the coverage of first part.

The general rule to be applied while deciding on the eligibility of credit of tax paid on a particular service is:

“I am eligible to take credit unless someone reasonably proves as to why I shouldn’t take it”.

The inclusive part of the definition widens the scope given by exhaustive definition of the first part. It has been held by 3 member large bench of CESTAT – Bangalore in ABB Limited case that each of the above list is an independent benefit/concession. Each item in the list has to be read individually and if any service fits into the scope of any item above, the same shall be treated as input service notwithstanding the conditions mentioned in other items of the list.

WHETHER OUTWARD TRANSPORTATION UPTO CUSTOMER PLACE CAN BE DEEMED AS INPUT SERVICE?

The issue arises since the definition of input service specifically includes outward transportation up to the place of removal. However, It has been held by larger bench of Bangalore tribunal that all the items in the inclusive definition are distinct and are to be read accordingly. The Item (d) above uses the term “activities relating to business”. There is no further restriction that activities relating to business should be relating to only main activities or essential activities of the business. Therefore, the definition of “Input Service” has to be interpreted in the light of requirements of the business and cannot be read restrictively so as to confine only up to the place of removal. All the services relating to business will qualify as input service.

However, in the case of Gujarat Ambuja Cements Limited, the tribunal held that outward transportation of goods is not an input service and, therefore, not eligible for credit. Credit beyond the point of removal of goods would be contrary to the scheme of Cenvat Credit Rules, 2004.

Since there is anamoly over the interpretation of the scope of definition of input service, it is necessary to ensure that the outward transportation service is prima facie classified as input service. Following conditions are to be satisfied before classifying outward freight as input service:

• Goods are sold on FOB basis.

• Ownership of goods remain with the seller till delivery at customer’s doorstep.

• Transit insurance is borne by the assessee.

• Property in goods is not transferred till the delivery at doorsteps of the customer.

• Cost of transport is included in the assessable value of the goods.

SECTION 43(6) V. SECTION 45(1A)

2010-03-01T03:48:00.000-08:00

Taxability of a receipt is governed by section 2(24) of the Income Tax Act (hereinafter referred to as “Act”) which define the term “Income”. In ordinary parlance, the term income connotes a receipt arising regularly or with some sort of expected regularity. It is well accepted principle that a capital receipt shall not come under the net of Income tax unless otherwise specifically provided in the Act. Section 45 of the Income Tax Act is an enabling provision which enables taxation of capital gains. If a capital receipt fails to satisfy the conditions of section 45 r. w. 48 [held in re B C Srinivas shetty] of the Act, the same cannot be subject to taxation.

I shall try to focus the provisions of section 45(1A) which was enacted to nullify the judgement of Supreme Court in Re Vania Silk Mills Private Limited [1991]. As per the provisions of section 45, a capital receipt shall be subject to taxation only if the same has arisen pursuant of “transfer” of a capital asset. The term ‘Transfer’ has been defined in a inclusive manner in section 2(47) which, inter alia, includes extinguishment of rights in an asset. In the case mentioned supra, the Supreme Court held that capital gains arising on destruction of asset shall not be subject to taxation since the destruction of asset does not amount to transfer.

To nullify the aforesaid judgement, sub section (1A) of section 45 was introduced which provided for the taxation of capital gains arising pursuant to receipt of insurance compensation subject to satisfaction of following two conditions:

1. Compensation is received because of ‘damage’ to or ‘destruction’ of any capital asset.

2. the damage or destruction is a result of four categories of circumstances:

a. flood, typhoon, hurricane cyclone, earthquake or any other convulsion of nature; or

b. riot or civil disturbance; or

c. accidental fire explosion; or

d. action by an enemy or action taken in combating an enemy.

The insurance compensation received shall be treated as a capital receipt and, consequently, shall not be subject to taxation if aforesaid conditions are not satisfied, e.g., theft of a machinery or destruction of machinery on account of road accident. In case of theft of machinery, there is no damage or destruction of property and, therefore, the first condition mentioned supra itself fails. Further, in order to hold a transaction as ‘transfer’, there must be indentified transferor and transferee which is not possible in case of theft.

In case of road accident, though the asset is destroyed, the reason for destruction being other than those mentioned in condition two supra. The compensation received, in these cases, will, therefore, have to be dealt with as per the judgement in re vania silk mill case.

The objective of this article is to demonstrate the impact of following cases in determining WDV of block of assets.

CASE 1: DAMAGE TO AN ASSET – INSURANCE COMPENSATION RECEIVED:

In case of any expenditure incurred to restore the asset to its working condition, the normally accepted principle is that the expenditure is revenue in nature since it does not increase the performance of the asset beyond the previously assessed standard of performance. If any insurance money is received as a re imbursement for such expenditure incurred, the normal accounting practice followed by many is to reduce the expenditure incurred by the amount so received and to debit/credit the profit/loss account with the balance.

What should have been the treatment of such compensation received for the purposes of Income Tax Act?

Damage to an asset may tantamount to extinguishment of rights [in part] in the asset thereby resulting in transfer as contemplated in section 45(1A). But, how shall the cost of the asset transferred be arrived at u/s 48 especially when the asset is restored to working condition after carrying out necessary current repairs. It is judicially accepted [e.g., in re B C Srinivas Shetty case (SC)] that provisions of section 45 has to be read with section 48 and if the latter fails for any reason, the charging section itself fails. The Assessing officer is not allowed to make conjectures or surmises for the purposes of arriving at the cost of the asset transferred. The taxability of such receipt is a ‘?’ requiring solution.

As far as depreciable asset is concerned, the taxability of the same has to be arrived based on the provisions of section 50 r. w. section 43(6). If the insurance compensation so received exceeds the WDV of the block of the said asset, section 50 shall come into motion resulting in short term capital gain. If the compensation is less than the WDV of the block, it is undisputed that the compensation so received is a capital receipt not subject to taxation.

The next question that arises is whether the said insurance money so received can be reduced from the block of assets. The answer is ‘No’. Section 43(6) enables deletion of value from the block only if the asset, whether in whole or in part, is ‘sold or discarded or demolished or destroyed’. It is not applicable where the assets are merely damaged and by repairing the damage is restored to working condition. Thus, the insurance money is not taken in consideration while computing the WDV of block irrespective of fact whether any expenditure is incurred for restoration or the expenditure so incurred exceeds the insurance money.

Now what shall happen to the expenditure incurred? As discussed supra, the said expenditure is revenue in nature. In my opinion, the assessee can claim the same as deduction although the same would amount availment of double benefit by the assessee.

One can always argue the possibility of section 41 being attracted in case of insurance money received to recompense the expenditure incurred on restoration of machinery.

CASE 2: THEFT OF PROPERTY – COMPENSATION RECEIVED:

In case of theft of property, there is no question of destruction of asset involved as it is known that asset is in existence though not in the possession of the assessee. Hence, section 45(1A) fails. If the judgement of vania silk mills is applied, the insurance compensation so received shall be treated as capital receipt not subject to taxation.

In case of depreciable assets, no deletion is required to be made from the block of assets since theft do not fit under any of the situation contemplated in section 43(6), i.e., neither the asset is sold nor discarded nor demolished nor destroyed. The assessee is allowed to claim depreciation on the block provided the block do not cease to exist on happening of theft – else the provision of section 50 shall come into operation.

A question may, however, loiter in mind that doesn’t theft results in extinguishment of rights of the assessee in the said asset? If yes, the provision of section 45 would apply. Next question that arises is that if the compensation is not received in the same previous year in which theft has taken place, how will the computation of capital gains for the purposes of section 45 be made in the assessment for said previous year?

Disregarding these anomalies, the assessee can move forward to claim the benefit of judgement made in vania silks mill case because the provisions of section 45(1A) failed to nullify the said judgement in its entirety.

CASE 3: DESTRUCTION OF A ASSET IN ROAD ACCIDENT:

In case of destruction of asset in a road accident, the provisions of section 45(1A) shall not apply since the destruction took place in circumstances other than those mentioned in condition 2 mentioned supra. Applying the rationale of the judgement of vania silks mill case, the aforesaid receipt shall be treated as capital receipt not subject to taxation.

If the asset so destroyed is a depreciable asset, then the insurance money so received shall be reduced from the WDV of the block of the assets since the conditions mentioned in the provisions of section 43(6) are satisfied. However, if the insurance compensation exceeds the WDV of the block, then the excess shall not be subject to taxation. Similarly, if the block ceases to exist pursuant to such destruction, the excess compensation shall not be subject to taxation u/s 50 r.w. section 45(1A) for reasons mentioned supra. In this case also, the anomalies enumerated above shall arise.

The aforesaid interpretation/treatment/opinion is arrived at based on my knowledge and understanding of law and judicial pronouncements. I welcome the comments of readers on the aforesaid issue.