The Central Board of Direct Taxes recently framed a scheme for ensuring quality tax assessments by its officers across India. In the preface to the scheme (issued in December 2009), the CBDT has expressed its concerns on the need for improving the general quality of tax assessments conducted by its officers. While in the past, the CBDT had issued instructions to the range heads (the country is divided into different revenue ranges) to monitor the quality of the tax assessments falling under their jurisdiction, there was no comprehensive plan in place for improving and monitoring the overall quality of tax assessments. While there are separate audit wings, an internal audit mechanism and the Comptroller & Auditor General audits, this scheme is a first of its kind aimed at improving quality of tax assessments by the revenue officers. Although the need for a plan to improve the quality of tax assessments has existed for several years, the CBDT has finally implemented a scheme effective from January 2010.
As per the scheme, the range head has to monitor at least five assessment cases for each of the revenue officers (assessing officers) falling under his jurisdiction. The cases will be jointly selected by range heads and assessing officers. The range heads would give appropriate directions for the guidance of assessing officers regarding the course of investigation to be adopted for completing these assessments in a proper manner and would also monitor the assessment proceedings in these identified cases. Once the assessments are completed, the assessing officers would send a copy of the assessment order to their range heads and to the concerned commissioner of income-tax. Also, monitoring, the scheme deals with quality assessments. The scheme mentions that for quality assessment, the assessing officer has to clearly identify the issues arising for consideration, has to give sufficient opportunity to the taxpayer to give his response, has to evaluate and analyse the response in detail and accordingly give his finding and conclusion in accordance with provisions of the law, resulting in substantial additions to income declared by the tax payer.
The scheme mentions that the cases identified for monitoring by the range head are expected to comply with this criteria of quality assessments and also authorises the chief commissioners of income tax to set monetary thresholds for assessments to qualify as quality assessments, normally not being less than Rs 5lakh, excluding recurring adjustments. Other than the identified...
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Central Board of Direct Taxes (CBDT) and accounting rule-maker Institute of Chartered Accountants of India (ICAI) have jointly constituted a study group to identify and address direct tax issues that will affect convergence of India's accounting standards with International Financial Reporting Standards (IFRS).
With IFRS convergence due for April 2011 and the government coming up with the new Direct Tax Code, the suggestions of the study group find relevance. Many provisions in the direct tax code need to be amended for a smooth transition to IFRS, a globally recognised accounting format. The study group will soon finalise and send its recommendations to the government for consideration.
Convergence to IFRS, which forms part of India's commitment at the G-20 summit, will help Indian business entities get into business tie-up and conduct business worldwide.
Apart from income tax law, several other legislations like the Companies Act, SEBI Act, Insurance Act also have to be amended so as to enable a smooth transition to IFRS.
Central Board of Direct Taxes (CBDT) and accounting rule-maker Institute of Chartered Accountants of India (ICAI) have jointly constituted a study group to identify and address direct tax issues that will affect convergence of India's accounting standards with International Financial Reporting Standards (IFRS).
With IFRS convergence due for April 2011 and the government coming up with the new Direct Tax Code, the suggestions of the study group find relevance. Many provisions in the direct tax code need to be amended for a smooth transition to IFRS, a globally recognised accounting format. The study group will soon finalise and send its recommendations to the government for consideration.
Convergence to IFRS, which forms part of India's commitment at the G-20 summit, will help Indian business entities get into business tie-up and conduct business worldwide.
Apart from income tax law, several other legislations like the Companies Act, SEBI Act, Insurance Act also have to be amended so as to enable a smooth transition to IFRS.
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F Waiver of term loan availed of by assessee not assessable as income : Accelerated Freez and Drying Co. Ltd. v. Dy. CIT (Cochin) p. 226 F Sum received from NRE account of NRI, not to be added as cash credit : Amritraj S. Punamiya HUF v. ITO (Mumbai) p. 242 F No interest for delay in TDS due to technical lapses in a public institution : ITO v. Registrar, Cochin University of Science and Technology (Cochin) p. 252 F Gain on cancellation of forward foreign exchange contracts is business income but 90% thereof liable to be reduced from profits for purpose of deduction : Dy. CIT v. Intergold (I) Ltd. (Mumbai) p. 257 F Amendment to section 10A(3), extending period of exemption is substantive : Dy. CIT v. Intergold (I) Ltd. (Mumbai) p. 257 F Loan advanced to shareholder : Payments made cannot be reduced from deemed dividend : Amount credited in loan account by way of remuneration cannot be set off against loan : Rajesh P. Ved v. Asst. CIT (Mumbai) p. 275 F Where no material establishing consideration paid higher than declared in sale deed, deletion of amount added as unexplained investment : ITO v. Fitwell Logic System P.Ltd. (Delhi) p. 286 F Sub-contractor, meaning of : Assessee taking vehicles on hire for executing contract : Liability of hirers not established : Tax need not be deducted : Mythri Transport Corporation v. Asst. CIT (Visakhapatnam) p. 290 F Carry out, meaning of : Mythri Transport Corporation v. Asst. CIT (Visakhapatnam) p. 290 F Licence under Factories Act obtained subsequent to commencement of production irrelevant for purpose of section 80-IB : Priya Printek v. ITO (Ahd.) p.302 F Deduction under s. 80-IB only after deducting unabsorbed depreciation as well as current year depreciation : Priya Printek v. ITO (Ahd.) p.302 F Where assessee joint-owner of property along with his brother on date of transfer and utlising long-term capital gains for constructing additional floor, not entitled to exemption under s. 54F : Asst. CIT v. T.N. Gopal (Chennai) p.309
NEWS-BRIEFS
FBankers warn risks on exposure to infra funding Bankers have demanded special facilities to meet the demands of huge funds for the infrastructure projects. Indian Banks' Association (IBA) in its meeting asked the Government and the Reserve Bank of India to do the needful to help them fund infra projects. To overcome asset liability mismatch constraints, the bankers have demanded the exemption of the infrastructure bonds from capital gains under section 54EA and investments under section 88 of the Income-tax Act. To enhance the ability of banks to provide medium-term financing to infrastructure projects, banks could be permitted to issue senior bonds with maturity lower than five years. The RBI should consider providing cash reserve ratio (CRR) and statutory liquidity ratio (SLR) exemption to infrastructure bonds floated by banks. Primary constraints for banks in financing infrastructure arises from their funding structure and applicable liquidity ratios. Bank resources are mainly in the form of deposits, which are typically of maturities up to three years. On the other hand, infrastructure sector requires long-term financing for a period extending beyond 15 years. Apart from asset-liability mismatch (ALM), interest rate risk and pricing are also key issues. The Deputy CEO, IBA also feels the need of large amount of funds, long gestation period and ALM are some of the basic problems being faced by the banks. RBI has permitted the banks to go for infra bonds to the extent of infra lending with a maturity period beyond five years. Also, the RBI has asked them to raise bonds and go for debt. Still, no bank is raising capital in this way since they will have to give an interest rate of 9 per cent. to their investors. Then things like CRR & SLR come in the way, which compel them to charge an interest rate of 11-12 per cent. while lending to infra projects. The bankers had raised this issue during their meeting with the Finance Minister in June. IBA earlier had formed a special committee to examine the set of problems faced by various banks in funding core sector. The report of the internal working group of IBA was submitted during its managing committee meeting held in Mumbai. The report has outlined that banks should be permitted to go for takeout financing in a big way and fiscal incentive should be provided to the banks. The resource mobilisation for the infra funding must be exempted from relevant Income-tax Act, so as to make money cheaper for infra financing. On fiscal side, capital gains should be made attractive to investors through fiscal measures, the report said. Currently, two kinds of prudential limits are in force-group and single exposure. In single exposure, the banks are permitted to fund up to 25 per cent. while for groups, banks can take leverage of up to 50 per cent. But bankers feel that it is not enough keeping in view the ever increasing demands of credit from the sector which is also required by the Government's increasing focus on infra spending. As per an estimate, total exposure of the banks to the sector is valued at Rs. 1,30,000 crore. [Source : www.financialexpress.com dated December 31, 2009] FA troubled tax code go to Law ministry for redrafting With the consultation process for the direct taxes code over, the proposals on taxation for salaried employees and income from house property may undergo some changes. There could also be a relook at the proposals on the minimum alternate tax, capital gains tax, double-taxation avoidance agreement, general anti-avoidance rule, taxation of charitable organisations and foreign companies, and taxing investment at the withdrawal stage. According to the code, income from a house, which is not occupied for the purpose of any business by its owner, will be taxed under the "income from house property" head. [Source : www.businessstandard.com dated January 7, 2010]
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INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 11-1-2010Volume 320 : Part 2
HIGH COURT JUDGMENTS
>>DVO's report not a ground for reassessment : CIT v. Iqbal Hussain (All) p. 142 and CIT v. Gulam Mohammad (All) p. 168 >>Tribunal not to interfere with the concurrent finding of AO and Commissioner (Appeals) that accounts manipulated subsequent to search : CIT v. S. N. Murali Mohan (Karn) p. 144 >>Valuation of diamonds during search at an average : CIT v. S. N. Murali Mohan (Karn) p. 144 >>Interest shown in computation sheet annexed to assessment order sufficient for levy of interest u/ss 234B and 234C : CIT v. Assam Mineral Development Corporation Ltd. (Gauhati) p. 149 >>Assessee obtained a decree to recover debt does not mean that debt was not bad : CIT v. Punjab Tractors Ltd. (P&H) p. 153 >>Commissioner not competent to assume jurisdiction where issue taken by him already dealt with by Commissioner (Appeals) : CIT v. Shalimar Housing and Finance Ltd. (MP) p. 157 >>Interest paid by assessee on delayed payments of sales tax not a penalty : CIT v. H. P. State Forest Corporation (HP) p. 170 >>Share broker purchasing shares for its client and paying money against purchase but money receivable from client becoming bad and treated as bad debt, allowable : CIT v. Bonanza Portfolio Ltd. (Delhi) p. 178 >>Cash payments allowable where nature of business of assessee and evidence in form of bills and cash memos : CIT v. Raja Pal Automobiles (All) p. 185 >>Tribunal rightly condoned the delay in filing application for registration by trust where there was a reasonable cause : CIT v. Village Life Improvement Foundation (P&H) p. 188 >>Revenue cannot claim interest from employee where employer paying tax with interest u/s 201(1A) : CIT v. Emilio Ruiz Berdejo (Bom) p. 190 >>Appellate authorities cannot decide appeal against order u/ss 195(1) and 201 whether payment was assessable or not : CIT v. Samsung Electronics Co. Ltd. (Karn) p. 209 >>Assessee deducting tax at source and remitting amount to Revenue but disputing such liability : Appeal denying such liability maintainable before Commissioner (Appeals) : CIT v. Samsung Electronics Co. Ltd. (Karn) p. 209 >>Housing society entitled to deduction from interest income on account of expenses incurred towards maintenance of houses of members : CIT v. Maruti Employees Co-operative House Building Society Ltd. (P&H) p. 254
NEWS-BRIEF
>>Direct tax code may spare home loans The Government may modify the draft direct tax code to retain tax shelters on interest and principal repayments for home loans to make the proposed new code more attractive for the average Indian, a Finance Ministry official said. The proposed direct taxes code, which has been unveiled for public debate and is due to become operational from April 2011, does not provide tax incentives to loan-funded house purchases that are for personal use. At present, taxpayers are allowed to deduct from their income the interest paid on home loans to a maximum of Rs. 1.5 lakh every year. In addition, the repayment of the principal amount is also allowed to be included within the rebate available under section 80C, which has a maximum limit of Rs. 1 lakh. The draft code, billed as a comprehensive reform of the direct taxes regime, has suggested increasing the exemption limit under section 80C to Rs. 3 lakh, but the list of eligible expendi-ture/savings does not include the principal payment. The code also restricts the interest deduction only in respect of houses rented out and where such income is included in the income of the assessee. At present, if a home buyer in the highest 30 per cent. tax slab were to avail the maximum tax exemption available on home loans then Government loses over Rs. 77,000 in tax. The planned move to discontinue tax benefits for housing has faced widespread criticism and the Finance Ministry official said "we are looking at provisions (in the direct taxes code) that concern common man directly, including tax incentives to housing." Tax reforms are aimed at increasing compliance and widening the tax base by lowering rates and removing exemptions. The Government is hoping to redraft the new code quickly so that it can be placed in Parliament in the Budget session itself. [Source : www.economictimes.com dated December 26, 2009] >>Payments to Foreign universities for services to non-profit organisations are tax-free Foreign universities providing consultancy services to business chambers or other non-profit organisation are not liable to pay tax in India, the Authority for Advance Rulings (AAR) has said. The ruling make business with the Indian non-profit sector more attractive for the foreign universities. In a recent ruling involving a wing of a foreign university, the AAR has said the university is not liable to pay income-tax in respect of the payments received by it from FICCI, a prominent industry body. FICCI had sought direction from AAR over the tax liability of the university and the amount of tax which the chamber had to deduct while making payments. AAR is a quasi-judicial body, set up to give opinion to guide companies on their potential tax liabilities. AAR's rulings are case-specific, but they have a persuasive impact on tax assessment cases of similar circumstances. The AAR ruling means that FICCI is not required to deduct tax at source while making payments to the university for its consultancy services. The industry chamber had entered into an agreement with a wing of the foreign university for certain work and services related to a Defence Research and Development Organisation (DRDO) project. [Source : www.economictimes.com dated December 26, 2009]
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>> Expenses incurred for keeping business alive after suspension order by SEBI : Allowable : KNP Securities P. Ltd. v. Asst. CIT (Mumbai) . . . p. 130
>> A. O.'s observation "loss to be carried forward" on late return erroneous and prejudicial to interests of Revenue justified : Lodhi Property Co. Ltd. v. CIT (Delhi) . . . p. 140
>> Interest on deep discount bonds accrues from year to year : Gujarat Toll Road Investment Co. Ltd. v. Asst. CIT (Ahd.) . . . p. 146
>> Interest accrued on deep discount bonds issued to financial institutions not interest on loan or borrowing for purpose of s. 43B : Gujarat Toll Road Investment Co.Ltd. v. Asst. CIT (Ahd.) . . . p. 146
>> Where funds advanced to subsidiary on grounds of commercial expediency, disallowance of interest not valid :Industrial Cables (India) Ltd. v. Addl. CIT (Chandigarh) . . . p.156
>> Income representing waiver of interest by bank and on debentures taxable : Industrial Cables (India) Ltd. v. Addl. CIT (Chandigarh) . . . p. 156
>> Where assessee acting as conduit between group concern and contractors, no violation of section 269T on making payment in cash to contractors for and on behalf of group concern : Canara Housing Development Co. v. Addl. CIT (Bangalore) . . . p. 165
>> Where assessee not having permanent establishment in India but having its source of income from resident of India, amount received is business profits under art. 7 of DTAA (Australia), not taxable in India : Asst. CIT v. Paradigm Geophysical P. Ltd. (Delhi) . . . p. 178
>> Where resident company collecting data in area proposed to prospect for mineral oil, data area specific and not development and transfer of technical plan or design, art.12(3)(g) of DTAA (Australia) not applicable : Asst.CIT v. Paradigm Geophysical P. Ltd. (Delhi) . . . p. 178
>> Where no proof of attempt to serve notice on assessee, service of notice by affixture invalid : Deputy CIT v. K.G. Singhania (Amritsar) . . . p. 205
NEWS-BRIEFS
Budget 2010 to put in place anti-avoidance rules for tax
The forthcoming Union Budget may have an anti-avoidance provision, which can effectively check convoluted transactions devised exclusively for the purpose of evading payment of taxes in India.
Incorporation of such a law into the country's Income-tax Act has been a long standing demand of the tax authorities who often find themselves handicapped whenever they come across a transaction of this nature.
The Income-tax Act, 1961, which is the existing tax code, does not have provisions that can effectively check such an exercise. Common examples of transactions that are convoluted are when there is a shell company registered in Mauritius or another country with low tax rates, which ensures the taxpayer can avoid paying tax in India.
The Direct Tax Code (DTC), the new tax code proposed to be replacing the existing Income-tax Act, also contains provisions for anti-avoidance. The DTC empowers the Commissioners to declare a transaction as an impermissible arrangement to avoid paying taxes in India. A part or even the complete transaction can be declared impermissible or lacking in business substance. The Government, it is gathered, may incorporate some of the proposals made in the DTC to the existing Income-tax Act in the budget proposal. [Source : www.economictimes.com dated December 30, 2009]
Oil explorers to pay tax at lower rate : AAR
Foreign firms helping domestic oil explorers need to pay tax at lower rate of 10 per cent. only as their business is technical services, the Authority for Advance Ruling has ruled.
The income earned by foreign firms by providing survey and technical services to an Indian oil exploration company will be taxable at 10 per cent. as fee for technical services (under section 44BB of Income-tax Act), rather than as royalty fee (section 44DA of the Income-tax Act) which is double at 20 per cent., AAR has ruled.
The AAR set aside the contention of the Revenue Department that the services provided by Dubai-based exploration company do not fulfil the requirement for being taxed under section 44BB (technical services) and therefore the income from its activities has to be taxed under section 44DA of the Income-tax Act (royalty fee). [Source : www.economictimes.com dated December 30, 2009]
Income-tax Department claims Rs. 30k cr. for MAT violations
The Income-tax Department has claimed Rs. 30,000 crores from companies that have violated provisions under the minimum alternate tax (MAT).
Sources said the claim is not only for the current assessment year of 2009-10, wherein assessments are still going on, but also for previous four-five assessment years, which are under litigation either in courts or at appellate levels. Also, for each year, cases have been re-opened for block assessment of the last four years preceding the assessment year in consideration.
According to section 115JB, a company is required to pay tax under special provisions of "minimum alternate tax" even if it does not make profit and its total income for the specific assessment year is less than 10 per cent. of its book profit. Enacted in 2000-01 as section 115JA, it was later amended to section 115JB.
Registrar of Companies (RoC) said inspections were done to check violations of Companies Act, and not revenue generation. Under MAT, accounts have to be prepared as per Companies Act.
In order to tackle such violations in future and get revenue without any legal hassles, the Central Board of Direct Taxes has suggested that I-T authorities should have the power to qualify accounts for violation of Companies Act in cases pertaining to income-tax. These powers will help the I-T authorities to recover the amount even if balance sheets are not qualified by the RoC. [Source : www.businessstandard.com dated December 31, 2009]
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>>CBDT circular avoiding harassment in the course of enquiry/search of the air-passengers by the Air Intelligence Units/Investigation Units of the Income-tax Department :Rajendran Chingaravelu v. R. K. Mishra, Addl. CIT p. 1 >>Sawing marble blocks into slabs and tiles and polishing entitled to deduction u/s 80-IA(2)(iii) : ITO v. Arihant Tiles and Marbles P. Ltd. p. 79
HIGH COURT JUDGMENTS
>>Tribunal not justified in reviewing its order : Express Newspapers Ltd. v. Deputy CIT (Mad) p. 12 >>Exemption u/s 10(26) available to member migrating from his place of origin in one of areas specified in section 10(26) to another area also specified therein : Pradip Kr. Taye v. Union of India (Gauhati) [FB] p. 29 >>High Court not interfering with notice for reassessment but granting one week time to assessee to file explanation before AO : Mavis Satcom Ltd. v. Deputy CIT (Mad) p. 46 >>Proceeding invoking provisions u/s 179 against director justified where concurrent finding that due amount could not be recovered from company : Alex Cherian v. CIT (Ker) p. 49 >>Order of Tribunal directing assessment not be at figure higher than that determined by AO u/s 144 not sustainable : CIT v. H. P. State Forest Corporation Ltd. (HP) p. 54 >>Tribunal not justified in remanding matter to Commissioner (Appeals) where Commissioner (Appeals) ascribing reasons and dislodging order of AO on merits : Rajesh Maheshwari v. Asst. CIT (MP) p. 58 >>Actual cost to assessee to be treated as WDV for purposes of depreciation : CIT v. Hybrid Rice International P. Ltd. (Delhi) p. 63 >>Tribunal to consider claim of accumulated agricultural income on basis of books of account of assessee and documents and certificates filed by assessee : Swapna Rani Sarkar v. CIT (Gauhati) p. 70 >>Interest on interest payable only where refund is made without interest and there is delay in payment of interest : Motor and General Finance Ltd. v. CIT (Delhi) p. 88 >>S 40A(3) does not apply unless any one payment is above Rs. 2,500 : CIT v. Ashok Iron and Steel Rolling Mills (All) p. 101 >>Provision for presumptive tax applicable where processes starting with soil testing and evaluation of available data, assessment of risk involved and certification as to whether rig could be moved from one site to another : Director of I. T. v. Jindal Drilling and Industries Ltd. (Delhi) p. 104 >>Notice for reassessment valid where reasons given by AO not influenced by superior officer : Jagjit Pal Singh Anand v. CIT (Delhi) p. 106 >>Reassessment on basis of order of DVO not valid where assessment order passed on 4-12-1990 : CIT v. Leather Trends (P) Ltd. (All) p. 114 >>Court will not interfere where deletion of additions for suppressed sales based on cogent reasons : CIT v. Mascot (India) Tools and Forgings (P) Ltd. (All) p. 116
AUTHORITY FOR ADVANCE RULINGS
>>Amount paid to Institute of University of Texas not taxable in India where activities of institute not technical services : Federation of Indian Chambers of Commerce and Industry, In re p. 124
STATUTES
>>Notified scientific research association u/s 35(1)(ii) p. 15 >>Officers nominated as members of DRP p. 15 >>Specified association/territory u/s 90A, Expln. 2(a) and (b) p. 14 >>Valuation of perquisites : Rule 3 substituted p. 1
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