TAX REFUND LETTERS TO REACH IT FIRMS SOON: The finance ministry is firming up a plan to expedite payment of thousands of crores of rupees it owes the software and BPO industry in tax refunds.The move promises to bring some joy to the $50 billion information technology sector haunted by the deepening economic woes of the western world.A plan is being finalised to ensure refunds are issued expeditiously, a finance ministry official told ET on condition of anonymity.Chairman of the Central Board of Excise and Customs S D Mazumdar said the plan will be taken up by the board this week.Software makers in India are facing a huge pressure on their margins as fears of a recession in the US and debt crisis in Europe cripple their main export markets.Industry watchers say a settlement of pending refund claims during such a distress will help shore up the dwindling bottom lines of these companies.The IT and BPO industry,which employs over two million workers,has been consistently raising the issue of refunds with the government.Infosys Chairman Emeritus N R Narayana Murthy had even voiced the concern at a recent meeting of industry leaders with Finance Minister Pranab Mukherjee.Experts say the problem arises because of a linkage between input services consumed by the industry and output services that are exported. Since no taxes can be levied on exports, taxes on inputs used in the process of carrying out the exports are neutralised through refunds.In the IT sector, however,there has been an issue over taxes paid on input services consumed in the process of providing a service overseas. Although some inputs have been specified by the CBEC,confusion persists.This leads to delays in refunds or denials altogether.The government has made several attempts in the past to ensure speedier refunds through simplification of procedures,but this has failed to satisfy the industry.The process (of refunds) is very cumbersome and tedious, said Som Mittal, president of IT industry body Nasscom.Requirement of documentation has led to unnecessary delay in issue of refunds. In its last attempt to simplify procedures,CBEC had issued a circular clearing the ambiguity over definition of services used as inputs by technology and BPO companies.Service tax paid on inputs,such as transportation of staff,telecom facilities,software maintenance and up-grades,hiring of recruitment agencies and other related services were made eligible for refunds.But the industry says the conditions specified in the circular,such as proof of consumption of services, made the refund process cumbersome.''If there is a single query involving just Rs 1lakh,a refund of Rs 10 crore may be put on hold,'' Mittal said,pointing out that refund claims worth Rs 3,000 crore made in 2010-11 remain locked up.The finance ministry official quoted earlier said the proposal for speeding up the refunds will go to the finance minister for approval after it is cleared by the CBEC.''The guidelines will be issued by next week,'' the official said,adding that they will cover both dues of current fiscal as well as those of the previous financial years.Experts,however,say that easing of the process on its own will not help.Liberalizing procedures for grant of refund of service tax is welcome,but they should be implemented in actual letter and spirit by the field formations, said Bipin Sapra,partner with audit firm Ernst & Young.The ministry is also working on a drawback scheme to refund service tax for goods exporters.This is expected to become operational soon. – www.economictimes.indiatimes.com
Showing posts with label General News. Show all posts
Showing posts with label General News. Show all posts
Friday, October 7, 2011
Wednesday, July 27, 2011
Human body treated like a factory in IT assessment?
By T N Pandey
Section 28 of the Income-Tax Act, 1961, taxes income from business or profession after deduction of expenses, as provided in Section 29. These expenses, among others, include expenses on current repairs, insurance and depreciation. Plant has been defined in Section 43(1) in an inclusive way, where there is no mention of 'human body'.
Shanti Bhushan case:
This issue has recently been considered by theDelhi High Court in Shanti Bhushan versusCIT (2011) 199 Taxman 280 (Del). The assessee, an eminent lawyer, incurred expenditure on his heart surgery and claimed such expenditure in his income-tax assessment under Section 31 of the Act as akin to repairs of plant. For 1983-84, he declared professional income of 2,14,050 after claiming deduction of 1,74,000 incurred as expenditure on coronary heart surgery . The surgery considerably improved his health and earning capacity. His income rose from 3.50 lakh in the year of surgery to 106 lakh five years later.
Shanti Bhushan lost his claim up toIncome-Tax Appellate Tribunal (ITAT). TheITAT rejected the claim by a peculiar reasoning saying that a man cannot stop or regulate the functioning of his heart or use it at will to suit his purpose. Since the functioning of heart is involuntary, it cannot be said to have been 'used' for a specific purpose or activity, except to live and to be alive. Therefore, a professional cannot claim that he uses his heart for the purpose of profession. In the case of the assessee, he sharpens his professional skills not by using his heart but by using his brain.
The reasoning given by the ITAT is far-fetched. If the heart stops functioning, the brain will become dead automatically. Good health and life have to go together and, hence, the whole human body is a plant and cannot be dissected into parts such as brain and heart. To make the brain work, keeping the heart in a healthy condition is imperative and only a novice can say that heart is not like a tool in the plant and machinery of human body.
There is apparently a contradiction in the ITAT reasoning. It tantamounts to saying that only the engine in a car is functional - not other parts - and, hence, depreciation should be allowed only on the value of the engine - not on the value of the entire car. In CIT versus Sibbal Cold Storage (1996) 135 Taxation 576 (MP), it has been said that both operative and supportive structures constitute 'plant', and 'plant' includes within its ambit building in which machines are installed. On this analogy, the brain cannot function unless it is in a sound body.
Delhi High Court decision:
The high court has decided the appeal against Shanti Bhushan. The grounds are:
- General well-being of the heart and its functionality cannot be equated with using heart for engaging in trade and professional activity as expenses on repairs and renewals under Section 31 of the I-T Act.
- Section 31 can be invoked when value of plant and machinery is reflected as an asset in the account books; only then can claim for repairs be made.
- The claim is not admissible under Section 37(1) of the Act as it cannot be said to have been incurred wholly and exclusively for the purpose of the Act.
The high court has argued that if the heart was an asset, then it should have been listed as such in the list of assets (properties) of the appellant. This does not weaken the claim of the appellant because there are assets like self-generated goodwill, patents, etc, which are not in the balance-sheet but become liable to capital gain tax when sold. The tax liability under the Act does not depend on accounting entries is an accepted principle in the income-tax law.
Webster defines the word 'plant' as 'the fixtures and tools necessary to carry on any trade (as also profession) or business'. It is 'the machinery, apparatus or fixtures by which business is carried on'. In Scientific Engineering House (P) Ltd versus CIT, AIR 1986 (SC) 338, the observations of the court are that 'plant' will include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus, which is used for mechanical operations or processes or is employed in mechanical or industrial business.
Apparently, it is hard to say that a human body is not plant in the case of businessmen and professionals. It is the basis for earning income and, hence, incurring of expenses in keeping it fit and in working condition is primarily for business or profession. The third ground (supra) given by the high court is equally not convincing. The tremendous rise in income of Shanti Bhushan clearly establishes that the amount was spent wholly and exclusively for the purpose of his profession.
It is time that rigid distinction between personal and business expenses is avoided. This does not imply that all personal expenses be deductible without looking at the nexus of expenses in earning incomes. Each issue has to be decided against the background of facts. Recently, the ITAT, in the case of DCIT versusSalman Khan (2011) 130 ITD 81 (Mum), has decided that the expenses incurred by actor Salman Khan in criminal proceedings arising out of hunting and killing a black deer had nothing to do with his professional activity as an actor and, hence, the expenditure was in the nature of personal expenditure - not deductible against his professional income for income-tax computation. No exception can be taken to such decisions. But not in cases like that of Shanti Bhushan.
Once the concept that human body is a plant is accepted, other expenses such as insurance, costs of body part replacement, depreciation, etc, too will become deductible.
(The author is former chairman ofthe Central Board of Direct Taxes)
Section 28 of the Income-Tax Act, 1961, taxes income from business or profession after deduction of expenses, as provided in Section 29. These expenses, among others, include expenses on current repairs, insurance and depreciation. Plant has been defined in Section 43(1) in an inclusive way, where there is no mention of 'human body'.
Shanti Bhushan case:
This issue has recently been considered by theDelhi High Court in Shanti Bhushan versusCIT (2011) 199 Taxman 280 (Del). The assessee, an eminent lawyer, incurred expenditure on his heart surgery and claimed such expenditure in his income-tax assessment under Section 31 of the Act as akin to repairs of plant. For 1983-84, he declared professional income of 2,14,050 after claiming deduction of 1,74,000 incurred as expenditure on coronary heart surgery . The surgery considerably improved his health and earning capacity. His income rose from 3.50 lakh in the year of surgery to 106 lakh five years later.
Shanti Bhushan lost his claim up toIncome-Tax Appellate Tribunal (ITAT). TheITAT rejected the claim by a peculiar reasoning saying that a man cannot stop or regulate the functioning of his heart or use it at will to suit his purpose. Since the functioning of heart is involuntary, it cannot be said to have been 'used' for a specific purpose or activity, except to live and to be alive. Therefore, a professional cannot claim that he uses his heart for the purpose of profession. In the case of the assessee, he sharpens his professional skills not by using his heart but by using his brain.
The reasoning given by the ITAT is far-fetched. If the heart stops functioning, the brain will become dead automatically. Good health and life have to go together and, hence, the whole human body is a plant and cannot be dissected into parts such as brain and heart. To make the brain work, keeping the heart in a healthy condition is imperative and only a novice can say that heart is not like a tool in the plant and machinery of human body.
There is apparently a contradiction in the ITAT reasoning. It tantamounts to saying that only the engine in a car is functional - not other parts - and, hence, depreciation should be allowed only on the value of the engine - not on the value of the entire car. In CIT versus Sibbal Cold Storage (1996) 135 Taxation 576 (MP), it has been said that both operative and supportive structures constitute 'plant', and 'plant' includes within its ambit building in which machines are installed. On this analogy, the brain cannot function unless it is in a sound body.
Delhi High Court decision:
The high court has decided the appeal against Shanti Bhushan. The grounds are:
- General well-being of the heart and its functionality cannot be equated with using heart for engaging in trade and professional activity as expenses on repairs and renewals under Section 31 of the I-T Act.
- Section 31 can be invoked when value of plant and machinery is reflected as an asset in the account books; only then can claim for repairs be made.
- The claim is not admissible under Section 37(1) of the Act as it cannot be said to have been incurred wholly and exclusively for the purpose of the Act.
The high court has argued that if the heart was an asset, then it should have been listed as such in the list of assets (properties) of the appellant. This does not weaken the claim of the appellant because there are assets like self-generated goodwill, patents, etc, which are not in the balance-sheet but become liable to capital gain tax when sold. The tax liability under the Act does not depend on accounting entries is an accepted principle in the income-tax law.
Webster defines the word 'plant' as 'the fixtures and tools necessary to carry on any trade (as also profession) or business'. It is 'the machinery, apparatus or fixtures by which business is carried on'. In Scientific Engineering House (P) Ltd versus CIT, AIR 1986 (SC) 338, the observations of the court are that 'plant' will include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus, which is used for mechanical operations or processes or is employed in mechanical or industrial business.
Apparently, it is hard to say that a human body is not plant in the case of businessmen and professionals. It is the basis for earning income and, hence, incurring of expenses in keeping it fit and in working condition is primarily for business or profession. The third ground (supra) given by the high court is equally not convincing. The tremendous rise in income of Shanti Bhushan clearly establishes that the amount was spent wholly and exclusively for the purpose of his profession.
It is time that rigid distinction between personal and business expenses is avoided. This does not imply that all personal expenses be deductible without looking at the nexus of expenses in earning incomes. Each issue has to be decided against the background of facts. Recently, the ITAT, in the case of DCIT versusSalman Khan (2011) 130 ITD 81 (Mum), has decided that the expenses incurred by actor Salman Khan in criminal proceedings arising out of hunting and killing a black deer had nothing to do with his professional activity as an actor and, hence, the expenditure was in the nature of personal expenditure - not deductible against his professional income for income-tax computation. No exception can be taken to such decisions. But not in cases like that of Shanti Bhushan.
Once the concept that human body is a plant is accepted, other expenses such as insurance, costs of body part replacement, depreciation, etc, too will become deductible.
(The author is former chairman ofthe Central Board of Direct Taxes)
.......
============================================================================= Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.
=========================================================================
Tuesday, July 26, 2011
Interesting case of Bollywood actress.
MUMBAI: Bollywood actress Rani Mukerji believes in numerology when it comes to accepting or making payments. The amounts paid or received are mostly divisible by three, a reply by her accountant to the income tax showed.
This reply is part of the documents filed by the actor in the Bombay high court. Rani has challenged Income Tax Appellate Tribunal's addition of nine lakh rupees to her income received for her 2001 film Bas Itna Sa Khwaab Hain. HC on July 1 admitted Rani's appeal and will decide if the addition is based on presumptions.
A diary found by the income tax during a search at her residence on September 26, 2000 show two entries of Rs 9 lakhs and Rs 1 lakh for her role in the Anil Kapoor starrer `Nayak'. When the assessing officer sought an explanation, her accountant said, ``Family of Rani Mukerji believes in numerology. This must have been seen from the record that most of the payments and receipts are always divisible by 3. Thus, they accept amounts in 3, 6, 9, 12, 15, 21, 36 etc and also make payments in the same manner.''
Rani entered into contract with Surya Movies for Rs 51 lakhs for ``Nayak''. On June 7, 2000 she received a signing amount of Rs 10 lakhs. ``But as they believe in numerology they received Rs 9 lakhs and Rs 1 lakh on the same day and therefore two separate entries in the diary." The department also seized cash and jewellery during the searches. The AO held that "theory of numerology is an afterthought" and showed examples where Rani has received payments such as Rs 95000/- for ``Hello Brother' and Rs 1,51,000/- for Hadd Kar Di Aapne. The assessing officer made an addition of Rs 10 lakhs to her income received for Nayak. But the commissioner whom she appealed rejected the department plea and the tribunal also agreed with the commissioner.
In the Bas Itna Sa Khwaab Hain movie starring Abhishek Bachchan, Rani had shown Rs 27 lakh as remuneration received. The diary showed that she asked Rs 48 lakhs as remuneration and received contract amount of Rs 36 lakhs. Assessing Officer questioned why the amount was not changed in the diary if there was a reduction and added Rs 21 lakhs to her income. Commissioner of Income Tax (Appeals) in June 23, 2008 also confirmed addition of Rs 21 lakhs.
Rani's appeal before ITAT said Rose Movies Combine on May 18, 2001 had sought to reduce the remuneration to Rs 27 lakhs due to a crisis in the film industry. But ITAT's order stated there is no date mentioned in the letter and reply requesting for reduction of remuneration and `` the same has been accepted, seems totally unnatural as films stars are known to haggle for money to the last pie." It observed that when her father was so meticulous in maintaining the amounts as well as the dates ``there is no explanation why the amount of Rs 36 lakhs was not changed to Rs 27 lakhs.
ITAT added nine lakh rupees to her income but did not agree an addition of 21 lakhs. ITAT in its January 7, 2010 order said it does not agree that the remuneration should be Rs 48 lakhs because the figure of Rs 36 lakhs itself is noted in the diary against contract amount and the agreement is also of Rs 36 lakhs. Rani has challenged this in the HC.
This reply is part of the documents filed by the actor in the Bombay high court. Rani has challenged Income Tax Appellate Tribunal's addition of nine lakh rupees to her income received for her 2001 film Bas Itna Sa Khwaab Hain. HC on July 1 admitted Rani's appeal and will decide if the addition is based on presumptions.
A diary found by the income tax during a search at her residence on September 26, 2000 show two entries of Rs 9 lakhs and Rs 1 lakh for her role in the Anil Kapoor starrer `Nayak'. When the assessing officer sought an explanation, her accountant said, ``Family of Rani Mukerji believes in numerology. This must have been seen from the record that most of the payments and receipts are always divisible by 3. Thus, they accept amounts in 3, 6, 9, 12, 15, 21, 36 etc and also make payments in the same manner.''
Rani entered into contract with Surya Movies for Rs 51 lakhs for ``Nayak''. On June 7, 2000 she received a signing amount of Rs 10 lakhs. ``But as they believe in numerology they received Rs 9 lakhs and Rs 1 lakh on the same day and therefore two separate entries in the diary." The department also seized cash and jewellery during the searches. The AO held that "theory of numerology is an afterthought" and showed examples where Rani has received payments such as Rs 95000/- for ``Hello Brother' and Rs 1,51,000/- for Hadd Kar Di Aapne. The assessing officer made an addition of Rs 10 lakhs to her income received for Nayak. But the commissioner whom she appealed rejected the department plea and the tribunal also agreed with the commissioner.
In the Bas Itna Sa Khwaab Hain movie starring Abhishek Bachchan, Rani had shown Rs 27 lakh as remuneration received. The diary showed that she asked Rs 48 lakhs as remuneration and received contract amount of Rs 36 lakhs. Assessing Officer questioned why the amount was not changed in the diary if there was a reduction and added Rs 21 lakhs to her income. Commissioner of Income Tax (Appeals) in June 23, 2008 also confirmed addition of Rs 21 lakhs.
Rani's appeal before ITAT said Rose Movies Combine on May 18, 2001 had sought to reduce the remuneration to Rs 27 lakhs due to a crisis in the film industry. But ITAT's order stated there is no date mentioned in the letter and reply requesting for reduction of remuneration and `` the same has been accepted, seems totally unnatural as films stars are known to haggle for money to the last pie." It observed that when her father was so meticulous in maintaining the amounts as well as the dates ``there is no explanation why the amount of Rs 36 lakhs was not changed to Rs 27 lakhs.
ITAT added nine lakh rupees to her income but did not agree an addition of 21 lakhs. ITAT in its January 7, 2010 order said it does not agree that the remuneration should be Rs 48 lakhs because the figure of Rs 36 lakhs itself is noted in the diary against contract amount and the agreement is also of Rs 36 lakhs. Rani has challenged this in the HC.
.......
============================================================================= Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.
=========================================================================
Sunday, February 20, 2011
IFRS forms
February, 18th 2011
The government today said it will soon notify the format that companies will have to follow while preparing their account books as per the international accounting norm IFRS from next fiscal.
In an official statement, the Corporate Affairs Ministry also said that it is ready with the depreciation rates that companies will have to follow while compiling their financial statements.
"The revised Schedule VI(Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly," the statement said.
The Ministry also pointed out that companies will have to comply by the International Financial Reporting Standards from April 2011.
"To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning April, 2011," it said.
On industry's apprehensions about implementation of IFRS from the next fiscal, the MCA said that all the issues have been taken care of.
"The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications," it said.
According to the roadmap laid out by the Corporate Affairs Ministry, companies will have to prepare their accounts as per the new norm in a phased manner, beginning with companies that have a networth of over Rs 1,000 crore.
Further, while scheduled commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April 2012.
Large, listed non-banking finance companies (NBFCs), will converge their opening books of accounts with IFRS norms from April 1, 2013.__,_._,___
The government today said it will soon notify the format that companies will have to follow while preparing their account books as per the international accounting norm IFRS from next fiscal.
In an official statement, the Corporate Affairs Ministry also said that it is ready with the depreciation rates that companies will have to follow while compiling their financial statements.
"The revised Schedule VI(Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly," the statement said.
The Ministry also pointed out that companies will have to comply by the International Financial Reporting Standards from April 2011.
"To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning April, 2011," it said.
On industry's apprehensions about implementation of IFRS from the next fiscal, the MCA said that all the issues have been taken care of.
"The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications," it said.
According to the roadmap laid out by the Corporate Affairs Ministry, companies will have to prepare their accounts as per the new norm in a phased manner, beginning with companies that have a networth of over Rs 1,000 crore.
Further, while scheduled commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April 2012.
Large, listed non-banking finance companies (NBFCs), will converge their opening books of accounts with IFRS norms from April 1, 2013.__,_._,___
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