Category: Miscellanea

The Government of India and
Finland signed a revised Agreement and Protocol for Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to Taxes on Income
(Agreement). As per the revised Agreement, withholding tax rates have been
reduced on dividends from 15 to 10% and on royalties and FTS from 15 or 10% to a
uniform rate of 10%. The intention of lowering the withholding tax is to promote
greater investments, flow of technology and technical services between India and
Finland. The revised Agreement also expands the ambit of the Article concerning
exchange of information to provide effective exchange of information in line
with current international standards. The Article inter alia provides that the
States shall not deny furnishing of the requested information solely on the
ground that it does not have any domestic interest in that information or such
information is held by a bank, etc. An Article for Limitation of Benefits to the
residents of the contracting countries has also been included to prevent misuse
of the Tax Treaty.

George Soros is one of the
world’s most talented currency speculators, the guy who earned a $ 1 billion
profit in 1992 when he made a huge leveraged bet that the British pound would
have to exit the European Exchange Rate Mechanism (ERM) and also the man
Malaysian Prime Minister Mahathir Mohamad had then accused of pulling down the
ringgit in 1997.

So when Soros writes in the
Financial Times that the euro may fall apart, it is but natural that people take
him seriously. The short-term movement of currencies can be a random walk amid a
lot of noise trading, but the trend over the longer term is less unpredictable.

The euro is in a mess, the
yen is the currency of a stagnant nation and the yuan is not convertible. It
seems the dollar will continue to be the preferred global currency.

Ujjawal Chaudhary, a senior
Income-tax Officer who led the probe into the multicrore Madhu Koda scam, may
have been on the verge of unravelling the link between politicians and hawala
traders when he was abruptly shifted this week.

Sources said the team led by
Chaudhary, who has been taken off the Koda probe and moved to the assessment
wing, had gathered strong evidence linking politicians and others to hawala
operators engaged in laundering black money abroad. Chaudhary was transferred
when raids were on at Chaibasa in Jharkhand.

Raids on hawala traders
yield details of bank
accounts in Switzerland, which seem to belong to politicians I-T raids in
Jharkhand provide disclosures of hundreds of crores in concealed incomes of
bureaucrats and businessmen A Kolkata-based chartered accountant admits to
helping the scamsters fudge accounts payment of Rs.4.6 crore allegedly made by
cheque to functionaries of the Koda administration by an Andhra-based
construction firm. Koda case officer was not due for transfer.

Are your children talking to
you ? It does not seem so. The survey, conducted by the International Institute
for Population Sciences and Population Council and endorsed by the Union Health
Ministry, covered nearly 51,000 married and unmarried young males and females
from six states — Maharashtra, Andhra Pradesh, Bihar, Jharkhand, Rajasthan and
Tamil Nadu. It found that school performance, a non-sensitive topic, was the
most common area of discussion between kids and parents. In contrast, more
touchy topics, such as romantic relationships and reproduction, were rarely
discussed with either parent (only 2% of young men and 6% of young women did
so). In fact, when it came to reproductive issues, children were equally
secretive with both their parents.

The findings also suggest
that parents controlled the social interactions of youngsters, particularly
those involving members of the opposite sex. For example, 69% of young men and
84% of young women expected parental disapproval if they brought home a friend
of the opposite sex.

Among young women, in
contrast, statewise differences were negligible — over 90% of young women in all
the states reported parental disapproval of love marriage. Almost all those who
were interviewed had an arranged marriage. This led to only 30% of young men and
22% of young women being aware of what to expect from their married life.

Friends rather than family
were found to be the major confidants for both young men and women. Only 1% men
were found to confide in their family members while 85% did so in their friends.
In case of women, 20% confided in family and 46% in friends.

US President Barack Obama
has said the US is facing stiff competition from India and cannot succeed if the
country continues to produce more scientists and engineers than America.

“Why is it that every other
country was promoting its tourist industry and America was not doing enough for
its own ?” Obama asked. “That’s just one example of the competition that we’re
facing on everything,” he said. “If China’s producing 40 high-speed rail lines
and we’re producing one, we’re not going to have the infrastructure of the
future,” Obama said. “If India or South Korea are producing more scientists and
engineers than we are, we will not succeed,” said the US President in his Las
Vegas speech.

The President said there was
a need to bring people together and build consensus around reforms. “Because we
know that the country that out-educates us today is going to out-compete us
tomorrow. And we don’t want that future for our young people. We’re not going to
sentence them to a lifetime of lower wages and unfulfilled dreams.”

SEBI has allowed exchanges
to introduce currency futures in three more currencies — euro, yen and pound.
The permitted contract sizes for euro-rupee, pound-rupee and yen-rupee are 1000
euros, 1000 pounds and 1,00,000 yen, respectively. The maximum maturity of the
contract would be 12 months. The contracts would be settled in cash in rupees.
The client-level position limit has been capped at 6% of the total open interest
position.

The Government plans to
introduce a single Foreign Direct Investment (‘FDI’) document by the end of the
financial year. The consolidated FDI document would subsume all 177 press notes
issued so far. The Government also plans to review and update the document rules
every six months. The draft document was kept open for public comments till
January 31, 2009.

The Government has decided
to allow Indian arms of foreign firms to use internal accruals for reinvestment
in downstream sectors, provided they are reckoned as debt and comply with
relevant external commercial borrowing (‘ECB’) norms. The new regime would let
these firms, owned or controlled by foreign companies, to bring in additional
capital without breaching the foreign direct investment (‘FDI’) caps, as the
reinvested funds are not treated as equity capital. The move would ease the cash
flow of foreign companies present in India and enable them to compete with local
firms on a level-playing field.

The Central Board of Direct
Taxes (CBDT) has set up a committee to formulate rules for the safe harbour
provisions that would enable the Income-tax authorities to accept the transfer
pricing returns without scrutiny. The committee, which is chaired by Director
General of International Taxation, comprises senior tax officials and
representatives of trade and industry as well as Institute of Chartered
Accountants of India. Foremost among the com-mittee’s task is to set an
acceptable margin which would act as a benchmark for the industry and if the
transfer price declared by a company, engaged in that industry, is not less than
the benchmark, then the authorities would accept the return without scrutiny.
The rules, once introduced, will lend an investment-friendly image to India and
will also put an end to the requirement of collecting huge amount of data
regarding transfer pricing transactions, thereby saving time and energy.

The CBDT is envisaging a
system in which taxpayers do not meet any tax official for routine assessments.
Assessments are proposed to be centralised at a place where a set of officers
would supervise the assessments. Each officer will be specialising in certain
segment of the assessment process, such as giving credit, refunds, etc. Four
such Central Processing Centers (‘CPC’) would be set up soon in four major
cities where the computerised assessment of the returns will take place. Once
the CPCs are in place, the taxpayer will have to meet the Department officials
only when the returns are selected for scrutiny.

Now ITAT case can also be
tracked online at following site http://itat.nic.in

Click on an option “ITAT
Online” and put the appeal nos.

Maharashtra Chief Minister
Ashok Chavan may well have decreed that Shiv Sena workers would not be allowed
to run riot at cinema halls showing Shahrukh Khan’s movie, My Name is Khan. He
must, however, be resolute and put down such strong-arm tactics with force. What
is under attack is not cinema but the idea of India as a composite democracy. To
allow the attackers any leeway is to fail to defend Indian democracy. After
seemingly endless buckling down to one form of chauvinism or another, at least
one major political leader has dared to call the Shiv Sena’s bluff. The Chief
Minister must deploy the entire might of the state to defend democracy against
chauvinism operating as organised thuggery. If necessary, he must raise the ante
and take the battle directly to the Sena leadership, rather than merely act
against its foot soldiers, who behave as if they have a birthright to run Mumbai
as they like.

The people and government
must collectively show that democracy will prevail over organised violence.

The Central Board of Direct
Taxes (CBDT) and accounting rule-maker Institute of Chartered Accountants of
India (ICAI) have jointly constituted a study group to identify and address
direct tax issues that will affect convergence of India’s accounting standards
with International Financial Reporting Standards (IFRS).

According to reports, the
Finance Ministry is looking to introduce the DTC in the forthcoming budget
session. Apart from many aspects that are being discussed, one aspect that will
particularly come as a hurdle for IFRS convergence is towards tax treatment of
mark-to market (MTM) provisioning on derivative transactions. MTM or fair value
accounting assigns a value to a position held in a financial instrument based on
the current fair market price for the financial instrument.

Advances in science and
engineering have spearheaded 50 to 80% of US GDP growth for many decades. The
lack of investment in R&D, education, higher overheads and labour costs are the
new realities with only about 4% of the US workforce consisting of scientists or
engineers. Everybody knows that 20 assembly workers in Vietnam equal the price
of one in the US or that Starbucks spends more on healthcare than on coffee or
General Motors spends more on healthcare than on steel.

A report titled America’s
Competitiveness was presented to the Democratic Steering and Policy Committee of
US House of Representatives last year. It stated that “The more our children are
exposed to our educational system, the worse they perform on international
tests.” The report also found that “The private sector has all but abandoned
basic research due to market pressures to produce next-quarter profits. The
federal government’s investment in the physical sciences has been stagnant for
over twenty years. Investment in the biosciences, after a five-year period of
significant growth, is again declining.”

Alan Greenspan had stated
“If you don’t solve (the K-12 education problem) nothing else is going to matter
all that much.” An exasperated Chairman and CEO of General Electric, Jeffery
Immelt, has said : “We had more sports exercise majors graduate than electrical
engineering grads last year. If you want to be the massage capital of the world,
you’re well on the way.” China’s President Hu Jintao, on the other hand, feels
“The worldwide competition of overall national strength is actually a
competition for talents, especially for innovative talents.”

The bank closures in the US,
unemployment, inability to honour credit card or mortgage payments have turned
Goldilocks into Cinderella. Around 78 million ‘baby boomers’, born in the US
between 1946 and 1964, acquired extravagant spending habits. This “Baby Boomer
Spending” constitutes between 25 and 50% of the consumption in the US, which is
driven by consumer spending. Their divorce rate and inadequate funding for
retirement benefits is going to severely curtail their future spending and,
therefore, US GDP growth. From 2008 onwards, 10,000 additional social security
seekers are being added everyday.

Greenspan and the then
comptroller general David M. Walker had warned before the recession that not
only will US be unable to fulfil promises to retirees but will have to double
federal taxes or cut federal spending by 50%. President George Bush had declared
that social security is “headed towards bankruptcy”. The budget deficits are
likely to increase as, according to pre-recession estimates, in terms of net
present value, medicare was running $ 63 trillion short and social security $ 8
trillion short, with expenditures surpassing payroll tax receipts from 2018
onwards. Ronald Dahl, children’s author, has pointed out that Goldilocks is a
‘brazen little crook’ stealing porridge, breaking chairs and living in a
borrowed home. Cinderella, let us remember, is a hardworking young lady. Her
virtues and hard work are rewarded, even after midnight. The global economy
needs the virtues of yesterday’s Cinderella economies like India — hard work, no
frills, no needless product obsolescence, value delivery at reasonable price,
and even commonsense ethics like truth, which are much needed in preparing
healthy balance sheets of companies and nations.

American President Barack
Obama has once again targeted US companies having their operations in India to
save taxes back home and called such businesses tax-evaders.

Accusing US companies
outsourcing business to India of following unfair business practices, he said
his proposal to tax firms shipping jobs overseas was only intended to provide a
level-playing field.

“If you are a multinational
and you are investing in India, and your workforce is in India, and your plants
and equipment are in India, but your headquarters are here, you are taking
deductions on all the expenses in India, but you are keeping your profits
outside the US, that just doesn’t seem entirely fair,” Obama said. “The same is
true where you have
companies that have 90% of their sales in the US, but are posting 90% of their
profits overseas.” “You get a sense there that the accountants have been busy,”
he said, suggesting that these companies were taking unfair advantage of current
tax laws.

Recovery sees senior tax
personnel switch to lucrative private sector

Over the past two months, at
least a dozen senior officers of the Income-tax Department, belonging to the
elite Indian Revenue Service (IRS), have opted for voluntary retirement, a
government scheme that allows them to quit before the statutory retirement age.
These officers are likely to end up in the private sector, most likely as
consultants, to get around rules that prevent government employees from working
within a year of quitting.

The senior-most among these
officials is V. K. Mangotra, Chief Commissioner of Income-tax in Ahmedabad.
Before taking up his most recent post, Mr. Mangotra was the Director of the
Mumbai-based transfer pricing division of the Income-tax Department that
exclusively deals with the issue of taxing cross-border transactions involving
multinational companies.

Most officers from the
government’s tax-collecting arms, who have quit in the past, have ended up
consulting for global accounting firms.

Another officer dealing with
transfer pricing, Alpana Saxena, currently based in Mumbai, has also put in her
papers.

According to I-T officials,
the prospect of earning more by consulting for and later joining either
multinational companies or the Indian arms of global accounting firms is
tempting. S. P. Singh, who resigned in 2005 as the Director of International
Taxation, Mumbai, is now a partner with Deloitte India in New Delhi. He joined
the global accounting firm a year after his retirement, having practised as a
freelance consultant in the interim. Mr. Singh told ET, “There is not much
difference between what I was doing in the Department and what I am doing now,
which is to ensure the legal accuracy of the work put out by my team. While in
the Department, I had to work on maximising revenue realisation, in Deloitte, I
have to devise the best tax structure
for the client”.

An I-T Commissioner draws a
gross salary of Rs.80,000 a month, but this shrinks to a take-home of Rs.40,000
after paying tax and other statutory deductions. A Commissioner is entitled to a
chauffeur-driven car and a house in up-market locales like South Mumbai. On the
other hand, a private firm can pay anywhere between Rs.2.5 lakh and Rs.3.5 lakh
per month to an officer who holds the rank of Commissioner.

The Institute of Chartered
Accountants of India has informed that with a view to strengthening the process
of certification being issued by chartered accountants, they have hosted a link
http://220.227.161.82/locm.asp on ICAI website, to enable anyone to seek
confirmation to the effect that certificate received by him has been issued by a
member of the Institute holding full-time Certificate of Practice (i.e., a
member authorised to issue such a certificate). This will ensure that none of
the authorities act on the certificates issued either by non-members or members
not holding Certificate of Practice.

reason should be recorded by the collegium and conveyed to him.

On a day when he publicly
admitted he couldn’t “pretend not to be hurt” on not making it to the SC, the
widely acclaimed judge told TOI, “The systemic problem in the collegium is lack
of transparency. There is too much secrecy. No reasons are recorded for
rejecting any one. The only way the collegium system can be improved is by
making it more
transparent.”

Justice Shah is the author
of two landmark verdicts (on decriminalisation of consensual homosexuality
between adults and applicability of Right to Information Act on the Chief
Justice of India). The SC collegium ignored him for elevation despite his being
one of the senior-most judges in the country. The decision has drawn a lot of
criticism, including from top jurists like Fali S. Nariman and former Chief 
Justice J. S. Verma who described him as “one of the finest judges in the
country.”

The Finance Ministry said it
is awaiting clarification from Department of Industrial Policy and Promotion (DIPP)
on the new foreign direct investment norms issued by it a year back, popularly
called the Press Notes 2 and 3.

“We are still in dialogue
with DIPP (on the issue). It is coming out with a comprehensive draft on the FDI
framework. Before that gets notified, we are hopeful these issues will get
clarified,” said Govind Mohan, Joint Secretary in the Finance Ministry, on
Monday at the inauguration of an e-filing facility for applications to the
Foreign Investment Promotion Board.

DIPP had last year issued
Press Notes 2 and 3 which replaced the earlier proportionate method of computing
foreign indirect equity by the parameter of beneficial ownership and control of
entities at each stage of investment.

It later also issued Press
Note 4 to clarify some of these issues. The Press Note 2 of 2009, issued on
February 13, redefined foreign ownership of Indian companies. An Indian company
means, in the context of Press Note 2, a company incorporated in India.

As per the new policy,
foreign investments of all types — FDI, portfolio or foreign institutional
investments, NRI investments, GDRs and ADRs, foreign currency convertible bonds
and preference shares —are taken into account while determining ownership of an
Indian company.

As per the new guidelines
the ownership of a number of banks such as ICICI Bank, HDFC Bank, Development
Credit Bank came under question, forcing the central bank and Finance Ministry
to seek a clarification. Not only this, there are concerns in various quarters
that the new norms may lead to breach of sectoral caps.

Under the current rules, as
long as an Indian promoter holds at least 51% stake in any operating-cum
investing company, the company would be considered an Indian entity and the
entire investment it makes in a subsidiary would be considered local investment.
This could allow such companies to invest in sectors in excess of sectoral FDI
caps or invest in sectors where foreign investment is not allowed. On the other
hand, the downstream investment of a company that has more than 51% foreign
stake will all be considered foreign investment.

The RBI had also raised the
issue of breach of sectoral FDI caps as foreign investors using a multilayered
structure can easily take their holding to much more than the sectoral cap if
their stake in the operating-cum-investing company is below 49%.

The Finance Ministry had in
December 2009 written to DIPP to clarify some of these contentious issues that
have also been raised by some other ministries. Recently, the Telecom Regulatory
Authority of India had put out a discussion paper on the impact of these new FDI
norms on the broadcasting sector. Puzzling Press Notes 2 & 3 raised questions
regarding the ownership of a number of banks such as ICICI Bank and HDFC Bank.
There are concerns in various quarters that the new norms may lead to breach of
sectoral caps.

Finance Minister Pranab
Mukherjee has asked Indian Revenue Service officials to consider taxpayers as
important stakeholders in nation-building and to administer taxes with a human
approach. He was addressing the 63rd batch of IRS trainees last evening.

Mr. Mukherjee pointed out
that the shift in policy whereby taxpayers are not seen as adversaries has
resulted in a significant growth in tax collection during the past decade. He
asked the trainee officers to imbibe this approach in their daily working.

The Finance Minister said
that direct taxes collection has increased by ten times during the past decade.
He also pointed out that the share of direct taxes is now more than 55%.

The Finance Minister
reminded the officials that it was due to increased tax buoyancy and collection
efforts of Revenue departments that the government was able to waive off the
loans to farmers amounting to Rs.71,000 crores.

(Compiler’s Note :
Let us see how much impact this makes on the attitude of the Revenue officials)