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Category: Representation

REPRESENTATION

Bombay Chartered Accountants’ Society

7, Jolly Bhavan No. 2,

New Marine Lines, Mumbai-400020.

Tel. : 61377600 to 05 / Fax : 61377666
E-mail : bca@bcasonline.org;

Website : www.bcasonline.org

WebTV : www.bcasonline.tv

September 27, 2011

Shri Shobhit Jain
OSD (TRU)
Central Board of Excise and Customs (CBEC)
Government of India, North Block,
Parliamentary Street, New Delhi-110001.
Respected Sir,

Subject: Representation of our Views on the Concept Paper for
Public Debate Taxation of Services based on a Negative List of Services

We have seen with interest the Concept Paper for Public Debate and on behalf of the Bombay Chartered Accountants’ Society, and would like to humbly submit our representation on various aspects.

We hope that our representation will receive due consideration. We would be most willing to put forward our views in person should this be required. Thanking you,

We remain,

Yours truly,
For Bombay Chartered Accountants’ Society

Pradip K. Thanawala

President

Govind G. Goyal

Chairman,

Indirect Taxes & Allied Laws Committee

Representation of our Views on the Concept Paper for Public Debate Taxation of Services based on a Negative List of Services

1.0 Background Pursuant to the announcement made by the Honourable Finance Minister while presenting the Union Budget 2011, a concept paper on taxation of services based on negative list of services has been issued for public debate and views are solicited from all stakeholders before 30-9-2011. Accordingly, we present our views on the said concept paper.

2.0 Recommendations in brief The concept paper introduces the justification for the negative list on the grounds of administrative challenge, stability and comprehensiveness and proceeds to place certain questions for public debate and feedback. The questions placed and our summarised feedback on those questions is tabulated below:


3.0 The country should not adopt a negative list
The concept paper in paras 2, 3 and 4 highlights in detail the issues surrounding the positive and negative lists. While it does accept that the currently existing positive list has certain advantages in terms of definitiveness, it seeks to justify the introduction of the negative list by citing certain limitations of the current mechanism of positive list. We are of the view that most of the said limitations can be either removed even in positive list approach or are so inherent that they would exist even in the negative list approach. The following table explains the same :

On a perusal of the above table, it is evident that the reasons cited in favour of the transition appear to be more a mirage. The same issues can be addressed in the positive list or would likely to be continued in the negative list as well.

It may be noted that though the consolidated Excise Act was enacted in 1944, the residuary entry under Excise Law (converting the law from the negative list to positive list) was introduced only in 1975 i.e., more than 30 years after the introduction of the law. As compared to that time frame, the service tax law is merely 17 years old. Further, it is much easier to provide a comprehensive definition of ‘goods’ as compared to ‘services’. Therefore, the challenges of introducing a negative list in services can be compounded.

4.0    Even if it is felt that we need to adopt the negative list, the same should be adopted only at the time of GST and not earlier than that

The nation is on the verge of introducing a major indirect tax reform by introduction of comprehensive Goods and Service Tax (GST). The introduction of GST will obviate the need to classify transactions between goods and services to a great extent. Further, the Constitutional Amendments required for introducing GST will obviate many of the challenges faced currently in defining the scope of services. Therefore, it is felt that even if we need to adopt the negative list, the same should be adopted only at the time of GST and not earlier than that.

5.0    If the negative list is introduced prior to the introduction of the GST, the definition as recommended below should be adopted Service means any obligation undertaken by the assessee for a monetary consideration pursuant to a contract or agreement, whether written or not, (other than a contract or agreement for supply of goods, money or immoveable property) between two or more consenting parties and includes:

A.    right to use an immovable property;

B.    construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;

C.    temporary transfer or permitting the use or enjoyment of any intellectual property right;

D.    obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

E.    service in relation to lease or hire of goods; and

F.    right to enter any premises

But excludes a supply —

A.    by an employee to an employer in the course of or in relation to the employment of the person;

B.    by a constitutional authority under the Indian Constitution or a member of an Indian Legislature or a local self-government in that capacity;

C.    that amounts to manufacture of excisable goods or is chargeable as part of the value of goods to a duty in terms of the provisions of Central Excise Act, 1944;

The above amended definition is preferable since the proposed definition states that service means ‘anything’. The word ‘anything’ does not convey any meaning. No statute defines the charging provision to be ‘anything’. There needs to be a certainty to what is proposed to be taxed. Anything conveys vagueness rather than certainty or definitiveness. Further, generally the term ‘thing’ is used for tangible products like book, CD, etc. However, a lecture delivered by a professor or song performed by a singer (some examples of services) cannot be said to be ‘things’ in general parlance. Therefore, in trying to define service as ‘anything’, the soul of service is missed out.

6.0 In addition to the negative list of services, another list of services eligible for zero rating should also be introduced
The concept paper includes a negative list of services. However, it does not include services which should be zero- rated. It is therefore important that another list consisting of zero-rated services (i.e. services which are not liable for tax on the output but at the same time eligible for input credit) should be included. The said list should include exports and supplies to SEZ units and developers.

Representation

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21st October 2013
To,
The Chief Commissioner of lncome Tax (CCA),
Mumbai.
Dear Sir,
Re: Implementation of the CBDT lnstructions of July 2013 in relation to CPC Demands

Pursuant to the directions of the Delhi High Court in the case of Court on its Own Motion V Commissioner of lncome Tax, the Central Board of Direct Taxes (CBDT) had issued five instructions containing various directions to implement the directives of the court, instruction numbers 3,4,5,6 and 7 of 2013.

Under these instructions, assessing officers were directed to carry out the following in relation to CPC demands:

1. Give application number to the assessee for rectification applications when they are filed, and maintain a register of such applications online;
2. Dispose of applications for rectification within two months from the date that they are filed; 3. Serve unserved intimations where demands were raised by 31st August 2013;
4. Grant credit for mismatched credits on production of TDS certificate after verification of TDS payment;
5. Grant refunds by 31st August 2013, where refunds u/s.143(1) have been adjusted by CPC against demands of earlier years without following the procedure laid down u/s.245;
6. Grant interest u/s.244A where refunds are granted after rectification u/s.154 without excluding the period taken to file rectification application u/s.154.

Unfortunately, it has been noticed that, other than issue of notices u/s.245 by CPC proposing to adjust the refunds determined u/s.143(1), the other aspects of the instructions have by and large not been given effect to. Refunds wrongly adjusted are yet to be received by assessees. Unserved intimations with demands are yet pending service. Application Numbers are not being given to assessees at the time of filing rectification applications except in offices where ASK is operational, and are not being disposed of within two months.

One of the reasons noticed for pending rectifications is that in many cases, migration of PAN is pending from lncome Tax officers to Assistant commissioners. We understand that lncome Tax Officers are reluctant to transfer high tax paying cases to Assistant commissioners, where the assessments u/s.143(3) are actually being carried out and where rectifications are pending, as they would not get credit for advance tax paid by such taxpayers if they were to do so, and would then fall short of their tax collection targets.

We submit that proper follow up by Commissioners and Chief commissioners is essential, to see that all Such cases are disposed of and instructions scrupulously followed, as taxpayers are finding that while tax recoveries are being followed up on an emergency basis, refunds due are being totally ignored. Almost 2 months have elapsed since the deadline given by the CBDT.

We would request you to kindly look into the matter, and set up a proper monitoring mechanism to ensure that taxpayers are able to get the benefit of the CBDT instructions.

Thanking You,
Yours sincerely,
For Bombay Chartered Accountants’ Society
Naushad Panjwani                                                                                   Gautam Nayak
President                                                                                                 Chairman
                                                                                                               Taxation Committee

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Representation to the Hon’ble Finance Minister, Government of India by Bombay Chartered Accountants’ Society on Direct Taxes Code, 2009 — Revised Discussion Paper

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Representation

Foreword :

1. At the outset, we appreciate the initiative taken for
circulation of Revised Discussion Paper (RDP) revealing some of the conceptual
changes to be made in the proposals contained in the Direct Taxes Code, 2009 (DTC),
which is going to replace the current Income-tax Act, 1961 (I.T. Act). This
shows that the Government appears to have an open mind to address the genuine
concerns raised by the taxpayers and others in response to the proposals
contained in the DTC. We also believe that the same approach will continue till
the final DTC gets enacted and becomes the law of the land as the same will
reflect the Direct Taxes Policy of the Nation for a long time to come.

2. In the DTC, many conceptual changes have been proposed
with regard to tax system and its administration as compared to the I.T. Act.
Many of such proposals have been found highly objectionable/debatable. For this,
a detailed representation has been made by the BCAS, in which each chapter, in
most cases, has been divided into two parts, namely, (a) Structural changes
(where the policy/concept itself required reconsideration/change), and (b)
Changes suggested with regard to specific provisions contained in the DTC. The
RDP deals with only some of the conceptual changes to be made in the DTC in
certain areas. However, it is completely silent with regard to the concerns
raised at conceptual level in respect of many other areas of the DTC and for
which no mention is found in the RDP, such as : Taxation of Business Income, Tax
Deduction at Source (TDS), Branch Profit Tax, Wide Powers for Tax
Administration, etc. The taxpayers and the people at large are in dark with
regard to the approach of the Government in respect of the remaining areas which
are also equally of great concern to the taxpayers and others. We only hope that
the rational view will be taken in respect thereof while drafting the final
proposals to be incorporated in the Bill.

3. In the introduction part of the RDP, it is stated that
there are a number of other issues which have been raised in the public
feedback, which, though do not form the part of the RDP, will be considered
while finalising the Bill for introduction in the Parliament. We believe
that the suggestions with regard to the conceptual changes made in the remaining
areas of the DTC as well as the suggestions made with regard to the specific
provisions contained in the DTC in our earlier representation will be seriously
considered and will find positive response in the final proposals contained in
the Bill for introduction in the Parliament. Therefore, those suggestions
have not been reiterated in this representation.


4. We also take this opportunity to recognise some of the
welcome decisions taken by the Government which are stated in the RDP, such as:
continuance of provisions relating to Minimum Alternative Tax (MAT) based on
book profits, continuance of EEE for tax treatment of certain savings,
continuance of the currently available exemption in respect of retirement
benefits of the employees, realignment of house property tax to actual rent
basis, continuance of present system of levying wealth tax, etc. However, some
of the proposals contained in the RDP require reconsideration/modification as
they are likely to create genuine hardships to the taxpayers considering the
ground realities of the tax administration in the country. In this
representation, attempt has been made to point out such cases for
reconsideration of the decisions taken as mentioned in the RDP with the hope
that the same will get serious consideration and positive response before
introducing the Bill in the Parliament for enacting the DTC.

5. It would not be out of place to reiterate that in the
Indian context, proposal for continuance of discretionary and arbitrary General
Anti Avoidance Rules (GAAR) is highly undesirable even with some of the apparent
safeguards mentioned in the RDP. The continuance of such discretionary and
arbitrary powers may create an unmanageable situation in the times to come and
will also keep uncertainty and apprehension in the minds of taxpayers even with
regard to the genuine commercial decisions taken by them. In this context, we
need to recall the experience of provision empowering assessing officers to make
prima facie adjustments and consequent levy of additional tax u/s.143(1A) while
processing the Return of Income introduced from the A.Y. 1989-90 and the havoc
that the provision created for few years. Ultimately, the said provision had to
be withdrawn by the Finance Act, 1999. In the anxiety of catching few smart
assessees who may have abused some of the provisions of the Act, it would be
totally unjustified to introduce such unfettered arbitrary powers.

If at all such provisions are found essential for any reason,
the same should only be applied only to international transactions and that too
after providing substantial higher threshold for the same, so that the common
taxpayers do not suffer with regard to their normal commercial decisions.

In view of the above, it is earnestly requested that each of
the suggestions made in this representation needs serious consideration and
proper debate
with open mind before final decision is taken in the matter.

1. Chapter I — Minimum Alternate Tax — Gross Assets
vis-à-vis Book Profit :


1.1 One of the widely welcomed proposals in the RDP is that
of dropping the levy of a flat 2% tax on assets in favour of the present regime
to levy tax on book profits. We welcome this change and hope that the same
existing MAT provisions will get
reintroduced in DTC.

1.2 MAT is supposed to be collection of tax in advance on the
basis of book profit and not to deny the benefits to the taxpayer. With this
objective MAT credit was introduced. However, MAT credit is allowed to be
carried forward for ten assessment years immediately succeeding the assessment
year in which tax credit becomes allowable.

It is, therefore, suggested that under the DTC, the MAT
credit should be made available for indefinite period.

2. Chapter II — Tax Treatment of Savings — Exempt Exempt
Tax (EET) vis-à-vis Exempt Exempt Exempt (EEE) basis :


2.1 We welcome the continuation of the EEE method of taxation
for Government Provident Fund, Public Provident Fund and Recognised Provident
Funds and pension scheme administered by Pension Fund Regulatory and Development
Authority, Approved Pure Life Insurance Products and Annuity Scheme in the
proposed Direct Tax Code (DTC).

2.2 The Revised
Discussion Paper (RDP) contemplates continuation of the EEE method only for
specified categories of provident funds, pension schemes and pure life
insurance products. Consequently all other investments will fall in the EET
category. Para 3.1 of the RDP already provides that investments made prior to
the commencement of the DTC will continue to enjoy the EEE method for the
tenure of the financial instrument. It is suggested that all investments in
or subscriptions to any scheme made prior to 1st April 2011 (the proposed
commencement date of the DTC) should continue to be governed by the earlier EEE
method of taxation.

 

2.3 It is an
accepted fact that India is in need of substantial investment in
infrastructure. It is therefore suggested that investment in, or
contribution to, infrastructure schemes/funds (including subscription to
deposit of companies, bank deposits), should continue to enjoy the EEE method
of taxation under the DTC. The funds so collected should be used for meeting
the requirements of the funds for the Government for development of
infrastructure needs of the country.

 

2.4 The RDP
recognises that our country does not have in place a social security net for
senior citizens. In view thereof it is suggested that even after the DTC
comes into force, a withdrawal from any scheme which is otherwise covered by
the EET method, by a senior citizen should not be taxed i.e., it should enjoy
the EEE method. This will to some extent augment the social security for the
senior citizen.

 

3.         Chapter III — Taxation of Income from
Employment — Retirement Benefits and Perquisites :

 

Reintroduction
of Standard Deduction :

3.1 A salaried
employee incurs certain expenses wholly and exclusively for the performance of
office duties, which are not reimbursed by the employer. The employee is not
allowed any deduction for such expenses incurred. It is therefore suggested
that a standard deduction, as was provided earlier in the present Act, should
be reintroduced, so that the employee pays tax on his real income.

 

4.         Chapter IV — Taxation of Income from
House Property :

 

4.1 The policy
decision to tax income from house property only on the basis of actual rent and
not on any notional basis is a step in the right direction. This will avoid
litigation in future with regard to the determination of the amount of gross
rent for the purpose of taxation as currently, litigation is going on in large
number of cases with regard to determination of ‘annual value’ (which is the
current basis of taxation) for the purpose of taxation of income from house
property.

 

4.2 In the DTC,
it is provided that income from house property shall be the gross rent less
specified deduction. It is also proposed to reduce specified standard deduction
(for repairs, etc.) to 20% from 30% currently available under the I.T. Act.

 

It may be noted
that even the current deduction of 30% provided under the I.T. Act itself is
not adequate and is having a very adverse effect in large number of cases. This
is on account of the fact that apart from the repairs, in most cases, the
assessee has also to pay lease rent, insurance premium at a higher amount for
various valid reasons. Further, the society charges in the metros and most of
the larger cities, administrative and other statutory expenses incurred in case
of corporate entities, etc. are also very high. Apart from this there is also
no clarity as to deductibility of various taxes and cesses levied by the State
Governments, for which litigation is on under the I.T. Act.

 

In view of the
above, it is suggested that specified standard deduction should be retained at
least at the current level of 30% and specific provisions should be made for
deduction of all taxes/cesses paid to the State Governments in respect of house
property.

 

4.3 In the DTC,
it is provided that letting of machinery, plant, furniture or any other
facility, if inseparable from the letting of the house property, then the same
will be taxed under the head ‘Income from House Property’. In such cases, the
standard deduction of even 30% (assuming that the present proposal of 20% will
be increased to 30% as suggested above) will be totally inadequate. Therefore,
in such cases, adequate provisions should be made for allowance of depreciation
in respect of such other assets, which are let out with house property due to
its nature of being inseparable. Alternatively, the income in such cases should
be taxed under the head, ‘Income from Business’ and not under the head ‘Income
from House Property’.

 

5.         Chapter V — Taxation on Capital Gains :

 

5.1 At the
outset, it must be recognised that the scope of the Chapter relating to Capital
Gains has been substantially narrowed down in the Direct Taxes Code (DTC), as
the same applies only to Investment Assets. In the Income-tax Act, 1961 (I.T.
Act), the Chapter relating to Capital Gains covers every Capital Asset whether
related to business or not. Unfortunately, under the DTC, business-related
Capital Assets are excluded from the scope of this Chapter and hence, the
profit/loss on transfer of Business Capital Asset (BCA) is governed by the
Chapter relating to business income as per the proposal contained in the DTC.
This is totally unfair and unjust. This is the major issue which has not been
addressed and considered in the Revised Discussion Paper (RDP) as the same only
deals with the treatment of Capital Asset, being Investment Asset.

 

Therefore, it is
suggested that all capital assets including Business Capital Assets should be
governed by the provisions relating to Capital Gains and accordingly, the
Chapter relating to Capital Gains should be made applicable to all Capital
Assets on the lines of similar provisions contained in the present I.T. Act.

 

5.2 As against
the total exemption presently available to Long-Term Capital Gain arising on
transfer of listed equity shares (Equity Shares) or unit of equity-oriented
fund (Specified Units), it is now proposed to grant deduction at the specified
rates while computing such Capital Gain without any indexation. It is suggested
that in respect of Capital Gain/Loss arising on investments made in such assets
up to 31-3-2011, the present treatment of exemption should continue and
appropriate provision in that respect should be made in the DTC. This will
effectively continue the present position of total exemption with regard to old
Investments and that will also obviate huge transactions in the capital market
before the commencement of the DTC with a view to claim exemption before that
date and/or to increase cost for future. Such large-scale sales in the stock markets
will have a destabilising effect which ought to be avoided.

 

It is also
noticed that in case of such Equity Shares or Specified Units, there is no
provision for option to substitute cost of acquisition by fair market value as
on 1-4-2000. There is no reason not to make such provision as in the case of
other capital assets. Therefore, alternatively, option to substitute the cost
of acquisition by fair market value as on 1-4-2000 should be provided to the
taxpayer.

 

5.3 In the RDP,
it is also proposed that in case of such loss, the same also will be scaled
down in the similar manner. It is totally unfair to scale down such long-term
loss in the similar manner as in the case of such capital gain. The deduction
at the prescribed percentage is necessary while computing gains as a large
portion of such gain may be on account of inflation. However, if the assessee
suffers a loss in such investments, then he will be hit twice, firstly on
account of financial loss and secondly, on account of scaling down of loss for
the purpose of taxation.

 

In view of the
above, it is suggested that in case of such long-term capital loss, the same
should not be scaled down as proposed, but provision should be made to enhance
the cost of acquisition by making appropriate indexation provision.

 

5.4 It is also
proposed not to introduce any Capital Gain Savings Scheme under the DTC. This
is totally unfair and unjust. The assessee must have an opportunity to claim
exemption from the long-term capital gain by making investment in such scheme,
which may be framed on lines of present S. 54EC of the I.T. Act with one
change, that is, there should not be any limit on the amount of investment
which can be made in the scheme. Till the year 2007, there was no limit for
such investments under the I.T. Act. In fact, the amount available out of such
investments can be used for the purpose of meeting the requirements of funds
for various infrastructure projects.

 

Therefore, it is
suggested that appropriate provision for the Capital Gain Savings Scheme on the
lines of present S. 54EC (without any ceiling on the amount of investment)
should be introduced in the DTC.

 

5.5 In the RDP,
it is proposed that the Securities Transaction Tax (STT) will be calibrated
based on the revised taxation regime for capital gain as the STT is a tax on
specified transactions and not on income. This is totally unfair. The STT was
introduced by the Finance (No. 2) Act, 2004 and that was effectively in
consideration for the exemption granted to long-term capital gain and providing
concessional rate of tax for short-term capital gain in such cases at that
time. This is evident from the speech of the Hon. Finance Minister made at that
time while introducing the relevant Finance Bill, in which he has stated as
under (at para 111 of his speech) :

 

“Capital gains
tax is another vexed issue. When applied to capital market transactions, the
issue becomes more complex. Questions have been raised about the definitions of
long-term and short-term, and the differential tax treatment meted to the two
kinds of gains. There are no easy answers, but I have decided to make a
beginning by revamping taxes on securities transactions. Our founding fathers
had wisely included Entry 90 in the Union List in the Seventh Schedule of the
Constitution of India. Taking a cue from that Entry, I propose to abolish the
tax on long-term capital gains from securities transactions altogether.
Instead, I propose to levy a small tax on transactions in securities on stock
exchanges. . . . . . . ”

 

In view of the
reintroduction of tax on such capital gain, the STT should be abolished as the
basis on which it was introduced would no longer exist.

 

6.         Chapter VI — Taxation of Non-Profit
Organisations :

 

6.1 The law
relating to exemption of charitable and religious trust has now got fairly well
settled. It is, therefore, suggested that the existing basic scheme of
exemption of charitable and religious trusts contained in S. 11 to S. 13 of the
Income-tax Act, 1961, should be continued in the DTC.

 

6.2 The revised
discussion paper on the Direct Taxes Code (DTC) deals with public religious
institutions in para 3(b). If the trust/institution is wholly for public
religious purposes, it will be exempt subject to conditions (A) to (H)
mentioned therein. Sub-paragraph (c) also envisages exemption for partly
religious and partly charitable institution for which conditions are specified
as follows :

 

6.2.1 the
predetermined ratio between charitable and religious activities required to be
set out in the Trust Deed/Memorandum should not pose much difficulty for
societies or S. 25 companies, which can carry out the amendment through a
resolution. However, for trusts, the procedure for amending a trust deed
involves a long-drawn court procedure, taking more than 6 months. It is,
therefore, suggested that in case of trusts set up prior to 1-4-2011, the
predetermined ratio need not be set out in the trust deed, but can be
determined in a resolution of the Board of Trustees passed within one year of
commencement of the Direct Taxes Code.

 

6.2.2 The
requirement of separate books of account to be maintained for religious and
charitable activities will be too cumbersome, as most of the religious trusts
may be having limited resources. Further, the common expenses will have to be
split up between the two sets of books where there may be difference of opinion
by the AO. Hence it is better to have one set of books of account and financial
statements with separate ledger accounts for religious and charitable expenses.
If necessary, a requirement of additional statement of Income & Expenditure
Account in respect of charitable activities may be prescribed for such trusts.

 

6.3 Accumulation
for 3 years is not sufficient. A period of at least 5 years should be allowed
for accumulation. A trust wanting to fund a major project may not be in a
position to do so in 3 years. Further, the restriction on the amount of
accumulation would defeat the very purpose of accumulating funds for large
projects. There should be no limit on the amount of accumulation.

 

6.4 Permitting
only cash system of accounting on the ground of simplicity and easy
administration is not justified, as the mercantile system being followed by the
trust is not difficult, and trusts are used to the said system. The mercantile
system is the more accurate method of accounting whereas the cash system may
not show the true and correct position of the trust by deferring the income or
expenses. The concept of real income for NPOs is well settled and should not be
disturbed with an artificial concept of income. Both cash and mercantile
methods of accounting should be permitted for NPOs.

 

6.5 Only
specified outgoings are allowed as deduction. Therefore several outgoings may
not be allowed as a deduction. All outgoings should be allowed as a deduction.

 

6.6 Taxation of
NPOs on the net worth is extremely harsh and may result in double or even
triple taxation.

 

6.7 Trusts set
up prior to 1961 should continue to be treated as NPOs, even if they are for
the benefit of a particular caste.

 

6.8 There should
be provision for setting off deficit of one year against the income of
subsequent year(s).

 

6.9 Capital
gains on transfer of investment assets, being financial assets, are to be
computed under the head ‘Capital Gains’, and will not be exempt. The present
position of S. 11(1A) for taxation of gains on such asset as income and
exemption of such income as spent for charitable or religious activities if
reinvested, should not be altered. The term ‘Financial Asset’ needs to be
clearly defined.

 

6.10 Loss of
exemption if any property of the value of exceeding Rs.1,000 is diverted to the
specified persons u/s.13(3), is too harsh. The limit should be raised to at
least Rs. 10,000.

 

6.11 Limit for
applying for registration should be extended to 6 months from the end of the
relevant financial year. There should be provision for condonation of delay in
filing application for registration in genuine cases.

 

6.12 Any surplus
resulting from activities in the nature of trade or commerce will result in
denial of exemption for a trust advancing objects of general public utility. If
such activity is meant to feed charitable objects, there is no reason to deny
exemption.

 

7.         Chapter VII — Special Economic Zones —
Taxation of Existing Units :

 

7.1       It 
is  laudable  that 
the  provision  for 
the extension of the profit-linked deduction (for the unexpired period)
to the existing SEZ units has been brought in the revised DTC proposal. This is
certainly a welcome change.

 

However, it is
suggested that for the purpose of development and growth of exports, the
incentives should be made available for newly set up SEZ units also.

 

8.         Chapter VIII — Concept of residence in
the case of a company incorporated outside India :

 

Introduction of
the provisions of Controlled Foreign Corporation :

 

8.1 The
provisions of Controlled Foreign Corporation (CFC) are proposed to be
introduced to avoid deferral of tax of the passive income earned by a foreign
company which is controlled directly or indirectly by a resident in India and
where such income is not distributed to the shareholders.

 

8.2 Presently,
barring two tax treaties (i.e., Singapore and Mauritius) the underlying tax
credit is not available to the Indian MNCs for the dividends received from the
foreign subsidiaries. Also, India does not have Participation Exemption Regime.

 

8.3 Introduction
of CFC provisions will reduce international competitiveness of Indian MNCs.
Moreover, when transfer pricing regime is in place and ‘Place of Effective
Management’ is being introduced, it is premature to introduce CFC provisions
and it can be deferred for the time being.

 

8.4 Therefore,
it is suggested that the introduction of the CFC provisions at this stage seems
untimely and premature. Time may not be ripe for introduction of such
provisions in India as the Indian MNCs are still in their nascent stage of
going outbound.

 

9.         Chapter IX — Double Taxation Avoidance
Agreement (DTAA) vis-à-vis Domestic Law :

 

DTAA
vis-à-vis Domestic Law :

 

9.1 The
discussion paper proposes that in case of conflict, the Domestic Law or the
DTAA whichever is more beneficial to the taxpayer shall apply. It is also
proposed that DTAA will not have preferential status over the domestic law in
the following circumstances :

 

(i)         When GAAR is invoked

(ii)        When CFC provisions are invoked

(iii)       When Branch Profit Tax is levied

 

9.2 A unilateral
amendment of this nature in the domestic tax law leading to an override of the
existing treaties should be avoided. We suggest that this proposal be applied
in respect of only new treaties signed after the introduction of DTC.

 

9.3 If domestic
law is to be applied over the treaty, it should be done through the process of
Mutual Agreement Procedure to enable the non-resident to avail tax credit in
the residence country.

 

10.  Chapter X — Wealth Tax :

 

10.1 For giving
effect to exempted productive assets from wealth tax, the current definition of
assets u/s.2(ea) of the Wealth-tax Act, 1957 should be adopted.

 

10.2 Exemption
with respect to any one house or part of a house or a plot of land should be
made available irrespective of the date of its acquisition and/or construction.
It should not be restricted to those acquired or constructed before the 1st day
of April, 2000 as is proposed in the Direct Tax Code.

 

11.       Chapter XI — General Anti Avoidance Rule
:

 

11.1 The
discussion paper clarifies that very arrangement for tax mitigation would not
be classified as an ‘impermissible avoidance arrangement’.

 

11.2 An
arrangement would have to satisfy any one of the following conditions to
qualify as an ‘impermissible avoidance arrangement’ :

 

(i)         It is not at arm’s length;

(ii)        It represents misuse or abuse of the
provisions of the DTC;

(iii)       It lacks commercial substance;

(iv)       It is carried out in a manner not
normally employed for bona fide business purposes.

 

11.3 GAAR
creates a high degree of subjectivity in the application of tax laws and unless
it is approached with extreme caution, it may lead to several unintended
consequences. GAAR provisions would continue to allow the tax authorities to
override the tax treaty provisions. GAAR provisions in its current form would
have an impact on several cross-border investments and M&A structures.

 

11.4 The
Proposed GAAR is so wide in its scope and has far-reaching implications that it
is going to affect ordinary, everyday business transactions. It will introduce
uncertainty in even normal business transactions. Though, the purpose of the
GAAR is to serve as a deterrent to impermissible tax avoidance/ evasion
transactions, but its introduction in the present form will have an adverse
impact on the business of the honest taxpayer. Therefore, in our view, it would
not be appropriate to introduce GAAR in its current form.

 

11.5 If at all,
GAAR provisions need to be introduced, we suggest as under :

 

11.5.1 At least,
GAAR provisions should apply only to international transactions and not to the
domestic transactions in any circumstances. Presently, the Department has
enough power to unearth domestic transactions of the resident taxpayer under
domestic law and take penal action.

 

11.5.2 A
threshold limit of substantially higher transaction value should be set for
which GAAR provisions could be applied.

 

11.5.3 Whenever
the question involved is of determining the beneficial owner, the GAAR
provisions should provide that the treaty of the country of the beneficial
owner so determined would apply. This is with a view to clarify that the treaty
benefits would not be denied totally.

 

11.5.4 The Code
should provide for establishment of a GAAR Authority similar to the Authority
of Advance Rulings, comprising experts to invoke these Rules and deal with the
consequences under the Rules. A process such as that prescribed for the AAR
rulings must be prescribed for the administration of GAAR to achieve the stated
objectives of the Code: reduction of litigation, transparency, fairness of
administration of tax, certainty and voluntary compliance.

 

11.5.5 The
factor of ‘transaction not at an arms length’ is already addressed by the
Transfer Pricing provisions and hence should be deleted vis-à-vis GAAR
provisions.

 

11.5.6 The term
‘commercial substance’ should be objectively defined to specifically mean as a
transaction which is backed by a reasonably strong commercial reason.

 

11.5.7 The
factor of ‘misuse or abuse of the provisions of the DTC’ and the term ‘bona
fide business purpose’ is subjective and should be deleted.

Representation on Finance Bill, 2008 — Indirect Tax Executive Summary

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Representation

Representation

Mr. P. Chidambaram Date 24th March 2008

The Hon’ble Finance Minister

Government of India

North Block, Secretariat, New Delhi-110001.

Dear Sir,


Subject : Suggestions on the proposal in the

Finance Bill, 2008, relating to Direct Taxes


We have seen with interest the fifth consecutive budget
presented by your Honour on behalf of the United Progressive Alliance (UPA)
Government in the Parliament on 29th February 2008 and appreciate your concern
for challenges faced by the country and your efforts to accelerate economic
growth of agriculture sector, industry, infrastructure and exports.

There are certain provisions in the Finance Bill relating
to Income Tax and Wealth Tax, which may need your kind attention, since they
need to be modified or deleted. Some of the present proposals may be prone to
be inequitable and/or may only increase litigation, without real addition to
the net revenue to the Government.

Our suggestions on various topics for rationalisation of
law, rectification of certain anomalies and correction of drafting errors, are
given in the enclosed representation relating to Direct taxes.

We hope that our representation will receive due
consideration. Should a need to explain the recommendation be felt, please let
us know and we shall be more than happy to explain them to you personally.

Thanking you,

We remain,

Yours truly,

For Bombay Chartered Accountants’ Society

Rajesh Kothari Pinakin Desai Rajesh Shah

President Chairman Co-Chairman


Taxation Committee

Mr. P. Chidambaram Date 24th March 2008

The Hon’ble Finance Minister

Government of India

North Block, Secretariat, New Delhi-110001.

Dear Sir,


Subject : Suggestions on the proposal in the

Finance Bill, 2008, relating to Indirect Taxes


We have seen with interest the fifth consecutive budget
presented by your Honour on behalf of the United Progressive Alliance (UPA)
Government in the Parliament on 29th February, 2008 and appreciate your
concern for challenges faced by the country and your efforts to accelerate
economic growth of agriculture sector, industry, infrastructure and exports.

There are certain provisions in the Finance Bill relating
to Indirect Taxes, which may need your kind attention since they need to be
modified or deleted. Some of the present proposals may be prone to be
inequitable and/or may only increase litigation, without real addition to the
net revenue to the Government.

Our suggestions on various topics for rationalisation of
law, rectification of certain anomalies and correction of drafting errors, are
given in the enclosed representation relating to Indirect Taxes.

We hope that our representation will receive due
consideration.

Thanking you,

We remain,

Yours truly,

For Bombay Chartered Accountants’ Society

Rajesh Kothari Pranay Marfatia Govind Goyal

President Chairman Co-Chairman


Indirect Taxes and Allied Laws Committee

Representation

Direct Tax Executive summary

1. Rates of tax :

l
It is suggested that there should be back-up provision for marginal relief to
individuals having income up to Rs.3 lakh including short-term capital gain, who
may end up paying tax @15% on short-term capital gain.

l
It is also suggested that STT which has been paid at the time of purchase of
security should be considered to be the cost of security in computing the
chargeable capital gain.

2. Charitable Trust — S. 2(15) :

l
It is suggested that the amendment should make it clear that the proposed
amendment covers an activity in the nature of trade, commerce or business, which
is ‘for profit’, such that the mere circumstance of receipt of membership fee or
cost recoupment without any profit-making design is not interpreted as an
objectionable activity. The reflection of the words ‘for profit’ as part of the
definition will not only bring out the legislative intent more clearly, but will
also make the definition sound akin to the definition as we had till the year
1992, so that the ratio of judgment of the Supreme Court in the case of Surat
Art Silk is available to the tax-paying community as guideline.

l
It should be clarified that the income of public religious trust is not covered
by the amendment.

Suggestions on Discussion Paper on ‘Issue of Shares for Concideration other than Cash’

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Representation


Bombay Chartered Accountants’ Society


Discussion Paper issued by DIPP on

‘ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH’

Representation by

BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY

1. Background :


1.1 FEMA classifies transactions into two kinds — Current
Account Transactions and Capital Account Transactions.

1.2 Issue of shares by an Indian company to a non-resident is
classified as a Capital Account Transaction.

1.3 At present, FEMA permits non-cash consideration for issue
of shares by way of :


(i) a permissible Current Account Transaction (e.g., in
lieu of ‘royalty’); or

(ii) a permissible Capital Account Transaction (e.g.,
conversion of shares/securities, ECB, etc.).


2. Non-cash consideration — need of the
hour :


2.1 Two-way cash remittances involve the following financial
and non-financial costs :




v Transaction charges levied by the bank.



v With increased volatility in exchange rates, hedging costs are required to
be borne to mitigate the exchange fluctuation risk.


v Opportunity cost and
period cost arising from time delay in two-way remittance of the same
amount.




2.2 Hence, non-cash consideration is the need of the hour.

3. Premise of Representation :


This representation is based on the following premise.

3.1 No discrimination :


No discrimination should arise merely because the shares are
issued for non-cash consideration.

For instance, generally, a Current Account Transaction is not
required to be valued. Hence, such requirement should not be stipulated merely
because shares are issued for non-cash consideration.

3.2 Intangibles/Extraordinary Payments :


Proper valuation of intangibles/extraordinary payments may
pose substantial challenge, particularly at the regulatory end. Hence, non-cash
consideration by way of intangibles/extraordinary payments may be deferred till
acceptable norms for valuation of intangibles/extraordinary payments are
evolved.

3.3 Checks and Balances :


Proper system of adequate checks and balances should be
instituted to ensure against misuse. The system should ensure that where :




v income tax, customs duty, R & D Cess, etc. are payable, they are duly paid
before the shares are issued; and


v KYC norms or any such
compliances that are required to be done to protect against money laundering
possibilities, are properly done and supervised/recorded by the relevant
regulatory authorise.




4. Representation on Issues posed by DIPP :


4.1 S. 4.1(a) :


Does the issue of shares for considerations other than cash
represent a valid and unaddressed business need ? Should the Government amend
the FDI policy to address this need ? Will adoption of such an approach dilute
the objective of FDI policy by decelerating the flow of physical capital into
the country ?

Issue of shares for non-cash consideration is a business need
particularly because two-way cash remittances involve avoidable transaction
costs. Hence, FDI policy may be appropriately amended.

The objective of FDI policy should be to encourage
investments but not necessarily only by inflow of physical capital. The total
FDI can always be ascertained with proper reporting mechanism and adequate
checks and balances.

4.2 S. 4.1(b) :


Should the Government consider categories not covered under
extant policy for the issue of shares against considerations other than cash ?
Should such consideration be limited to the cases mentioned in S. 3 above or
should other categories also be added ? What regulatory safeguards should be
prescribed for each such case/category ?

To begin with, the categories mentioned in S. 3 should be
considered, and based on the experience as well as the perceived need, other
categories may be added.

The regulatory safeguard should ensure that the statutory
obligations (income tax, customs duty, R & D Cess, etc.) are fulfilled.

4.3 S. 4.1(c) :


Where allotment of shares for considerations other than cash
is permitted, should the Government be concerned with the valuation of shares ?
Should objective valuation of services/goods received as consideration for the
issue of shares be the prime concern in such cases and should it form the basis
for amendments to the FDI policy ? What are the guidelines that should be
adopted for listed/non-listed companies in such cases ? Can concerns relating to
valuation be effectively addressed elsewhere ?

Valuation norms as regards the shares should be the same,
irrespective of whether the shares are being issued for cash consideration or
for non-cash consideration.

Objective valuation of services/goods should be the concern
of the regulatory authority that normally deals with it. For instance, valuation
of imported goods is dealt with by Customs. Hence, that should be the authority
and FDI policy should provide for reliance on the valuation accepted by Customs.
As regards services, presently, no valuation norms are stipulated for
remittance. Hence, similarly, in case of issue of shares in lieu of services, no
norms for valuation of services should be applied.

Similarly, valuation norms for shares should be uniformly
followed, irrespective of whether the shares are issued for cash consideration
or for non-cash consideration.

4.4 S. 4.1(d) :


Should issue of shares to set off payment in the current
account/intangibles/one-time extraordinary payments be permitted ? Should the
broad
principle be adopted that whenever money has been received in India or value has
been received in India in lieu of money and valuation protocols are in place,
issue of shares may be permitted, with prior Government approval ?

As proper valuation of intangibles/extraordinary payments could pose challenge, non-cash consideration by way of intangibles/extraordinary payments may be deferred till acceptable norms for valuation of intangibles/extraordinary payments are evolved.

4.5 S. 4.1(e):
Is there a possibility that the issue of shares for non-cash considerations listed in S. 3 above could be misused, especially in the context of money laundering? If so, what steps should be taken to address such a contingency?

Proper system of adequate checks and balances should be instituted to ensure that where:

  • income tax, customs duty, R & D Cess, etc. are payable, they are duly paid before the shares are issued; and

  • KYC norms or any such compliances are required to be done to protect against money laundering possibilities, these are properly done and supervised/recorded by the relevant regulatory authorise.

Suggestions on the draft Point of Taxation (for services provided or received in India) Rules, 2010

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Representation

4th
November, 2010


To,

The Chairman,
Central Board of Excise & Customs,
Department of Revenue,
Ministry of Finance & Company Affairs,
North Block,
New Delhi-110001.

Dear
Sir,


Subject
: Suggestions on the draft Point of Taxation (for services provided or received
in India) Rules, 2010



The Bombay Chartered Accountants’ Society (BCAS) is a voluntary organisation established on 6th July 1949. BCAS has about 8,000 members from all over the country at present and is a principle-centred and learning-oriented organisation promoting quality service and excellence in the profession of Chartered Accountancy and is a catalyst for bringing out better and more effective Government policies & laws and for clean and efficient administration and governance. We make representations regularly on Direct and Indirect Taxes.

Please find attached suggestions on the draft Point of Taxation (for services provided or received in India) Rules, 2010 (‘Rules’).

Thanking you,

Yours truly,

For Bombay Chartered Accountants’ Society

Mayur B. Nayak    
President 

Govind G. Goyal
Chairman Indirect Taxes & Allied Laws Committee

Encl : Suggestions

Bombay Chartered Accountants’
Society

Suggestions on the draft
Point of Taxation (for services provided or received in India) Rules, 2010
(‘Rules’)

Rules to be restricted only
for the purpose of ascertaining the date for determination of rate of service
tax and not for altering the time for payment of service tax from the present
receipt basis to accrual/invoice basis/receipt whichever is earlier.

1. The Point of Taxation
(for Services Provided or Received in India) Rules, 2010 (‘Rules’) are sought to
be issued in exercise of the powers conferred on the Government of India u/s.
94(2)(hhh) of the Chapter V of Finance Act, 1994 (hereinafter referred to as the
‘Act’), which is the law governing service tax.

2. The purposes of the draft
rules as stated in the preamble are :

    (i) To introduce clarity and certainty as to the date from which a new service would become payable

    (ii) To provide for the above in the context of continuous supply of services

    (iii) To link the liability to pay tax to provision of service, raising of the invoice or receipt of payment for service provided or to be provided, whichever is the earliest

    (iv) To bring the service tax law in line with Central Excise Laws and VAT laws; and

    (v) To smoothen transition to GST.

3. However, an important
point to be noted is that the Point of Taxation (for Services Provided or
Received in India) Rules, 2010 are sought to be issued pursuant to S. 94(2)(hhh)
which is dealing with ‘the date for determination of rate of service tax and the
place of provision of taxable services’. Hence in the present context, the Rules
must confine themselves primarily to prescribing the date for determination of
the rate of service tax whenever there are changes in the rate of service tax.

It cannot legally entrench
into other areas such as linking the liability to pay tax to provision of
service, raising of the invoice or receipt of payment for service provided or to
be provided, whichever is earliest or imposition of service tax on new services.
These areas would be outside the legal scope of S. 94(2)(hhh) of the Act.

4. Secondly, the charge of
service tax is on the value of ‘taxable services’. S. 65(105) defines ‘taxable
service’ as ‘any service provided or to be provided’ to ‘any person’, ‘client’,
‘customer’, etc. Thus, S. 65(105) which defines ‘taxable services’ covers — (a)
services ‘provided’; and (b) services agreed ‘to be provided’ within the ambit
of service tax. The intention is to collect tax when advance payments are
received for services to be provided. Thus, service tax would be payable even on
advances received. Thus, the taxable events would be two :

(a) a service provided;
and

(b) a service agreed to be
provided.

‘Taxable event’ with regard to services ‘provided’ is identified by the time of provision of the service and with regard to services ‘to be provided’ is identified by time of payment towards value of service to be provided. This has a significant bearing on the rate of tax. Thus where there has been a provision of services but no monies towards the value of services have been received, the rate of tax prevailing at the time of provision of services would apply. Similarly, in cases where monies have been received towards the value of services but the services are yet to be provided, the rate of tax prevailing at the time of receipt of payment towards the value of services would apply. These propositions are implicit in the law [S. 65(105), S. 66 & S. 67] and the Service Tax Rules, 1994 (Rule 6). The Rules sought to be notified must not alter these provisions but must make them explicit. Thus the relevant date for the purpose of determination of rate of tax would be the ‘date of provision of service’ or ‘the date of receipt of money, whichever is earlier. This is the present understanding.

5.    Thirdly, it would be better not to disturb the existing arrangement of paying service tax when monies for taxable services provided or to be provided are received. The changeover from the present dispensation which allows payment of tax on receipt of the payment (including advances) to a system where tax is paid to the Central Govern-ment on provision of service, raising of the invoice or receipt of payment for service provided or to be provided, whichever is earliest would involve several issues :

(i)    Changes in the Act to provide for the taxable event at the time of supply as in the UK. VAT law.

(ii)    Change in Rule 6 of the Service Tax Rules, 1994.

(iii)    Changes in Cenvat Credit Rules,2004 which allow credit of input services only when they are paid.

(iv)    Further, there are no provisions relating to bad debt adjustment or reduction in the invoices in case monies are not received or monies are received less as compared to the invoice amount. Hence the service providers would have to pay tax even on monies not received. Thus, the service provider would be out of pocket if they have to pay service tax on invoices issued but the monies for the service are not received.

(v)    The payment of tax upon issue of invoices without having received the payment would mean that the tax would have to be financed by internal accruals or borrowings which in most cases would be difficult for service providers.

(vi)    The provision of service is quite different compared to sale/manufacture of a product. Firstly, services are intangible unlike goods where the sale/clearance of a product is verifiable physically by delivery challans, transport documents, etc. In case of services the delivery of a service cannot be verified. Out of the three events — (i) provision of services; (ii) issue of invoice and (iii) receipt of payment, the last event viz., receipt of payment is historically and factually verifiable by the Department with a greater degree of certainty. Secondly, the service provider may not have a lien on the service unlike in case of goods.

There are no documents of title to services which can be put through the bank and hence the recoverability is suspect. The rights of an unpaid seller of goods are well guarded and recognised in law as against the rights of an unpaid service provider. Hence it may not be correct to equate goods and services. Thirdly, in case of Central Excise law and VAT law, the tax is not payable on advances. Thus, the purpose of the Rules viz., to bring the service tax law in line with Excise law and VAT law is not achieved nor is it necessary.

(vii)    Further there will be several issues when there is a transition from payment of service tax on receipt basis to/payment of service tax on provision of service, raising of the invoice or receipt of payment for service provided or to be provided, whichever is earliest. There would be several system and software issues. This needs to be avoided.

In this regard, it has to be appreciated that the payment of service tax on receipt of money towards provision of services was in vogue since 1998 and has worked quite well mainly due to its simplicity and more importantly, since it provides a more factually verifiable basis for the Department to collect service tax.

6.    In view of the above, it is submitted that the Rules must confine themselves only to provide for the date for determination of rate of service tax.

7.    Accordingly, a suggested draft of the Rules centred around carrying out the objective viz. prescribing the date for determination of rate of service tax is attached herewith marked Annexure A. Basically, the suggested draft revolves around an important maxim that the rate of service tax would be the ‘date of provision of service or receipt of payment of money for services, whichever is earlier’.

Other suggestions:

8.    In Rule 6 of the draft Rules, it has been provided that where the payment has been made before the date of introduction of service tax on a service, no tax shall be payable to the extent of payment received. In our view, this provision must be made by way of an exemption notification and cannot find place in the proposed Rules.

9.    A closely related issue is with regard to determination of value where invoiced amount is in foreign currency. In such cases, the Service tax (Determination of Value) Rules, 2006 must be amended to provide that the rate of exchange applicable shall be the rate prevailing on the ‘date of provision of service or receipt of payment of money for services, whichever is earlier’.

Draft of Service Tax (Determination of the Rate of Tax) Rules, 2010
 
In exercise of the powers conferred by clause (hhh)    of Ss.(2) of S. 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely:

Short-title and commencement:

1.    (1) These Rules shall be called the Service Tax (Determination of the rate of tax) Rules, 2010.

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

 

Definitions:

2.    In these Rules, unless the context otherwise requires:

(a)    ‘Act’ means the Finance Act, 1994 (32 of 1994);

(b)    ‘continuous supply of service’ means any service which is provided, or to be provided, under a contract, for a period exceeding one year and for a consideration the whole or part of which is determined periodically and includes any service which the Central Government, by a Notification, prescribes to be a continuous supply of service, whether or not subject to any condition;

(c)    ‘Invoice’ shall have the meaning assigned to it in Rule 4A of the Service Tax Rules, 1994 and shall include any bill or challan as prescribed therein;

(d)    Words and expressions not defined in these Rules but defined in the Act or the Rules made thereunder shall have the meanings, in-sofar as maybe, assigned to them in the Act or the Rules made thereunder.

Date for determining the rate of service tax:

3.    For the purposes of ascertaining the date for determining the rate of service tax, the following provisions shall apply, namely:

(a)    where the service has been provided and no payment has been received, the rate of service tax shall be the rate prevailing on the date when the services are provided and if for any reason date of provision of services is not determinable, the date of receipt of money towards the service provided or to be provided shall be date for determining the rate of service tax.

(b)    If, before the provision of service, the service provider receives a payment in respect of the service to be provided, the rate of service tax shall be the rate prevailing on the date of payment to the extent covered by the payment.

Explanation: An interest-free refundable deposit shall not be considered as a ‘receipt of payment in respect of the service to be provided’. However, if the terms of the contract provide that such interest-free refundable deposit is adjustable against the consideration payable by the service receiver, then the date of adjustment shall be considered as the date of receipt of payment.

Continuous supply of service:

4.    In case of continuous supply of services, where the whole or part of the value is determined or payable periodically or from time to time, the rate of service tax shall be the rate prevailing at the following times:

(i)    If the date of payment is prescribed in the contract, the date on which the payment is liable to be made by the service receiver, irrespective of whether or not any invoice has been raised or any payment received by the service provider;

(ii)    If the payment is to be made on the completion of an event, the time of completion of that event;

(iii)    If the date of payment is not prescribed in the contract, each time when the service provider receives the payment, or issues an invoice, whichever is earlier.

Provided that the clauses (i) to (iii) shall be applied sequentially for the purposes of this rule.

Explanation: Where service tax is payable as a service recipient the date of issue of invoice has to be understood as date of receipt of invoice by the service recipient.

Associated enterprises:

5.    The rate of tax in respect of transactions between associated enterprises shall be the rate prevailing on the date on which the payment has been made, or the date of debit or credit in books of accounts, or issuance of invoice, whichever is earlier.

Explanation: Where service tax is payable as a service recipient the date of ‘issuance of invoice’ has to be understood as date of receipt of invoice by the service recipient.

Royalties and similar payments:

6.    In respect of royalties and similar payments, where the whole amount of the consideration for the provision of service was not ascertainable at the time when the service was performed, and subsequently the use or the benefit of this service by a person other than the supplier gives rise to any payment of consideration, the rate of service tax shall be the rate prevailing:

(i)    each time that a payment in respect of such use or the benefit is received by the provider; or

(ii)    an invoice is issued by the provider, whichever is earlier.

BCAS/MBN/40    November 9, 2010

To
The Concerned Officer,
Foreign Investment Promotion Board (FIPB),
Government of India,
New Delhi-110001

Dear Sir,

Subject : Submission of Representation on Issue of Shares for Consideration other than Cash

We are pleased to submit our considered represen-tation on the aspects of Foreign Direct Investments with regard to Issue of shares for Consideration other than Cash.

We hope that the same would be useful and would find your favour.

Please feel free to contact us for any further clarification or explanation in the matter.

We shall be pleased to assist you in framing a pragmatic policy on Foreign Direct Investment.

Thanking you,

Yours faithfully,

Mayur B. Nayak
President

Comments and Suggestions by Bcas to Accounting Standards Board of ICAI on Exposure Drafts

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Representation

Reference :

Calculation of EPS : Weighted average number of treasury shares
held.

Comments :

In India, publishing of standalone financial statements is
required. At present, publishing of consolidated financial statements is
required only for listed companies. In this context clarification is required
that treasury shares held by subsidiaries are not required to be adjusted in
working of weighted average number of shares for standalone financial
statements.

Reference :

Para 26 and 27(b) — example 4, calculation of basic EPS for
the year 2001.

Comments :

Regarding rights issue, clarification is required on the
treatment to be given to the effects of the rights issue in working out diluted
EPS.

Reference :

Para 45, 46, 47 and 63.

Comments :

Clarification is required to calculate Average Market Price
(AMP) based on simple or weighted average.

Reference :

Appendix B : Example 1.

Comments :

In India, dividend on preference shares is liable to
dividend distribution tax. In our view, for calculation of profit available
for equity shareholders, such distribution tax also needs to be deducted in
addition to dividend on pReference : shares. The same needs to be incorporated
in the illustration.

Reference :

Appendix B : Example 7.

Appendix B : Example 7 Note (e) of Diluted EPS.

Comments :.


Contingently issuable shares : Example explains that in
the working of basic EPS, earnings contingency for which shares are to be issued
at the year-end need not be considered in working out basic EPS for each quarter
of that year. The question arises whether the same treatment is required even if
there is substantial certainty of achieving the required earnings. Similarly, in
case of diluted EPS sum of EPS for all the quarters do not total to the EPS of
full year. An explanation for the same is required.

Note (e) mentions that anti-dilution rules do not apply
because the loss during the third quarter is attributable to a loss from
discontinued operations. It is not clear as to why anti-dilution rule is not
applicable in such circumstances. We believe that even if the rule is made
applicable, diluted EPS for quarter 3 will remain the same.

Reference :

Appendix B : Example 8.

Comments :

In the example, convertible bonds carry interest rate of 6%
against prevailing market rate of 9%. It seems that the issuing entity has
option to settle principal amount in cash. In such circumstances, question may
arise as to why lower rate for bond will be acceptable to the investors ?
Clarification is required in the context of breaking up components of liability
and equity in convertible bond. (as per related provisions of AS 31).

Reference :

Appendix D dealing with difference between the revised draft
and existing AS 20.

Comments :

The Appendix does not specify the following
additional differences :

(a) Para A16 deals with treatment to be given in
calculation of diluted EPS for partly paid shares. This has not been dealt
with in existing AS 20.

For the last sentence of Para A16 i.e., ‘the
number of shares included in diluted earnings per share is the difference
between the number of shares subscribed and the number of shares assumed to be
purchased’, clarification is required whether it is applicable only if
partly paid shares are not entitled to participate in dividend or otherwise ?

(b) Paragraph 64 is different from paragraph 44 of the
existing AS 20. It does not provide for restatement of EPS for changes in
accounting policies.

Paragraph 64 of the draft contains the following :

‘In addition, basic and diluted earnings per share of all
periods presented shall be adjusted for the effects of errors and adjustments
resulting from changes in accounting policies accounted for retrospectively.’

Comments on ED of Ind-AS 41

(Corresponding to IFRS 1)

‘First-Time Adoption of Indian Accounting Standards’

Reference :

Example in Para 8.

Comments :

Para 8 requires an entity not to apply different versions of
Ind-ASs which were effective at earlier dates. However, it (entity) can apply
new Ind-AS that is not mandatory if early application is permitted.
Concession on similar lines is also provided under IFRS. This requirement of
Para 8 is also indicated in the example to the said Para, under the heading
‘Application of requirements’, which reads as under :


“If a new Ind-AS is not yet mandatory but permits early
application, entity A is permitted, but not required, to apply that Ind-AS in
its first financial statements.”


This requirement as specified in the example is restricted
only to an entity which applies Ind-ASs effective for financial year/periods
ending on March 31, 2012, but does not present
comparative information. However, the said requirement should also apply to an
entity which decides to present comparative information in those financial
statements for one year. Not considering the aforesaid requirement for the other
entities seems inadvertent.

In view of the foregoing, it is necessary that the aforesaid
Para (given in bold herein) either should be moved at the end of the example or
a new para with the same wordings be added at the end of the example.

Reference :

Appendix D — Para D5 and D6 on Deemed Cost.

Comments :

Para D5, allows an entity to measure an item of property,
plant and equipment (PPE) at the date of transition to Ind-ASs at its fair value
and use the same as its deemed cost.

Para D6 allows a first-time adopter to use a previous GAAP revaluation of an item of PPE at, or before, the date of transition to Ind-ASs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to: (a) fair value; or cost or depreciated cost in accordance with Ind-ASs, adjusted to reflect, for example, changes in a general or specific price index.

It is not clear whether the fair value referred to in (a) has a Reference: to the fair value as on the date of transition or on the date of revaluation.

It may be appreciated that the revaluation carried out on an earlier date may not broadly be comparable to the fair value on the date of transition (which would be later than the date of the revaluation) and in that case, such concession to use the previous GAAP revaluation may not have any practical utility. Clarification is desired that on which date ‘the fair value’ in (a) should be comparable Is it at the date of transition or the date of the revaluation? It may be known that almost in all cases, the revaluation carried out at an earlier date, may not be broadly comparable with the fair value on the date of the transition.

Comments on ED ON AS 14 (revised) (corresponding to IFRS 3) ‘Business Combinations’

Reference:

Paragraph B56 of the Application Guidance.

Comments:

In the ED, the word ‘award’ has been replaced by ‘transaction’, (refer para 30, para 52 of the ED).

Various Representations

 August 18, 2009

Shri Pranab Mukherjee
Hon’ble Union Finance Minister
Government of India
North Block, Room No. 134
New Delhi-110001.

Respected Sir,

    Re : Extension of time period up to 31st October 2009 for submission of comments on the Direct Tax Code

    We would like to congratulate you on presenting the Direct Tax Code, well within the 45-day period that the UPA Government had promised.

    We appreciate the efforts of all contributors in the preparation and presentation of the same and also appreciate the Government’s decision for inviting suggestions from the public.

    The Direct Tax Code is of great interest not only to tax professionals and accountants, but also to a common man and we request that the time period for submission of comments be extended up to 31st October 2009 so as to give appropriate time to all to give their best input.

    The months of August and September being extremely busy for tax professionals and corporates, in view of the finalising of accounts and filing of tax audits and returns, the above request of extension is being made for.

    Thanking you,

    Sincerely yours,
    Ameet Patel,                    Kishor Karia                 Rajesh Shah
    President,                           Chairman,                   Co-chairman,
                                        Taxation Committee     Taxation Committee
   
       

CC :

(1) Shri S. S. Palanimanickan, Hon’ble Union Minister of State for Finance.

(2) Shri S. S. N. Moorthy, Chairman, CBDT.

(3) Shri Rahul Gandhi, Gen. Secretary, Indian National Congress.

    August 3, 2009

To,

The Chairman
Central Board of Direct Taxes,
North Block, New Delhi

Respected Sir,

    Subject : Representation on the procedure followed in disposal of applications u/s.197 of the Income-tax Act, 1961

        S. 197 of the Income-tax Act, 1961 (the Act) deals with applications for deduction of tax deducted at source (TDS) at a lower rate. Recently, while obtaining such certificates, a large number of assessees have faced certain difficulty on account of a different interpretation by the Assessing Officers (AOs) and thereby denying the issuance of such certificates even if the assessee is otherwise rightfully eligible to get the same. S. 197 is meant for avoiding hardship to the assessee in cases where he has no tax liability or his tax liability is much less.

    We narrate the facts hereunder :

    Issue :

    S. 197 of the Act provides for grant of certificate for lower rate or nil rate of TDS. Upon an application being made, the AO is empowered to issue a certificate of lower rate or nil rate in the manner provided in Rule 28AA of the Income Tax Rules, 1962 (the Rules).

    Normally, the AOs work out lower rate or nil rate, as the case may be, prescribed under Rule 28AA(1) of the Rules, which inter alia pitches the word ‘average rate of tax’.

    Till recently, the AOs used to work out the average rate of tax on the gross amount received by the applicant as it is this amount on which tax is deducted. To explain with a simple illustration :

    • Amount received towards rent say Rs.100

    • TDS rate applicable 22.66%

    • Deduction for interest paid say Rs.20

    • The approximate tax liability would work out as under :

           
Accordingly, on the gross receipt, the rate would work out to 16.995%.

It was usual practice to grant certificate u/s.197 of the Act at such rate as ultimately that represents the actual liability for tax cf the applicant.

Recently, the Central Board of Direct Taxes (the CBDT) has issued a clarification’, upon the same being sought by the Chief Commissioner of Income Tax, Chandigarh, regarding interpretation of the term ‘average rate of tax’ paid by the assessee in the last three years as mentioned in sub-clause (ii) of Rule 28AA of the Rules.

The CBDT viewed that the ‘average rate of tax’ should be considered as explicitly defined in S. 2(10) of the Act to mean the rate arrived at by dividing the amount of income-tax calculated on the total income, by such income. As no other interpretation of the term ‘average rate of tax’ is possible, the CBDT directed that the ‘average rate of tax’ should be taken with regard to total income rather than gross receipts disclosed by the assessee in the earlier years.

In the above illustration, the income works out to Rs.50 and the tax works out to 16.995. Applying the said clarification, the average rate of tax works out as under:

This is nothing but the tax rate applicable to corporate assesse on his/its taxable income. Applying this rate to the gross receipts results in a higher deduction than the actual liability of the assessee leading him/ it to apply for a certificate u/s.197 of the Act.

Background :

The relevant S. 197 of the Act is reproduced hereunder, for the sake of brevity:

“………

197. (1) Subject to rules made under  sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-1, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by Notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate u/ss.(l) and’the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

3) [***]

………….”

S. 197 of the Act provides for the power to the AO to give a certificate of nil deduction or deduction at a lower rate, so as to avoid excessive deduction of tax at source.

In other words, S. 197 of the Act empowers AOs to grant certificate to the persons in receipt of income on which tax is required to be deducted at source; provided that the estimated total income justifies the lower rate or nil rate of tax. Presently, such certificate can be sought on incomes derived by way of salaries, interest on securities, other interest, payment to contractors or sub-contractors, commission or brokerages, rent, fees for professional or technical services, income in respect of certain units, and compensation on acquisition of certain immoveable property.

The lower rate or nil rate, if it is to be applied, shall be in respect of the aforesaid income only. This fact is evident from the terminology of section which covers income in respect of which tax is required to be deducted at source.

The mechanism for giving effect to the power granted to AOs u/s.197 of the Act is specified in Rule 28AA of the Rules, which reads as under:
“…………..

Certificate of no deduction of tax or deduction at lower rates from income other than dividends:

28AA. (1) The Assessing Officer, on an application made by a person under sub-rule (1) of Rule 28, may issue a certificate in accordance with the provisions of Ss.(l) of S. 197 for deduction of tax at source at the rate or rates calculated in the manner specified below:

    i) at such average rate of tax as determined by the total tax payable on estimated income, as reduced by the sum of advance tax already paid and tax already deducted at source, as a percentage of the payment referred to in S. 197 for which the application under sub-rule (1) of Rule 28 has been made; or

    ii) at the average of the average rates of tax paid by the assessee in the last three years, whichever is higher.

2) The certificate shall be valid for the assessment year to be specified in the certificate, unless it is cancelled by him at any time before the expiry of the specified period. An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate.

(3) The certificate shall be valid only for the person named therein.

(4) The certificate shall be issued direct to the person responsible for paying the income under advice to the applicant.

 (5) [* * *].

……..”

This rule inter alia specifies the manner of calculating and arriving at nil rate or lower rate. It specifies that this rate should be higher of:

  •     average rate of tax arrived by the net total tax payable (after considering advance tax already paid and tax already deducted at source) on estimated income as a percentage of payments referred to in S. 197; or

  •     last 3 years’  average  of average  rate of tax.

The aforesaid CBDT’s letter has interpreted the average of average rate of tax of last 3 years.

Impact :

If one is to give effect to the aforesaid clarification, it may give rise to some anomalies and/ or predicaments, as explained hereunder, with the result that the assessees will be saddled in the administrative turmoil.

The maximum rate of income-tax would be 30%, in any case.

If one were to apply for lower rate or nil rate for particular income, then applying the definition of average rate of tax, as clarified, under Rule 28AA(1), the resultant rate of tax, for specified income on which lower TDS is applied, would always be at 30%, in case of corporate asses sees which is higher than the rate at which TDS on different income is to be effected.

This figure is the effect of being the higher of resultant rate arrived under sub-clause (i) or sub-clause (ii) to Rule 28AA(1). The reason being that

  • Under sub-clause (i), the. rate can be applied within the range from 0% up to 20% (being maximum rate prescribed for the income on which tax is required to be deducted at source);

  • Under sub-clause (ii), the average of average rate of tax for last 3 years would work out to 30%, in case of corporate assessees, even if there is a small portion of income

The rate derived under sub-clause (ii) would always be higher than the rate derived under sub-clause (i) and hence the whole process of seeking lower rate uls.197 becomes redundant. Effectively, all Companies/Firms etc., where income is taxable at flat rate will, in most cases, never be eligible for issue of such certificate even though undisputedly their tax liability is much lower or Nil.

Only covers assessees incurring or having  loss:

The Rule 28AA gives desired results to loss-making companies, as the tax payable in such case would be zero. However, this rule becomes redundant for assessees having higher turnover but lower profits as aforesaid. Therefore, in all such cases, funds of the asses sees will get unjustifiably blocked and they will have to claim re-funds.

This will also hinder assessees working on smaller margins, which will shrink their working capital due to unintended blockage of funds into Government treasury. With the present situation of slow down in the economy, this has become added problem for the business community. We believe that this can never be the intention of the CBDT.

Undue interest burden on the Government

As the assessees would claim refund of the excess TDS as aforesaid, such refunds would also result into interest entitlement which will be an unnecessary burden on the Government treasury.

Further, S. 197(2A) speaks about ‘convenience of assessees’ and ‘interests of the revenue’. Interests of the Revenue cannot be harmed since the AO is expected to take into account the estimated income-tax and the advance tax/TDS already paid. However, the assessees will surely be inconvenienced if the interpretation of the CBDT is allowed to be carried through.

Corrective measure:

As a corrective measure, it is suggested that the average rate of tax may be calculated taking into consideration the total gross receipts/turnover (that is liable for TDS) to the tax payable instead of total income. This mechanism will ensure that the legislative intent will be given effect and with the issuance of requisite certificate on that basis, undue hardship of the assessees will be removed. Moreover, in any case, as higher of sub-clause (i) or subclause (ii) is to be taken the lower rate of TDS that may be granted will never be less than the tax payable by the assessee (after considering advance tax and TDS already deducted). Since there is no loss to the revenue, a harmonious and mearingful interpretation is required to be given to the provisions.

The above view is also endorsed by the Chief Commissioner of Income-tax, Chandigarh through his request letter? for interpretation of Rule 28AA of the Rules.

In view of the above, there is urgent need to issue clarification on above basis and we have to request your Honour to kindly take necessary steps for the issue of much needed clarification.

Since large number of genuine assessees has been affected and the TDS is deducted on an ongoing basis, an early resolution of the matter would help to solve the genuine problem faced by them.

Thanking    you,

Sincerely  yours,

Ameet Patel,    Kishor Karia    Rajesh Shah

President,        Chairman,                  Co-chairman,

                 Taxation  Committee       Taxation  Committee

COMMENTS ON EXPOSURE DRAFT OF SCH. XIV OF COMPANIES ACT, 1956

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Representation

COMMENTS ON EXPOSURE DRAFT OF SCH. XIV OF COMPANIES ACT, 1956

19th October, 2010

To,

The Secretary, Accounting Standard Board
The Institute of Chartered Accountants of India
ICAI Bhawan
Post Box No. 7100, Indraprastha Marg, New Delhi-110002.

Dear Sir,






  • Subject : Comments to the Exposure Draft of Schedule
    XIV to the Companies Act, 1956



    •  

    1. The current Schedule XIV
    prescribes minimum depreciation rate to be charged by all the companies. It
    covers different type of assets and residual category and prescribes
    depreciation rate for the same. It also prescribes extra shift depreciation and
    also rate for ‘continuous process plant’. Since the minimum depreciation rates
    were prescribed, companies also had an option to charge higher rate of
    depreciation than prescribed. It also has relevance in calculation of managerial
    remuneration u/s. 350 and distribution of dividend u/s.205 of the Companies Act,
    1956.

    2. The proposed Schedule XIV
    prescribes indicative useful life of various assets. Since the same is
    indicative, it means that applying the said useful life is not mandatory and
    company may choose a different useful life, either lower or higher than what is
    indicated in the proposed Schedule.

    3. For working out depreciation
    rate, two elements are required viz. useful life and residual value. In the
    Schedule, indicative useful life is given, but in the absence of indication of
    residual value, it will not give desired result of providing guidance to
    companies which do not want to technically assess applicable depreciation rate.
    It is suggested that guidance on indicative residual value is also required, if
    at all the proposed Schedule XIV is to form part of the statute.

    4. A question also arises as to
    whether technical assessment by each company is required for ascertaining useful
    life of assets or a company can simply adopt the useful life as given in the
    Schedule. It is important to provide guidance for the same.

    5. AS-10 (revised) ‘Property
    Plant and Equipment’ requires separate identification of major components of
    each asset and it requires to be separately depreciated. It is difficult to
    envisage applicability of the proposed Schedule XIV to each component. In our
    view, there is no point in indicating useful life of asset without indicating
    useful life of major component of the asset. It is likely to create confusion
    rather than resolving the issue. It is better left to the management of
    respective companies to ascertain useful life of assets and their components.

    6. In the proposed Schedule XIV
    indicative life is also prescribed for mobile phones, library books and other
    similar items. In our view, in most cases such items are not treated as assets
    but charged to the Profit and Loss account. Providing an indicative life for
    such assets would force many companies to treat such items as assets, which may
    not be really required.

    7. Part B of proposed Schedule
    prescribes that for the purpose of S. 350 of the Companies Act, 1956, the useful
    life of any specific asset may be provided by the Regulatory Authority or by the
    Government. It is not clear to us whether or not technical assessment of useful
    life is required in case the useful life of any specific asset is specified by
    the Government. Is it mandatory to go by useful life prescribed by the
    Government even for providing depreciation in books ? If that is the case, it
    may override provisions of AS-10. A clarification may be required on this issue.

    In conclusion, we are of the
    view that the
    proposed Schedule XIV giving indicative useful life of assets would in addition
    to going against the spirit of AS-10 (revised) would also lead to unnecessary
    complications in applying AS-10 (revised).

    It is therefore suggested that
    the proposed Schedule XIV may be dispensed with.

    Thanking you,

    Yours sincerely

    Mayur B. Nayak
    President, BCAS    		 Himanshu V. Kishnadwala
    Accounting & Auditing Committee, BCAS
       

    SUGGESTION REGARDING INCREASE IN RETIREMENT AGE OF HIGH COURT
    JUDGES

    6th October, 2010

    To,

    Smt. Jayanthi Natarajan
    Chairperson,
    Parliamentary Standing Committee on Personnel, Public Grievance, Law and
    Justice,
    201, 2nd Floor, Parliament House Annexe,
    New Delhi-110001.






    Subject : Suggestions on the Constitution (One
    Hundred and Fourteenth Amendment) Bill, 2010 — Increase of Retirement
    Age lime of the High Court Judges from 62 years to 65 years.






    Madam,

    The Bombay Chartered Accountants’ Society (BCAS) is a
    voluntary organisation established on 6th July 1949. BCAS has about 8,000
    members from all over the country at present and is a principle-centred and
    learning-oriented organisation promoting quality service and excellence in the
    profession of Chartered Accountancy and is a catalyst for bringing out better
    and more effective Government policies & laws and for clean & efficient
    administration and governance. We make representations regularly on Direct and
    Indirect Taxes.

    Madam, we believe that due to longevity or increase in life expectancy the age limit which requires to be increased in all judicial and quasijudicial bodies/institutions from present age limit of 62 years to 65 years.

    At present the Judges of the Apex Court retire at the age of 65, whereas the Judges of the High Courts retire at the age of 62. Most of the Judges of the Apex Court after retirement render service to the nation by chairing various forums, like Authority for Advance Rulings till the age of 68 years. Similarly, the Judges of the High Courts also serve as Chairman, President or Members of various quasijudicial forums, like Administrative Tribunals, Customs Excise and Service Tax Appellate Tribunal, SEBI Tribunal, etc., where the age limit is 65. When the Judges can render service as Chairman of various judicial forums and render the judicial service which they were rendering earlier on the bench, there is strong reason to increase the age limit of retirement from 62 years to 65 years.

    Madam, if the Government can retain the services of such experienced Judges for another three years, it will be a great service to the nation and the pendency of cases before High Courts can be reduced.

    In India many professionals join the judiciary with the intention of serving the nation and not with the intention of getting a permanent job in the Government. A fresh law graduate when he joins a multinational gets emoluments more than that of a sitting Judge of a High Court, who may have put in more than 20 years of practice in law. Experience of a Judge and his knowledge is an asset to the justice delivery system; hence it is in the interest of the nation to raise the age limit of retirement of Judges to 65 years.

    Madam, the sanctioned strength of the Judges of the 21 High Courts is 895. Hence, it cannot be viewed as a vast opportunity in the employment sector, yet retention of less than 895 persons will have multiplier effect on justice delivery system. In the United States there is no age of retirement for Federal Judges. They are tenured posts. If a Federal Judge feels that by reason of old age he cannot function, he will receive the last-drawn salary as pension for the rest of his life. In the U.K. and Canada, Judges retire at the age of 75. In Australia, Judges of the Federal Court and Supreme Court retire at the age of 70. Similarly, in Japan Judges of the High Court retire at the age of 65.

    We therefore, strongly support for the proposal to amend clause (3) of Article 224 of the Constitution

    by substituting the words ‘sixty-five years’ for the words ‘sixty-two years’.

    Thanking you,

    Yours sincerely

    Mayur B. Nayak

    Kishor B. Karia

     

    President

    Chairman, Taxation Committee

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Representation in respect of Procedure for Registration of Digital Signature and uploading of Income-tax Returns using Digital Signature

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    Representation

    Representation

    3rd September, 2010

    To,

    Chairman,

    Central Board of Direct
    Taxes,

    Government of India,

    North Block, Vijay Chowk,

    New Delhi-110001.

    Dear Sir,


    Subject
    :     Representation in respect of
    Procedure for Registration of Digital Signature and uploading of Income-tax
    Returns using Digital Signature


    We refer to the amendment to
    Rule 12 of the Income-tax Rules, 1962 (the Rules) which has made it mandatory
    for all companies filing ITR-6 to digitally sign the I-T return for A.Y. 2010-11
    and the Note regarding changes in the Procedure for Registration of Digital
    Signature and uploading of Income-tax Returns using Digital Signature (The
    Changed Procedure Note).

    The Changed Procedure :

    A. Para C of the Changed
    Procedure Note recognises that in the following scenarios, taxpayers may find it
    difficult to register the DSC as per the existing procedure as mentioned in the
    aforesaid Note :

    1. “Non-resident companies
    where the Directors are foreign nationals.

    2. Companies where the I-T
    return is being filed for the first time.

    3. Companies where the
    Managing Director has changed and other Directors are either unavailable or
    also have changed.

    In all such cases it is
    difficult to verify the identity of the person and his relationship with the
    Entity for which he is the authorised signatory. With a view to make
    registration simpler in such cases, the procedure has been changed to enable
    registration of a DSC where the PAN is also provided in the DSC as per the
    latest Interoperability guidelines issued by the Chief Controller of
    Certifying Authorities. Such DSCs with encrypted value of PAN are now
    available in the market.”

    B. Para D of the Changed
    Procedure Note prescribes the changes in the process of Registration of DSC on
    the e-filing website. In this scenario, the Authorised Signatory has been given
    the following options :

    1. To select the existing
    procedure to register the DSC, in case the scenarios mentioned in sub-para 1,
    2, or 3 in para C of the Note, as reproduced above, are not applicable; or

    2. “To select the new
    procedure as given below :

    (a) The Authorised
    Signatory must use a fresh DSC having encrypted value of his PAN, as issued
    by Certifying Authorities with effect from 1-8-2010.

    (b) Enter Authorised
    Signatory’s PAN number while registering the DSC. The same person must also
    enter the same PAN in the Verification portion of the I-T Return which he is
    signing in his capacity as Director/ Partner/Karta/Authorised Signatory.

    (c) If the Authorised
    Signatory’s PAN number matches the encrypted value of the PAN present in the
    DSC — then the DSC will be registered after selecting the appropriate type
    of DSC (.pfx or USB token) and clicking on ‘Select Your .pfx File
    Certificate’.

    (d) In case an
    Individual is registering his DSC for submitting own ITR (ITRs 1-4 case)
    then his PAN as per his login should match the encrypted PAN contained in
    the DSC — then the DSC will be registered after selecting the appropriate
    type of DSC (.pfx or USB token) and clicking on ‘Select Your .PFX File
    Certificate’.

    (e) Now, the I-T Return
    for the Self/Company/Firm/Entity PAN can be signed using this registered
    DSC.”



    The implications of the Changed
    Procedure :

    C. As mentioned in para
    B.2.a above, as per the new procedure, the Authorised Signatory must use a fresh
    DSC having encrypted value of his PAN.

    D. The relevant portion of
    the Rule 114C of the Rules provides as under :



    “Class or classes of
    persons to whom provisions of S. 139A shall not apply 114C.
    (1) The provisions of S. 139A shall not apply to following class or
    classes of persons, namely :

    (a)

    (b) the non-residents
    referred to in clause (30) of S. 2;”


    E. Accordingly, as per the
    explicit provisions of Rule 114C(1)(b), provisions of S. 139A do not apply in
    case of non-residents.

    F. However, in order to sign
    the return with Digital Signature and upload the Return of Income in Form ITR-6,
    the non-resident directors of the foreign companies would be compelled to obtain
    the PAN in India and after obtaining the PAN would have to obtain a fresh DSC
    having encrypted value of their PAN and then only they would be able to
    digitally sign and upload the Returns of Income in Form ITR-6 for the A.Y.
    2010-11.

    G. Thus, effectively, in
    case of non-residents, though the Rules do not require them to have a PAN in
    India, the same has been made mandatory indirectly by the Changed Procedure
    Note, particularly in case of foreign companies.

    Practical difficulties :

    H. It is irrational and
    unlawful to insist upon a large number of directors of foreign companies to have
    PAN in order to enable them to obtain DSCs having encrypted value of their PAN,
    in order to enable them to sign the return of income of their companies.

        I. Most of the Directors signing the Returns of Income of the Companies, would have no connec-tion with India and also have no income at all in India and yet they would be forced to obtain the PAN in India, merely for the purposes of signing the Return of Income of the companies of which they are directors.

        J. The documentary requirements and procedure for obtaining PAN, particularly the requirement of Consularisation of the proof of identity and proof of address in case of foreign citizens which takes a lot of time, cost and effort, would cause undue hardship and anguish among many non-resident directors and foreign companies, particularly in view of the fact that PAN is NOT required as per the explicit provision contained in Rule 114C.

        K. We understand that the Consularisation process in many cases takes about a month’s time. In that event it would be very difficult or nearly impossible for many directors of foreign companies to obtain their PAN before 30-9-2010 and then to obtain their DSCs having the encrypted value of their PAN. This would result into unnecessary and unavoidable delay in filing the Returns of the foreign companies, due for filing on or before 30-9-2010 for ITAY 2010-11. Further in case of loss return, the company may lose the benefit of carry forward of loss if the return is not filed in time.

        L. Answer to Q 5 of the FAQs attached with the aforesaid Changed Procedure Note, provides that the Power of Attorney (PoA) holder is authorised to sign ITR of foreign company as per S. 140 of Income-tax Act, 1961. The PoA holder can register his DSC having encrypted value of his PAN against the foreign company PAN as per the new procedure.

        M. However, it is to be noted that in most cases the foreign companies are NOT comfortable or at ease, for various commercial and business consid-erations, to give PoA to third parties for signing the Return of Income with their digital signature. Conversely, an Indian resident may be unwilling to act as an authorised signatory of a foreign company and step into the shoes of such an assessee.

        N. Further, practically, most of the private limited companies (which form a bulk of the thousands of companies that file tax returns in India) have been filing their e-returns for past few years without DSC. For all such companies, it would now be mandatory to obtain a PAN-encrypted DSC. The time available for such a large number of companies to do this is very short and this is likely to cause a serious problem in smooth filing of returns in the month of September.

    Our request?:

        P. In view of the above mentioned practical difficulties, we request you to amend the rules and make the digital signing of the Returns OPTIONAL particularly in case of non-resident/foreign companies.

        O. Alternatively, the entire process of signing the Return Form ITR-6 with digital signature should be made simple i.e., without PAN and the requirement of obtain DSCs having encrypted value of their PAN, should be done away with.
     

    Q. We sincerely hope that you would consider the above and issue a public clarification by way of a Notification/Circular and/or make necessary amendments in the rules. It is further requested that a copy of the said Notification/Circular be sent to the Bombay Chartered Accountants’ Society.

    Considering the urgency of the matter and in view of the very limited time available to enable companies and their signatories to comply with the new procedure, an early response in the matter would be greatly appreciated.

    Thanking you,

    Yours faithfully,

    For Bombay Chartered Accountants’ Society

    Mayur Nayak                  Kishor Karia
    President                         Chairman
                                      Taxation Committee

    Representation on Compounding Amounts

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    Representation

    Bombay Chartered
    Accountants’ Society
    7, Jolly Bhavan No. 2, New Marine Lines,
    Churchgate, Mumbai-400020.

    The Chamber of Tax
    Consultants
    3, Rewa Chambers, Ground Floor, 31,
    New Marine Lines, Mumbai-400020.
       

    Honourable
    Governor,
    Reserve Bank of India.
    Dr. D. Subbarao, Central Office,
    Mumbai-400001.

    Date : 5th October, 2009

    Respected Sir,

    Representation on Compounding Amounts
     
    We, the above mentioned professional Institutions submit following joint representation for your kind consideration and necessary action. Kindly grant an interview where we can have a dialogue to understand and explain the views of both sides.

    Let us submit in the beginning that we have the highest regards for RBI as one of the finest institutions in India, an institution which has saved Indian economy from the Asian & the Global crises in 1997 & 2008-09; and granted a stability to Indian economy. Rest of the world is still craving for stability.

    Present grievance is about Compounding Process which we believe, is an aberration and something that can be sorted out by mutual discussions.

    Executive summary

        Grievance :

        Compounding Authority of RBI is charging high amounts — millions of rupees as ‘Compounding Sum’ for procedural & technical violations of FEMA (Paragraph 4 on pages 4 & 5). Focus of our present representation is on high amounts  charged for compounding. Everything else is in support of this one submission.

        In this representation we are focusing on innocent procedural mistakes on the part of investors etc. We are not representing people who violate the law deliberately for financial gains.

        We have submitted 1 to 10 issues (ten paragraphs) and given (a) to (d) — four illustrations in the detailed submissions.

        Reliefs requested :

        We make humble requests for the removal of anomalies in the Compounding Process. Reliefs are explained in details in the relevant paragraphs after explaining the grievance. The same are stated below in brief.

        Transitional reliefs :

            1. Please give an amnesty for all procedural and ignorant violations of FEMA occurred so far (till the date of RBI announcement) provided the concerned people file necessary forms by 31st March, 2010.

            2. Please give wide publicity to the provisions of FEMA and the need for compliance. Bank officers and professionals also need to understand the provisions in the same manner as RBI requires. We are prepared to hold joint conferences in different parts of India; write articles in our journals and inform profession as well as the investors. Even Indian embassies abroad can be intimated about procedures for NRI and Foreign investments.

        Long term requests :

        3. Compounding process is a process of mercy where the applicant comes to RBI with folded hands and confesses his mistakes. This may be treated on compassionate grounds rather than in a strict legal manner as in the case of penalties. The applicants may be given an opportunity to rectify their mistakes. (Paragraphs 4, 5 and 6 on pages 4 to 6)

        For procedural violations, Compounding Sum may not be more than Rs.2,00,000.

        4. Procedure for Post Facto Approvals and Condonation without penalties may be reintroduced in appropriate cases. (Paragraph 3 on page 3.)

        5. Compounding sums may please be levied commensurate to the gravity of the offence and not to the amount of investment. (Paragraph 4 on pages 4 and 5.)

        6. Please provide relief by removing anomalies in the Compounding Procedures. (Paragraphs 5 to 8, pages 5 to 7.)

        7. No action may please be taken by RBI, five years after a procedural violation occurred. Reasonable time limit should be provided for penal action. (Paragraph 9 on page 7.)

        8. We humbly submit that proper Appellate and Review/Rectification Process should be provided for Compounding matters. Until an Appellate/review procedure is provided, Compounding Amounts should be restrained. (Paragraph 10 on page 7.)

        Summary completed

        Representation in details

        1. Compounding amounts :

            Compounding process was introduced to provide

            people a chance to regularise their FEMA violations by payment of token penalty. In the beginning, the process was found to be satisfactorily working. However for the past two years, the Compounding Authority under Foreign Exchange Department has been imposing very high ‘Compounding Sums’ even in cases of procedural violations which cannot be called ‘wilful, malafide or fraudulent’.

        2. Penalty when justified :

    If a law exists on the statute books, primarily it has to be complied with. Hence, we do acknowledge that penalty and deterrent action are necessary where non-compliance with law can have serious consequences. However, some part of the law is procedural. In such cases, stiff penalties for procedural lapses may be out of place.

    3.  Purpose of compounding:

    Harsh penalties are meant only when the person continues offences after being put on notice. At RBI, a business transaction is considered as a series of transactions. Hence RBI can say that first two steps in the series are ignored and for the third onwards, Compounding Sum is charged.

    For illustration, an NRI has given a rupee loan to his resident brother in India. The loan is for five years. This is a violation of FEMA provisions. Both the brothers are ignorant of FEMA provisions. Loan amounts are given as and when funds are required and repaid as and when funds are not required. RBI considers this as several offences. However, for the parties concerned, this is only one violation of one brother giving a loan to another brother. This may be treated as one violation and compounding process may be taken up accordingly. Ideally, such transactions should not be punished. Mere warning to avoid repetition in future would be adequate.

    For the past several decades, and even under the strict FERA, RBI has, in appropriate cases, granted Post Facto Approvals and Condonations. Now, under FEMA, it seems, RBI has taken a view that it cannot condone any violation and it cannot give any post facto approval. This is directly contrary to the trend of liberalisation so strongly followed by RBI and Finance Ministry.

    We submit     that this position may be reviewed. this penalty to recover ‘unjust profits’ that the in-Let RBI lay down the policy. Wherever RBI considers it appropriate, the condonation and post facto approval policy should be reintroduced.

    4. Amount    of penalty    and  investment:

    A penalty has to be primarily commensurate with the type and intensity of the offence concerned; not with the amount involved. In the case of Compounding, this principle is even more relevant. Compounding Authority’s linking of Compounding Amounts with investment amounts is unjustified. Further, the Authority presumes likely profits earned by violation, ignores the fact that no profits have been earned; and then imposes high Compounding Amounts.

    Illustration of one Compounding Order: In one case, an OCB invested in India rupees 8.5 crores (approximately) with the prior approval of FIPB. The aCB wanted to set up a power plant in Chhatisgarh. There was a condition of local participation up to 40%. For four years they ran from pillar to post for several Government permissions. Neither they got Government permission nor could they find a local investor. Ultimately, they were frustrated and gave up the project. Hence they transferred the funds to a sister company where the aCB already had some investments. The Company delayed in filing intimation. The Company could not allot shares to aCB as it could not locate a local investor which was a pre-condition of FIPB approval. In the meanwhile, RBI issued Circular No. 20 dated 14-12-2007 prohibiting allotment of shares beyond 180 days of receipt of funds.

    For these offences, RBI imposed a Compounding sum of more than Rs.3 crores ! Company admits the violations of non-intimation, non-filing of forms; and step down investment. Still, such a stiff penalty for all procedural violations where there is no foreign exchange loss and nothing illegal or immoral! ! !

    Although Indian Investing Company earns a meager sum of Rs. Five lakhs at the time of liquidation of downstream investments, RBI presumed ‘opportunity cost of funding’ that it ‘saved’ by violation of the law and imposed this penalty to recover ‘unjust profits’ that the investor had made! ! !

    The applicant believed that if he did not pay up the Compounding Amount, the file would go to Enforcement Directorate. Purely out of fear, the Indian Company paid up full amount.

    This is a serious case of injustice.     (i) For such technical violations, imposing a penalty of Rs.3 crores is injustice. (ii) When a party voluntarily submits full information and confesses his mistakes; this confession cannot be given to En-forcement Directorate. If RBI considers appropriate, it can always intimate ED that the person has not filed FC – GPR form and made a step down investment without permission (or whatever may be the violation). Then leave it to ED to take its own course. (c) Another illustration: An NRI has invested funds in India. He divides the investment into equity and non-convertible debentures. Party is unaware that in India, under FEMA, non-convertible debentures are not permitted.

    Applicant has admitted that there is an unintended violation of FEMA provisions. RBI calculates some gains made by the Company and charges a Compounding Sum in millions of rupees based on the imagined gains. Our submission is, it is the investor’s own funds and own company. Where is the question of his making any gains from himself! Such calculations are contrary to natural justice. Ideally, RBI should give an opportunity to the Indian Company and the investor to change the debentures into compulsorily convertible debentures. If the parties comply with the law, serve a notice and leave them; or levy a token penalty.

    5. Purpose  of the Forms-important statistics:

    Many cases where Compounding Amounts have . been charged pertain to non-filing of form FC – GPR by the investors. We understand that these forms give investment data based on which RBI formulates its policies. If the forms are not filed in time, the policy decisions are affected.

    We agree with the importance of filing of all necessary forms. However, under the current circumstances, (with our Foreign exchange reserves being more than $ 280 billions) RBI may decide an amount which really does not matter. For example, an investment of $ 1,00,000 by an NRI under automatic route. Does it really affect RBI policy matters! If not; a violation of this kind may either be pardoned totally or the Compounding Amount may be restricted to an upper limit of Rs.2,00,000 (or such other limit as may be considered appropriate by RBI).

    These are illustrations. We submit that in all cases of inconsequential procedural violations or apparent ignorance of law that do not affect the flow or intended direction of foreign exchange, the parties should be given an opportunity to rectify their mistakes. Compounding process is primarily to set the matter right; to deter future violations and not to punish the investors.

    6. International ways  of investment:

    When an authority assumes power to impose penalties, it may be aware of the manner of international investments. Following summary of an order by Compounding Authority shows that the authority ignored the manner of international investment activity. Order dated 6th January, 2009.

    d) Summary  of illustration:   “An NRI couple husband and wife promoted a company in India and personally became the shareholders. They also floated a wholly owned company in Mauritius. The Indian company decided to take an ECB. It is permitted on ‘automatic basis’ from the shareholder. However, instead of taking loan from the individual shareholders, the Indian company took the ECB of USD 2.3 millions from the Mauritian company which was owned by the same individuals.”

    “This is a perfectly normal behaviour in the international investment market. For the NRIs, investment in personal name or through their own offshore company is the same. Still, RBI objected to it on technical ground that the Mauritius Company is not the shareholder/ collaborator. Parties concerned apologised and assigned the ECB from Mauritian company to the shareholders. (Facts are summarised here. Full details can be given if required.) Compounding Authority did not accept the apology, ignored the substance of the investment and imposed a Compounding Sum of Rs.45 lakhs.”
     
    This amounts to ignoring the substance of the matter and imposing punishment on technical grounds for an offence which does no harm to anyone. It is RBI’s prerogative to insist that the shareholder should be exactly the same and not substantially the same. However, if a legitimate party is prepared to amend the situation, what purpose is served by imposing high Compounding Sums and refusing the party any amendments ! We repeat our submission that the investors should be given opportunity to rectify their procedural mistakes.

    7. Compounding Orders should close the issue:

    At present, when a compounding order is passed, the matter is not automatically resolved. For example, a Company had not filed FC-GPR form in time. For the compounding application, the Company would have submitted all the details. Assume that RBI compounds the offence for a sum and the party pays the sum. Does it mean that the investment is taken on record and the Company does not have to file any further form! The party still has to go to the relevant office of RBI and seek permission.

    We humbly request that the Compounding order itself should further state that the forms are taken on record and the concerned party can continue its business normally; or as directed by RBI in its order. Let there be one complete order instead of making the party go from one office to another and waiting for final clearances.

    8. Time  limit for payment:

    When a Compounding Sum of Rs.3 crores is charged and the party is expected to pay the same in 15 days, it is harsh. Probably, the law provided for 15 days time considering that the Compounding Sum will be token amounts.

    We submit that where a Compounding sum of more than Rs.2,00, 000 is charged, reasonable time should be allowed to the party. Necessary amendments in rules and law may be moved.

    9. Time limit for commencing penal procedure:

    Almost all regulatory laws provide for a time limit beyond which, penal procedures cannot be commenced. Once the limit is crossed, past violations cannot be called up for scrutiny and cannot be penalised. No time limit was provided under FERA. However, under FEMA, under the current circumstances, it would be fair to provide definite time limit. Beyond the time limit, a person who has committed FEMA violations may not be called up for explanations.

    We submit that a time limit of five years should be provided for procedural violations under FEMA. RBI may please consider an appropriate time limit and announce the same.

    10. Rectification and  appellate procedures:

    Compounding Authority is a semi-judicial authority. It may function according to the principles of natural justice. It is an accepted judicial principle that – ‘anyone can make errors’. If a Compounding order is erroneous, it needs revision or rectification. No such procedure is provided so far.

    It is probable that while one authority may take one view, another authority may have another view. For penal decisions, appellate procedures are a necessity of democratic justice. Internal review of RBI actions without an opportunity for hearing to the aggrieved party is not a transparent process of justice.

    With the best of our efforts, so far, we have not been able to convince the Compounding Authority that (i) charging millions; and (ii) linking penalty with the amount of investment under Compounding Procedures – is injustice. Probably, only an Appellate Authority can provide justice.

    We humbly submit that proper appellate as well as rectification procedures should be provided. However, if it is decided that the Compounding Amounts may be less than Rs.2,00,000 for all procedural and ignorant violations; then no appellate procedures are necessary. Though, even then, rectification opportunities may be provided for.

    In conclusion     we very humbly submit that Compounding Process may be more just and fair; less harsh on innocent violations. Appellate and Rectification procedures may please be provided.

    For the past violations of procedural nature, an Amnesty may be granted if the concerned persons file necessary forms within the prescribed time.

    We understand that some liberalisations may not be within the jurisdiction of RBI to make. Whatever can be done and is acceptable to RBI may be liberalised at an early date. For the rest, procedures may be started to request appropriate authorities to amend the law.
     
    We humbly reuest  you  to kidly  grant  us an appointment for discussion.

    Wit best regards,

    For Bombay Chartered Accountants’ Society
    Mr. Ameet Patel | President

    For The Chamber of Tax Consultants
    Mr. K. Gopal | President

    Representation on Compounding under FEMA

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    Representation

    Bombay Chartered Accountants’ Society
    7, Jolly Bhavan No. 2, New Marine Lines,
    Churchgate, Mumbai-400020.

    The Chamber of Tax Consultants
    3, Rewa Chambers, Ground Floor, 31,
    New Marine Lines, Mumbai-400020.

    Date : 23rd February, 2010

    To

    Chief General Manager,

    Foreign Exchange Department,

    Reserve Bank of India, Central Office,

    Mumbai-400001.

    Dear Sir,


    Re : Joint Representation on Compounding under FEMA


    First of all we thank you for giving us a personal hearing on
    this subject. Considering the issues
    discussed at the hearing, we have had discussions within our organisations.
    Final drafting has taken some time. We are sorry for the delay.

    We now submit as under :

    1. Amnesty Scheme :


    1.1 An Amnesty Scheme exclusively under FEMA may be announced
    with effect from 1st April, 2010. It may remain open till 30th September, 2010.
    In our opinion, this scheme will not violate Government’s undertaking to the
    Honourable Supreme Court regarding future Amnesty Schemes.

    1.2 We may divide the FEMA lapses & violations in following
    categories :


    Amnesty Scheme to cover bona fide
    cases in following situations :


    (i) Procedural Lapses e.g.,
    Forms/declarations have not been filed in time or filed late. Other than the
    above, the transactions per se are permitted; or would be permitted if
    an application had been made.

    (ii) Innocent Lapses — especially where there is no
    loss of foreign exchange, or where the loss is minimal. (e.g., an NRI
    has given a loan to his brother/friend.)

    Amnesty Scheme NOT to cover :


    (iii) Serious violations where transactions are not
    permitted per se. (e.g., ECB funds used in stock market.)

    (iv) S. 3 Violations like Smuggling, Hawala, etc. S. 8
    violations like — Indian residents keeping funds abroad in violation of FEMA.

    The Amnesty Scheme should be for all lapses covered under the
    first two categories. (The above will need more elaboration. We can provide the
    same.) A scheme which may be declared may carry detailed lists to avoid
    ambiguity. The scheme may not cover violations listed under paragraphs (iii) and
    (iv) above. Our entire representation does not cover these exclusions.

    1.3 Wide publicity may be given and the scheme may be
    explained by a series of conferences and lectures throughout the country.

    More details of the scheme are given in Annexure 1.

    After 30th September, 2010 a lenient scheme may be adopted
    for compounding. This is discussed below.

    2. Small offences :


    2.1 A threshold-amount of small offences may be determined.
    All lapses below the threshold may be ignored as far as compounding/penalty
    procedures are concerned. For example, a limit of U.S. $ 20,000 or Indian rupees
    ten lakhs per person per year may be fixed. These amounts may be considered
    insignificant, not liable to any penal proceedings. For comparison, under the
    Income-tax Act, all amounts earned by a person below Rs.1,50,000 per year are
    totally exempt from Income-tax. The person is not liable to tax at all. This
    leaves 96% of Indians outside tax discipline.

    A blanket exemption may be abused. However, RBI will always
    have the power to issue appropriate instructions under FEMA. RBI may refer a
    case to the Enforcement Directorate whereever it finds a deliberate abuse of any
    reliefs.

    2.2 At present, while computing the amount of offence, series
    of transactions are totalled up. For example, in case of an impermissible loan
    by an NRI to a resident friend/relative, all receipts and payments during the
    period are added and counted as several lapses. In fairness, the loan should be
    considered as one violation. Peak amount outstanding during a period may be
    considered as the amount of lapse.

    3. Technical lapses :


    Amounts above the threshold may be considered leniently if
    they are technical lapses i.e., covered under the first two categories
    listed in paragraph 1.2. Some illustrations of technical offences are considered
    below and in Annexure 2.

    4. NRI investment :


    NRIs were specifically permitted around the year 1982 by the
    then Finance Minister Mr. Pranab Mukherjee to invest in India through OCBs.
    Around 1992, the scheme was further liberalised by the then finance minister Dr.
    Manmohan Singh. Then because one Indian share-broker committed frauds through
    Mauritius OCBs, in 2003 all NRIs were prohibited investment through OCBs. An
    arbitrary step where innocent NRIs have been punished.

    Unfortunately, NRIs still keep investing in India through
    their own trusts or offshore companies. These are lapses, not violations. These
    investments are not crimes. They should be dealt with leniently and regularised
    with token compounding sums.

    5. Compounding sums :


    5.1 FEMA is not a revenue law. Compounding process is to
    deter people from repeating FEMA lapses; and to save them from Enforcement
    Directorate’s procedures. RBI may not be tough with common men and may not link
    the amount of compounding sums with presumed gains made by the investors. The
    compounding sum may be linked to the gravity of the offence concerned and
    intention of the parties. It should not have any relationship with the amount of
    investment or gains.

    There have been cases where the Compounding Authority has
    presumed gains where the investor has made no gains. This is arbitrary and
    unjust.

    5.2 S. 13 of FEMA is an indication of the amount of
    compounding sum that the law-makers intended. In most cases, the compounding sum
    may not exceed Rs.2,00,000. If the matter is found to be far more serious, the
    Compounding Authority may specify the reasons in the Compounding Order and then
    charge a higher amount.

    5.3 Time for paying compounding sum should be 3 months. The
    current time of 15 days is too short.

    6. FIPB and RBI :


    6.1 In case of FDI in real estate development, there is a difference of opinion between RBI and FIPB. Investors who would have taken FIPB ap-proval; or gone under automatic route as permitted by the Industrial Policy would naturally follow FIPB view. They should not be considered as violators of FEMA. Some day the difference would be resolved. Once the final policy is announced, investors should follow the policy. Until then all investments made and properties held should be permitted. Even after the announcement, past investments should not be disturbed.

    6.2 At present, certain areas under FEMA are administered by FIPB and certain areas by RBI. In case of a violation of Industrial Policy, the investor has to go for regularisation to FIPB and for compounding to RBI. Dual procedures for one single offence is against natural justice. For all matters administered by FIPB, the regularisation and compounding powers should vest with FIPB. Since the Compounding Rules do not grant authority to FIPB for compound-ing, let FIPB give post facto approvals.

        Accused person’s views?:

    7.1 Difference of opinion between two honest and knowledgeable persons is normal. Difference between FIPB and RBI is a strong illustration. Similarly, there can be differences between the RBI/ FIPB and a professional or an investor. When there is an honest difference of opinion in interpretation of law, no penalty may be levied.

    7.2 Currently, the person making a compounding application has to admit the offence. This is unfair. A person should be allowed to represent his views.

    It is normal that a person may not admit to the violation, but to buy peace, he is willing to pay the compounding sum. If the person is forced to admit a violation without an opportunity to defend himself, it will defeat the principle of natural justice.

    An applicant may not agree with Compounding Authority’s order and may not pay the compounding sum. Transferring all papers submitted by him including evidences and confession to the Enforcement Directorate would amount to gross injustice.

    7.3    Legal representation?:

    Under FERA, people were regularly represented by professionals — chartered accountants and lawyers. Legally, even under FEMA, people have a right to be represented by professionals. In practice however, for almost ten years, RBI officers flatly and strongly refuse professionals’ representations.

    Legal representation should be allowed for all matters including compounding.

        Appellate process?:

    If the applicant does not agree with the Compounding Order, he should get an opportunity to appeal. This is necessary as there can be differences of opinions between RBI and the businessman. These can be resolved only by an independent Appellate Authority.

    We suggest that the Executive Director, FEMA should constitute first Appellate Authority. Appropriate authority (more senior to the RBI Director) in the Fi-nance Ministry may constitute final Appellate Authority within the Government. Further appeal may lie in the appropriate Court of Law.

        A speaking Order?:

    In order that the person can appeal, the compounding order should be a ‘speaking order’. i.e., the order should give full reasons for arriving at a particular decision. For example, “considering the circumstances, I am of the view that penalty should be Rs.?.?.?.?.?.”, may not be sufficient.

    The order may state the specific circumstances that guided the Compounding Authority to come to a particular view. The order may also state the interpretation of the accused which is not accepted by the Compounding Officer. Reasons may be given.

        Compounding and post facto approval?:
    The compounding order should mean that the trans-action has been approved. There should be no need for taking any further approval.

    Alternatively, where an approval is required, both the compounding process and post facto approval should be given simultaneously. The time for such a process may be increased from 6 months to 9 months.

        Authorised Dealers (ADs)?:

    Authorised Dealers (ADs) are the major stumbling block in FEMA compliance. RBI insists on all forms being filed through ADs. But the ADs are neither interested, nor competent to understand and implement FEMA.

    Please introduce the procedure of E-Filing of all forms and even compounding applications and Amnesty applications. Where necessary, the Authorised Dealers’ report may be called for separately.

        Other FEMA issues?:

    We submit that there are several rules which cause avoidable difficulties to the concerned persons. If the rules are made clearer, it will help in reducing the lapses and violations. These issues are separate from the Compounding rules. Hence we are not submitting anything on the FEMA rules in this representation.
    We request you to allow us to submit separate representation for FEMA rules. We can first discuss the modalities before we submit the same.

    We wish to once again thank you for allowing us to represent before you. We will be glad to discuss the matter personally. We request you to kindly grant us an appointment for discussion.

    Thanking you,

    Yours faithfully,

    For Bombay Chartered Accountants’ Society    
    Vice-President    
    Mayur Nayak
        
    For The Chamber of Tax Consultants
    President
    Gopal Kandarpa

    E-payment of taxes

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    Representation


    April 9, 2008

    To,

    Mr. P. Chidambaram

    The Hon’ble Finance Minister, Government of India,

    North Block, Vijay Chowk, New Delhi-110001.



    Ref : BCAS Representations on E-payment of Taxes


        The CBDT has vide Notification no. 34/2008, dated 13th March, 2008 introduced new Rule 125 making it mandatory for all corporates and other assessees obliged to get their accounts tax audited u/s. 44AB of the Income-tax Act, 1961 to pay taxes electronically with effect from 1st April, 2008.

        The effort of the Tax Department in moving towards paperless system of tax payment and compliance by assessees as well as delivery of services to assessees by the Tax Department by harnessing Information Technology is well appreciated. BCAS has always been supportive of such measures. However, we would like to bring to your notice certain transitional difficulties encountered in e-payment of taxes by the assessees for which a clarificatory Circular from the Department would go a long way in allaying apprehensions of taxpayers.

        Firstly, though the new Rule permits electronic payment of taxes, either by availing net banking facility or by use of debit/credit card, the mechanism of payment by debit/credit card is not yet operational. Neither the Income-tax Department’s website, nor NSDL’s website presently offers the facility of making tax payment by using debit/credit card. For assessees like small companies not liable to tax audit or professionals or individuals/partnership firms having medium range turnover (say, Rs.40 lakhs to Rs.1 crore), use of debit/credit card is a cheaper and efficient option, since the directors and/or partners of such assessees would be already holding debit/credit cards.

        Secondly, a taxpayer has to necessarily open an account with one of the 26 banks which have been authorised to accept e-payment of taxes, if they are presently banking with other banks. This increases administrative cost for the taxpayers.

    Thirdly, the payment gateways of several banks offering net
    banking facility for tax payment have not yet fully stabilised. There are
    several technical difficulties faced by the assessees while using the net
    banking facility whereby online requests for tax payments are not getting
    processed. For example, user id and password allotted by the bank is not
    accepted, since the bank’s database is not updated, requests for higher limits
    for payments by authorised users are not processed immediately by banks, time
    lag in communicating user ids and password by the banks for security purpose,
    etc, etc. Since it is critical for taxpayers to pay their taxes on time,
    particularly taxes deducted at source, to avoid adverse consequences like
    interest, penalty and disallowance of expenses u/s.40(a)(ia), many assessees
    have preferred to pay taxes under the conventional method through cash/cheque
    payment though technically they were under obligation to make payment by e-mode
    as per Rule 125. It is learnt that banks are also accepting such payments.

    It is, therefore, prayed that having regard to difficulties
    faced in transitional period, it may be clarified that there will be no adverse
    consequences for taxpayers who have paid taxes by cash/cheque though obliged as
    per Rule 125 to make payment by e-mode for a period of at least six months from
    1st April, 2008. Further, it is also requested that the facility of e-payment
    may be extended to other banks also or alternatively other banks may be allowed
    to open payment gateways for their customers to enable them to deposit tax with
    one of the 26 authorised banks.

    Thanking you,

    We remain,

    Yours truly,

    Rajesh Kothari Pinakin Desai Rajesh S. Shah

    President Chairman Co-chairman

    Taxation Committee

    levitra

    Withdrawal of registration u/s. 12-A of the Income Tax Act, 1961

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    Representation

    Representation

    February 8, 2010

    The Chairman

    Central Board of Direct Taxes

    Department of Revenue

    Ministry of Finance

    Government of India

    North Block

    Delhi-110 001

    Dear Sir,

    Sub:
    Withdrawal of registration
    u/s. 12-A of the Income Tax Act, 1961

    Brief Background:
    Section 11 of the Income Tax Act 1961 (Act) grants exemption in respect of
    income applied by any person, (normally a trust or an institution) for any
    charitable or religious purpose. In order to avail of an exemption u/s. 11, such
    a trust or institution is required to be registered u/s. 12A of the Act. Such an
    application is to be made within a period of one year from the date of creation
    of the trust or establishment of the institution and the exemption would be
    available in respect of the year in which such an application for registration
    was made.

    Up to 1st June 2007, the registering authority, which is
    either the Commissioner or Director of Income Tax (Exemptions) had a power to
    condone the delay in making such an application. Finance Act 2007 has withdrawn
    that power from the date aforesaid.

    Section 12AA of the Act prescribes the procedure for
    registration, under which, the registering authority is required to be satisfied
    about the genuineness of activities of the trust or institution. The section was
    inserted from 1.04.1997.

    The registration procedure is prescribed by rule 17A and the
    form in which the application is to be furnished is Form 10A. Form 10A, contains
    an undertaking by the applicant as follows:

    "I undertake to communicate forth with any alteration in the
    terms of the trust or in the rules governing the institution made at any time
    hereafter."

    However neither the governing sections nor the rules contain
    any similar condition or the consequence of the non-furnishing of such a change.

    Withdrawal of 12A registration in case of change in objects

    As stated aforesaid, the governing sections and the rules are
    silent about the intimation in change of objects / rules being given to the
    registering authority. Prior to 1997, even the certificate issued in response to
    the application did not contain any such condition.

    We have been informed by our members that the assessing
    officers are now calling for details of any change in objects and rules and in
    case of such a change and the absence of intimation thereof to the registering
    authority, proceeding to deny exemption under section 11. The view being taken
    is that on such a change occurring and the same not being intimated to the
    registering authority, the registration is treated as withdrawn.

    For this we understand that reliance is being placed on the
    following three decisions.

    Allahabad Agricultural Institute & Another Vs. Union of India
    291 ITR 116 (All)

    Sakthi Charities
    Vs CIT 182 ITR
    483 (Mad)

    Sakthi Charities
    149 ITR 624 (Mad)

    We now understand that, such a stand is being taken by the
    registering authority in Mumbai i.e. Director of Income Tax (Exemptions). In
    some cases, a communication is being sent that the registration is treated as
    withdrawn while in some cases, show cause notices are being issued with similar
    result.

    Without going into the rationale of these decisions, merits
    thereof, and the peculiar facts on the basis of which they have been rendered,
    we submit that the stand taken by the Department will cause untold hardship.

    It must be borne in mind that many registrations under
    section 12A are more than three decades old and without any specific provision
    or rule, it is virtually impossible that trustees or persons in management of
    these charitable institutions would have been aware of the existence of such an
    undertaking which was given at the time of application. This must be viewed in
    light of the fact that most charitable institutions are run by persons working
    on an honorary basis, and they rarely have professional help on a regular basis.
    In any event, even those professionals would not be aware of the undertakings,
    particularly when there is no express provision.

    If the assessing officers deny exemption under section 11,
    based on the interpretation aforesaid (many have already completed that
    process), genuine charitable trusts / institutions will face huge tax arrears,
    and the work of charity will suffer substantially. Moreover, even if these
    trusts apply for registration again, such a registration will, be available only
    from the year in which the application is made (the power of condonation having
    been withdrawn)

    We appreciate that it is necessary to ensure that the
    exemption is granted to only deserving institutions. It is also accepted that
    institutions claiming these exemptions must submit themselves to the scrutiny of
    the registering authority, in case of change in objects. However, relying on a
    technical interpretation to deny an exemption of this nature should be avoided.

    We therefore feel that-

    a) In case of change in objects being noticed, the trust /
    institution be issued a show cause notice.

    b) The trust be asked to explain the rationale behind the
    change and if the objects are still charitable, the registration be continued.

    c) If the objects are not charitable then the registration be
    withdrawn by a specific order, so that the remedy of appeal is available to the
    trust / institution by way of an appeal to the tribunal.

    d) During the time that the proceedings in which the impact
    of the change is being verified by the D.I.(Exemptions) / Commissioner, the
    assessing authority be restrained from assuming / presuming that the 12A
    registration is cancelled.

    e) This fact of 12A registration being conditional, and the
    fact of change of objects being required to be intimated to the registering
    authority be given widest publicity

    f) A suitable amendment be recommended in the Act, so that in
    future, the trusts are suitably forewarned.

    We hope quick action is taken in this regard so that genuine
    trusts do not suffer on account of technical lapses. If any assistance is
    required from the Bombay Chartered Accountants Society, we will be glad to
    provide the same.

    Yours faithfully,

    Representation in respect of Returns processed u/s.143(1) of the Income-tax Act, particularly at Mumbai.

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    Representation

    To
    The Chairman
    Central Board of Direct Taxes
    Department of Revenue, Ministry of Finance
    Government of India, North Block
    Delhi-110001

    Dear Sir,


    Subject : Representation in respect of Returns
    processed u/s.143(1) of the Income-tax Act, particularly at Mumbai.

    We refer to the returns being processed by the income-tax
    authorities u/s.143(1) of the Income-tax Act, 1961.

    In this regard, we appreciate the steps taken by the Hon’ble
    Finance Minister and the Department in trying to ensure that the returns are
    speedily processed and the refunds are issued to assessees in a reasonable time
    of their filing the returns.

    Errors in the intimations :

    However, the intimations recently issued u/s.143(1) of the
    Income-tax Act, 1961 to various assessees contain many errors causing great
    hardship to the assessees. Some of the common errors are listed below :

    • Credit for
      self-assessment tax, advance-tax and tax deducted at source has been not
      granted/short-granted.


    • Interest u/s.234C is
      charged in case of salaried employees even though no advance tax is payable by
      them or the advance tax payable by them is below the threshold limit of
      Rs.5,000. Additionally, many assessees have received intimations demanding a
      sum of Rs.1,200 towards deferment of tax payment u/s.234C.


    • Interest u/s.234C is
      charged even in case where the income is below taxable limit.


    • Interest u/s.234C is
      calculated before giving credit for taxes deducted at source.


    • Capital gains are taxed
      twice, once on special rates and again as part of the Total Income on normal
      rates.


    • Tax on short-term capital
      gains is calculated at normal rates instead of special rates prescribed.


    • Deduction u/s.80C and
      other sections of Chapter VI-A are not considered.


    • Income under one head of
      income is considered as income under another head or repeated under another
      head of income.


    • Tax demand is not rounded
      off. Even though the law states that taxes payable have to be rounded off to
      the nearest multiple of ten, demands are being raised for Re.1, Rs.3, etc.


    • In many cases, the due
      date for filing the return of income by assessees getting remuneration from a
      partnership firm as a partner of the firm and liable to tax audit, is taken as
      31 July instead of 30 September and consequently, interest u/s.234A is charged
      for late filing of the return of income.


    • The credit for dividend
      distribution tax paid is not granted resulting in huge tax demands.



    Practical difficulties





    • Filing of
      rectification applications :



    Due to the various errors, the assessees are under a burden
    to prepare and submit an application u/s.154 of the Act for rectification of
    the intimation issued to them so as to avoid making unnecessary tax payments.

    Further, past experience of processing applications filed
    u/s.154 by the Income-tax Department is not encouraging. Though the law states
    that the applications filed u/s.154 have to be disposed of within six months
    from the end of the month in which the applications are received, very few
    orders u/s.154 are passed by the income-tax authorities within the time
    prescribed and majority of the orders are not passed even after a considerable
    period of time. It is very painful for the assessees to get an order u/s.154
    passed by the income-tax authorities. Even after rigorous follow-up at the tax
    offices, the orders u/s.154 are not passed in many cases.

    Further, with the commencement of processing of returns for
    assessment year 2009-10, the refunds if any may get adjusted against the
    wrongful demand raised in processing the returns of assessment year 2008-09.





    • Entries in the
      income-tax return form :



    As per Explanation (a)(i) to S. 143(1) of the Act, an
    incorrect claim apparent from any information in the return shall be an item
    which is inconsistent with another entry of the same or some other item in the
    return of income. In this regard, we would like to bring to your kind
    attention that the new income-tax forms issued for filing of the returns do
    not allow attachment of any documents/evidence for claim of taxes paid and
    deductions claimed. Thus, the returns filed will have only entries in the
    return of taxes paid and deductions claimed and no supporting documents will
    be available with the income-tax authorities while processing the returns of
    income. Accordingly, the claim for advance tax paid, self-assessment tax paid,
    taxes deducted/collected at source will be shown only at one place in the new
    forms and accordingly, there cannot be any inconsistency and thus, denial of
    credit in this regard is bad in law.


    • Place of filing the rectification applications :



    (a) Further, in few cases, the intimation states that an
    application u/s.154 is to be made to the Centralised Processing Centre at
    Bangalore, which has only a Post Box Number. The postal authorities do not
    accept registered post to a post box number and thus the assessees have no
    knowledge as to when the application is received by the income-tax
    authorities.

    (b)     In Mumbai, the Salary Section have started accepting the applications u/s.154 of the Act, however, considering the errors in number of cases, it would take lot of time to accept the application u/s.154 and dispose of the same. There are number of small assessees who are not very conversant with the process as well as the working of the Department. In such cases, a suo moto action by the Department would be advisable.

    Our request:

    a) We understand that the errors mentioned above are due to software error in the computer programme. Accordingly, we request your good-self to kindly:

       b)  direct the income-tax authorities to suo moto pass an order u/s.154 of the Act after rectifying the errors mentioned above or in the alternative, to reprocess all the returns and issue a fresh intimation after rectifying the errors.

       c)  We request you to issue a Notification/Circular in this regard stating that all such intimations issued during the said period will be treated as null and void and that fresh intimations would be issued.

    If such reprocessing is done, the whole exercise of writing letters by a large number of assessees to the Income-tax Department for rectification could be avoided and huge burden of receiving letters from the assessees and then dealing with the same can be dispensed with. It will also create goodwill in the minds of the general public.

    Accordingly, we would really appreciate if a Circular/Notification is issued in this regard and fresh intimations are issued or orders u/s.154 of the Act are suo moto passed by the income-tax authorities rectifying the mistakes in the intimations issued.

    Hope you would consider the above and issue a public clarification by way of a Notification/Circular and let all the recipients of such notices know what they are supposed to do. It is further requested that a copy of the said Notification be sent to the Bombay Chartered Accountants’ Society.

    Thanking You,

    Yours faithfully

    For Bombay Chartered Accountants’ Society

    Mayur Nayak           Kishor Karia                    Rajesh Shah
    Vice-President    Chairman, Taxation     Co-chairman, Taxation Committee
                                  Committee

    Representation on FDI in Limited Liabilities Partnership

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    Representation

    BCAS/MBN/38
    4th November, 2010


    To,

    The Concerned Officer,



    Foreign Investment Promotion Board (FIPB),



    Department of Economic Affairs,



    Ministry of Finance,



    Government of India,



    North Block, New Delhi-110001.

    Sir,

    Subject :
    Submission of Representation on Limited Liabilities Partnership

    We are pleased to submit our
    considered representation on the aspects of Foreign Direct Investments into
    Limited Liability Partnerships.

    We hope that the same would be
    useful and would find your favour.

    Please feel free to contact us
    for any further clarification or explanation in the matter.

    We shall be pleased to assist
    you in involving a pragmatic policy on Foreign Direct Investment in Limited
    Liability Partnerships.

    Thanking you,

    Yours
    faithfully,

     

     

    Mayur B. Nayak



    President

    Bombay Chartered Accountants’
    Society

    Views and suggestions in respect
    of Discussion Paper on Foreign Direct Investment in Limited Liability
    Partnerships

    Preface :

    One of the major factor in
    favour of LLP structure in the Indian context for foreign entities is the lack
    of any easy exit route under the provisions of the Companies Act, 1956 in the
    event of the joint venture not working out to the expectation of the parties.

    On the basis of our interactions
    with a number of foreign entities, we are of the view that LLPs as a structure
    has a great potential to facilitate FDI and foreign joint ventures in India in a
    number of areas.

    Accordingly, our view is that we
    should approach the question of permitting FDI in LLPs with positive frame of
    mind albeit with adequate safeguards to take care of concerns and issues
    highlighted in the discussion paper arising out of peculiarity of this form of
    business entity.


    Our views & suggestions in
    respect of issues for consideration given in para 6.00 of the Discussion Paper :

    (a) Should FDI be permitted in LLP at all ? Can it be argued that given its limited attractiveness for large investments, allowing FDI in LLP will not significantly accelerate FDI into the country while disproportionately increasing the regulatory burden ? Does the present uncertainty on how this business model will proceed as well its yet un-established case law, magnify these concerns?
    (i) LLP is internationally a very often used business structure due to its lower cost, greater flexibility in operations, better control over management, limited liability and easy exit route.

    In view of recessionary conditions in major economies of the world other than India & China, India is being looked upon as a very important investment destination. Accordingly, it is strongly suggested that FDI should be permitted in LLPs (a structure familiar to major investors outside India) as it would be a great facilitator of bringing in FDI in India.

    (ii) In our considered view, the regulatory concerns expressed in the discussion paper are not insurmountable. With incorporation of adequate safeguards in the FDI policy relating to LLPs, permitting FDI in LLPs would not disproportionately increase the regulatory burden. The regulatory concerns could be addressed with minimal and well considered modifications in the existing regulatory provisions.

        (a)

        (b)
        (iii) The LLP Act, 2008 is similar to the UK & Singapore LLP statutes which are successfully in operation for more than a decade. In addition, the provisions of LLP Act, 2008 which have been framed after considerable thought and debate by an expert committee, take care of the various concerns expressed in the discussion paper.

         

        (a)

        (b)

        (c)

        (iv) Therefore, in our view, there is strong basis to assume that with adequate safeguards built into the FDI policy the LLP business model would successfully proceed to achieve its desired objectives.

        (v) The LLP form of business structure is extremely popular, time tested and oft-used structure in various developed countries of the world. Concerns about the absence of judicial precedents are, thus, unfounded.

    (b) What should be the definition of ‘person resident in India’ ? The definition provided in the LLP Act or the definition provided in FEMA ?

    (i) The definition of ‘person resident in India’ in the FDI policy is important from the point of view of control of the LLPs. Since we are concerned with FDI in LLPs, it is felt that the definition of ‘person resident in India’ provided in the LLP Act would be more relevant.

    (ii)    Furthermore, the definition of ‘person resident in India’ given in the LLP Act does not contain the exceptions given in S. 2(v)(B) of the Foreign Exchange Management Act, 1999 (FEMA) whereby a person who comes to and stays in India, in either case for carrying on in India a business or vocation in India, is considered to be a person in resident in India, irrespective of his no. of days stay in India in the previous year. As per the definition in the LLP Act, a person who comes to India for doing business in India or for taking up employment in India would not immediately become a person resident in India. From a ‘Control’ perspective, the LLP would still need a person resident in India to be one of the ‘designated partners’ until the non-resident becomes a person resident in India as per the definition given in the LLP Act.

    (c)    Given the complexity of some of the issues raised in S. 5, would it be preferable to adopt a calibrated approach to the induction of FDI in LLPs? Initially, should FDI in LLP be restricted to sectors without caps, conditionalities or entry route restrictions? Should FDI be allowed up to 100% in these sectors or should there necessarily be an Indian partner? Should such approval be confined to the Government Route?

    (i)    In our view, with incorporation of adequate regulatory safeguards [refer our comments on (g) below], majority of the issues raised in S. 5 of the discussion paper can be properly addressed. Thus, there may not be a need to have a calibrated approach to the induction of FDI in LLPs. However, in order to gain the implementation experience and problems faced in the process of implementation, initially, FDI in LLP could be restricted to all those sectors which do not have caps, conditionalities or entry route restrictions.

    (ii)    As per the provisions of S. 7(1) of the LLP Act (as mentioned in para 5.4.5 of the Discussion paper) every LLP shall have at least two designated partners who are individuals and at least one of them shall be a ‘person resident in India’. Since this a primary requirement mentioned in the LLP Act, an Indian Partner will be required. The FDI policy on investment in LLPs may specify that compliance with this requirement is necessary even if 100% investment is permitted under the FDI policy.

    (iii)    FDI in LLPs should not be confined to the Government Route. On the contrary it should be under Automatic Route. The policy should be exception-based. As long as the prescribed criteria are met, investment must be under the Automatic Route. Where, however, there are deviations, than prior approval from FIPB must be prescribed.

    (d)    Should LLP be mandated not to make downstream investment and should foreign-owned or controlled Indian companies be barred from investing downstream in LLP ? Should investment by FII/ FVCI or ECB be prohibited for LLP?

    (i)    In view of the issues raised and concerns expressed in respect of ownership and control of LLPs, initially LLPs should not be permitted to make downstream investments and FDI should be allowed in operating LLPs only.

    (ii)    In respect of investment by FII/FVCI, the same policy as is applicable for FDI in Indian companies should be adopted. The same norms of ECB policy as is presently applicable in case of corporates should be made applicable to ECBs for LLPs. If any additional funds are required, the partner(s) must bring in the same by way of capital contribution.

    (e)    Following the Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations 2000, should it be mandated that foreign participation in the capital structure of LLP should be on a percentage basis, received only by way of cash consideration by inward remittances through normal banking channels, or by debit to the NRE/FCNR account of the person concerned maintained by an authorised dealer? Should it be mandated that foreign investments in LLP engaged in agricultural/plantation activity or real estate are prohibited?

    (i)    In view of the issues involved in determining FDI in LLP in accordance with the capital sharing percentage of the foreign investors, foreign participation in the capital structure of LLPs should be determined with reference to the profit sharing percentage i.e., right to the share of profits of the LLP.

    (ii)    Foreign participation in the capital structure of LLP should be initially received only by way of cash consideration by inward remittances through normal banking channels, or by debit to the NRE/FCNR account of the person concerned maintained by an authorised dealer. However, the policy should be reviewed in the light of final policy view taken in respect of discussion paper on issue of shares for consideration other than cash.

    (iii)    It should be mandated that foreign investments in LLPs engaged in agricultural/plantation activity or real estate are prohibited since these activities are prohibited under the existing FDI policy in case of FDI in Indian companies. The same rules should apply to FDI in LLPs so as to provide for a level playing field and to avoid misuse.

    (f)    Should FDI policy treat LLP akin to companies? In such a case, how should the issues relating to ownership, valuation, control, downstream investment and non-cash contributions, raised in S. 5 above, be addressed ? Should this be only through the Government Route?

    (i)    An LLP is a hybrid entity. It incorporates the features of both a company as well as a traditional partnership. It would not be advisable to treat them akin to companies for all purposes.

    (ii)    Ownership of an LLP be determined on the basis of the profit-sharing ratio between the partners.

    (iii)    Valuation be undertaken on the basis of DCF method, as is presently prescribed under FDI policy.

    (iv)    Control be determined by looking at the LLP agreement between the partners to determine the roles, rights and duties of each partner viz-à-viz the LLP and the other partners.

    (v)    An LLP should not be permitted to undertake downstream investments.

    (vi)    After the initial experience, a certain amount of flexibility could be given to the partners to bring in non-cash contribution and to determine the value of the non-cash consideration. This is so because non-cash contributions will have a customs duty/service tax as well as income-tax implications.

    (vii)    The policy should be exception-based. As long as the prescribed criteria are met, investment must be under the Automatic Route. Where, however, there are deviations, than prior approval from FIPB must be prescribed.

    (g)    Will treating LLP akin to companies under FDI policy demand the stipulation of certain features of the LLP agreement? Should this include unambiguous specification of profit/loss-sharing percentage; clear specification of the power to appoint Designated Partners; congruence of legal and economic ownership; timely notification of changes including conversion from and to companies/partnerships? Should it be mandated that LLP cannot have corporate bodies other than companies registered under the Companies Act as partners? Is inclusion and coverage of such issues in FDI policy warranted? Would the consequent increase in the regulatory burden be justified?

    (i)Treating the LLPs in certain aspect akin to companies, may require the stipulation of certain features in the LLP agreement.

    (ii)    Some of the stipulations in respect of unambiguous specification of profit/loss-sharing percentage; clear specification of the power to appoint Designated Partners; congruence of legal and economic ownership; timely notification of changes including conversion from and to companies/partnerships, are statutorily required to be incorporated in the LLP agreement as per the existing provisions of the LLP Act. If any additional stipulations are required, the same can be prescribed in respect of LLP agreement and/or also by way of yearly reporting (as is presently applicable to companies) so as to obtain adequate and appropriate information.

    (iii)    All types of entities should be permitted to invest in LLPs under the FDI policy. This will ensure that a large number of investors can invest in LLPs and give a fillip to FDI investment by accelerating capital flows.

    (iv)    FDI policy should be appropriately amended so as to permit investment in LLPs by foreign nationals as well as foreign LLP/LLC/companies, etc. and inclusion and coverage of such issues in FDI policy is certainly warranted.

    (v)    Any additional regulatory burden will be justified provided the regulations are drafted in manner that will reduce the transaction cost, provide transparency, are easy to implement and result in increase in FDI.

    (h)    What   additional   regulatory   safeguards are required to enfold LLP into the FDI policy? Are amendments to any existing regulations required? Should the responsibility for periodic monitoring of compliance with FDI stipulations be allotted to a particular agency?

    (i)    Certain additional regulatory safeguards, which in view are required are as under:

    (a)    Compulsory audit of the LLPs having FDI, by Chartered Accountants on the same lines and manner, as mandated under the Companies Act, 1956. This would ensure that LLP as a structure is not misused and reliability of the accounts and other information is ensured.

    (b)    LLPs desirous of having FDI, should have ‘Fixed’ and ‘Floating’ capital accounts in its capital structure. FDI should be allowed ONLY in the Fixed Capital which should be linked to the profit-sharing ratio and which should not be permitted to be withdrawn except in the same circumstances and manner in which buy back of the shares of the companies are provided.

    (c)    In order to prevent the probable misuse of LLP structure (which allows capital contribution and withdrawal) for free flow of funds by the non-resident partners thus by passing the ECB norms presently prescribed for companies, it is suggested that even the floating capital should have a lock in period of 3 years except that the income/profit share should be allowed to be repatriated freely.

    (d)    Reporting requirement — A Form similar to Form FC-GPR both at the time of introduction of capital as well as at the end of the year, should be introduced in the FDI policy.

    (e)    Prohibition on downstream investments by the LLPs having FDI.

    (ii)    Appropriate amendments to FDI policy will be required. Also new Form(s) will have to be prescribed or existing Form FC-GPR will have to be appropriately modified.

    (iii)    Since RBI is presently monitoring FDI as well as ODI, it would be appropriate for it to also monitor FDI in LLPs as well, since it is part of the overall FDI policy itself.

    Delay in granting refund for the Asst. Year 2007-08

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    Representation


    11th December 2008

    Hon. Shri Hardayal Singh

    Ombudsman

    Mumbai

    Dear Sir,


    Subject : Delay in granting refund for the Asst. Year
    2007-08



    The Returns of Income for the above Assessment Year have been
    furnished by the assessees by 31-7-2007 and 31-10-2007 as per the applicable due
    dates of furnishing Returns of Income under S. 139(1) in their cases. As per the
    Government policy, such Returns of Income should be processed u/s.143(1) and the
    refund, if any, due to the assessees should be granted within a period of four
    to six months.

    We understand that the task of processing such returns and
    granting refund for the above Assessment Year has got delayed for one reason or
    the other. In fact, this factual position is borne out in Instruction No. 12 of
    2008, dated 5-9-2008. We understand from our members that even till date large
    number of cases involving refunds have remained pending for processing, with the
    result that the assessees have still not received their refunds for the
    Assessment Year 2007-08.

    In the present circumstances of global economic slowdown and
    liquidity crisis, the assessees would have expected at least to receive their
    refunds, so that their hardships in the business get mitigated to that extent.
    Therefore, it is utmost necessary that such refunds should be cleared at the
    earliest, which will also provide some liquidity to the assessees in these days
    of crisis.

    In view of the above, we have to request your honour to
    kindly use your good offices and take-up the matter with the CBDT for resolving
    the issue of granting refunds, so that there is no further delay in receipt of
    such refunds.




    Thanking you,

    Yours faithfully




    Anil Sathe  Kishor Karia
    		 Mahendra Sanghvi  Pradip Shah
    President
    		Chairman, President
    		Chairman,
    (BCAS) Taxation Committee (BCAS)
    		 (CTC) Law & Representation
    Committee (CTC)

     

     

    levitra

    Undue hardship faced by assesses in filing signed acknowledgement (i.e. ITR-V) of the Return of Income in view of directions contained in the Circular issued by the Central Board of Direct Taxes (‘CBDT’) – Circular No. 03/2009 dated 21.05.2009

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    Representation

    30th December 2009

    The Chairman
    Central Board of Direct Taxes
    Department of Revenue
    Ministry of Finance
    Government of India
    North Block
    Delhi-110 001

    Dear Sir,


    Sub:
    Undue hardship faced by
    assesses in filing signed acknowledgement (i.e. ITR-V) of the Return of Income
    in view of directions contained in the Circular issued by the Central Board of
    Direct Taxes (‘CBDT’) – Circular No. 03/2009 dated 21.05.2009

    We refer to the CBDT Circular No. 03/2009 dated 21.05.2009 (‘CBDT
    Circular’) in connection with the filing of returns of income for assessment
    year 2009 2010. We appreciate the efforts made by CBDT with regard to e-filing
    of the returns of income.

    Background

    An assessee is required to file its return of income on or
    before the due date mentioned in section 139(1) of the Income-tax Act, 1961
    (‘Act’).

    From AY 2006-07, certain assessees are mandatorily required
    to upload the return of income electronically. In case the return is furnished
    with digital signature, the date of uploading the return electronically as
    mentioned in ITR-V is treated as the date of filing of the return of income. In
    case the return is not uploaded with digital signature, the acknowledgement form
    of the return of income, i.e., ITR-V is required to be signed by the assessee
    manually and then furnished to the Income-tax Department within a certain time
    limit.

    Prior to the existing CBDT Circular, an assessee was required
    to file the ITR-V post uploading its return on the income-tax website, with the
    respective Assessing Officer (‘AO’) within 15 days of filing the return
    electronically. This enabled assessees to get an acknowledgement from the
    Department for having furnished ITR-V with the concerned Officer having
    jurisdiction.

    A number of claims such as carry forward and set of losses
    and allowances, claim of deduction under Chapter VI-A of the Act and various
    other benefits depend very much upon filing of the return on or before due date
    mentioned under section 139 of the Act. Any failure on the part of the assessee
    to file the return of income on or before the due date will lead to disallowance
    of claims mentioned above.

    The assessee is concerned primarily with proof of filing the
    return of income with the Department. The acknowledgement bearing the stamp of
    income-tax office is very much preserved and used by the assessees for various
    purposes including compliances under the Act; obtaining bank loan; obtaining
    visa/ passport; registration with various government authorities, etc.

    As per the existing CBDT Circular, from assessment year
    2009-10, the ITR-V duly signed by the assessee has to be furnished by
    ordinary post
    to “the Income-tax Department, Centralised Processing Centre, Post Box No.1,
    Electronic City Post Office, Bangalore – 560 100, Karnataka” within 60 days of
    uploading the return or 30 September, whichever is later.


    Hardships and practical difficulties

    The position has been drastically changed and made difficult
    after the issue of the above CBDT Circular. Those assessees furnishing the
    returns without digital signature are facing and are also likely to continue to
    face unintended difficulties and hardships for the following reasons:

    The assessee does not have in his possession any
    acknowledgement as the ITR-V is to be sent by only Ordinary Post.
    Unfortunately, no other
    mode of sending the same is feasible under the new system and hence, the
    assessees will have to rely only on the efficiency of the postal department.



    Further, the assessee gets to know about the fact and date of
    receipt of such ITR-V by the CPC at Bangalore only when he receives the
    intimation by e-mail to that effect from the CPC and till then, uncertainty
    continues (for minimum 3 to 4 weeks) and the assessee is
    effectively helpless
    to do anything in that regard.


    Also, the assessee will be at the
    mercy of Postal Department
    (India)     over which neither the CBDT nor
    the assessee has any control.

    Further, any failure or delay on the part of the Postal
    Department may lead to the return of income not being filed before the due date
    and consequentially lead to disallowance of claims made by the assessee. The
    onus that is likely to be cast on the assessee is going to be of a serious
    nature over which the assessee has no control whatsoever.

    If such ITR-V does not reach the CPC at Bangalore within the
    specified period of 60 days, the ROI electronically transmitted by the assessee
    will become automatically invalid. Since the return will be deemed to have not
    been furnished at all in case the duly signed ITR-V is, for some reason or
    other, not delivered to CPC within the due date, besides other consequences, the
    assessee will be saddled with liability for payment of interest under sections
    234A and 234B and levy of penalty under section 271(1)(c) of the Act.

    Accordingly, assessees will have to face undue hardships
    without any fault on their part, since they would have no proof that they had
    sent the ITR-V to the specified address well within the time limit of 60 days.
    Apart from this, it is not fair to expect every assessee in the country from
    different places to send such ITR-V to Bangalore by post.

    It has also been experienced this year that several assesses
    who had sent the ITR-V immediately after uploading their returns but had not got
    any intimation about receipt sent the same again and in some cases this was done
    twice or thrice after which they received the intimation that their form had
    reached Bangalore. It is quite natural that in their anxiety, assessees who have
    no proof or intimation of their form being received would tend to send the same
    repeatedly. It is also not fair to place extra burden the already over burdened
    postal department.

    On the other hand there are several assesses who after
    sending the ITR-V felt they had completely complied with the law and did not
    send the same again. How can they escape the consequences of not furnishing a
    valid return if the same for any reason has not reached the given address, since
    they have no proof whatsoever of sending the ITR-V as it was mandated to be sent
    by Ordinary Post.

    Prayer

    In light of the above, we humbly request that taxpayers be permitted to furnish such ITR-V at their respective places in the office of the Assessing Officer or at any centralized place in the local income-tax office from where, the De-partment can thereafter forward the same to CPC at Bangalore. This will also enable the assessee to get proper acknowledgement with regard to the date on which such ITR-V is submitted so that there remains no ambiguity about the date of their furnishing the same and the consequent date of furnishing the return of income.

    Further, we are informed that for the assessment year 2009-10, many assesses who have uploaded their returns without digital signature within the prescribed time but have not yet received intimation of their ITR-V having reached Bangalore and having been processed ought to be allowed to file their ITR-V with their respective Assessing Officers till 31st January, 2010.

    It is, therefore, humbly submitted that CBDT may kindly consider the request and modify the regulations.

    We shall be pleased to provide any information or clarification that your goodself may need in respect of the above.

    Thanking you,       
    Yours faithfully,       
           
    CC:

    (1) Shri  S.S.  Palanimanickan,    Hon.Union Minister of State for Finance.   


    Ameet Patel    Kishor Karia    Rajesh Shah

    President     Chairman,    Co-chairman,

                       Taxation    Taxation

                        Committee    Committee

    (2)    Shri Pranab Mukherjee, Hon’ble Union Finance Minister.   
           
    (3)    Shri Rahul Gandhi, Gen.Secretary, Indian National Congress.   


    Representation on Compounding Procedures and Sums

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    Representation

    Representation


    Bombay Chartered Accountants’ Society
    7, Jolly Bhavan No. 2, New Marine Lines,
    Churchgate, Mumbai-400020.

    The Chamber of Tax Consultants
    3, Rewa Chambers, Ground Floor,
    31, New Marine Lines, Mumbai-400020.
       

    Honourable Governor,
    Reserve Bank of India.
    Dr. D. Subbarao, Central Office,
    Mumbai-400001.

     

    Date
    : 27th October, 2009

    Respected Sir,

    Re : Our Meeting on 21st October 2009 with CGM.Compounding
    Procedures and Sums.



    This is to sincerely thank you for the patient hearing granted
    by Shri Salim Gangadharan, Chief General Manager on 21st October 2009. We had
    a free and frank exchange of views.


    We appreciate the opportunity granted to us to suggest and
    submit proposal to alleviate hardships and at the same time achieve RBI’s
    objectives.

    We will prepare a proposal for compounding policies and
    procedures including amnesty proposal. Two cases of injustice to the
    applicants have been discussed. More than the events, the policy approaches
    which have caused injustice need to be identified and reviewed.

    We will also submit our proposals on some of the Master
    Circulars, cases of difference between Government view and RBI view; and
    related matters.

    With warm regards,

    Yours sincerely,

    For Bombay Chartered
    Accountants’ Society
    Mr. Ameet Patel
    President
    For The Chamber of Tax Consultants
    Mr. K. Gopal
    President


    Copies with compliments to :
    Deputy Governor, Chief General Manager, and Chief General Manager MRO.


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