Messages

1

Discussion / Re: applicability os section 2(22)(e) in case of ICDs

« on: March 08, 2013, 06:32:28 AM »

ICDs are different from loans or advances and would not come within the purview of deemed dividend as per the citations reported in 28 sot 383 and  28 ITCL(II)551. Please go through the same and use in support of your argument.

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Discussion / whethre sec. 56(2) for inadequate consideration is double taxation or not

« on: March 04, 2013, 08:26:16 AM »

After introduction of new provisions of sec. 56(2) for inadequate consideration, sec. 50C has become irrelevant as it amounts to double taxation. Same amount is taxed in the hands of seller and purchaser.  Further, it is taxed in the hands of the purchaser as inadequate consideration u/s 56(2), then when the said property is sold by him then whether the amount on which he pays tax is allowable as cost of acquisition? if So under which section? I hope the legislation will dwell upon these issues before finalising the enactment of the proposed Finance BIll.

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Discussion / Re: Interest on Late depsoit of TDS

« on: March 04, 2013, 06:49:26 AM »

Whether the question of correctness of the decision and whether the same is to be followed in subsequent years are two different issues and therefore, cannot be clubbed to arrive at a reasonable conclusion. In the decision of Madras High Court reported above, it was  held that the interest assumed the character of principle and therefore, it becomes incometax and cannot be allowed. If this proposition is accepted, then regular TDS deducted is also to be characterised as incometax as per Court ruling and therefore, it is not allowable. But it is allowed as business expenditure. For Example if 1,00,000 is to be paid as professional charges, then Rs. 90,000/- will be paid to the deductee and the remaining Rs. 10,000/- will be paid to the government in the form of TDS. Then this amount of Rs. 10,000/-, if it is considered as incometax,  as held by the High Court , is not at all allowable. But it is allowed in all the cases and the immediate question that requires answer is under which section. Definitely u/s 37(1). Therefore, it cannot assumes the character of incometax by any stretch of imagination and what answer will we find to the above fallacy if we support the court decision.  It is the amount to be paid to the deductee and it was paid to the government on his behalf. Therefore, it becomes the expenditure under the same head. Further, if we go through the court decision also, its argument is also in one way and final conclusion is in other way. Further, the interest u/s 201(1A) is also not a penalty as there is one more section in Incomtax Act which prescribes for penalty i.e. 271C. As per General Clauses Act, there cannot be two penalties for one default. If the interest is characterised as penalty then the second penalty u/s 271C cannot be called as penalty. Therefore, the conclusion is interest u/s 201(1A) is not penalty and the actual penalty is u/s 271C and this penalty cannot be allowed. Further it cannot be characterized as income tax as discussed above. When the answer to the above two propositions is negative, there is no other section prescribed for disallowance. Just because the decision of an High Court is not assailed by a particular assessee, it cannot become law of the land. It is true if revenue has not contested an issue declared by a High Court before Supreme Court, then it has no right to contest the same issue before Supreme Court in other's case as per sec. 268A unless the first decision is not contested because of the monetary limits. But assessees are always free to contest incorrect decisions before Higher Appellate forums. As stated in the beginning itself until and unless supreme Court decision comes, the revenue will follow Madras High Court decision which is in their favour because it is beneficial to them. Can we now also say it is no more open just because that decision is not contested before Supreme Court by a particular assessee. Every body knows that litigation has become very costly and therefore, the assessee in that case might have taken a decision not to contest the same before Apex Court or there might be 101 reasons for not contesting the said decision. I, personally, feel the question is still open as many ITATs in recent times have held that interest u/s 201(1A) is compensatory in nature. Any other view against this is welcome.....................

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: March 04, 2013, 06:09:41 AM »

Rajkot decision appears to be not logical and not as per the practicality. This is because, once TDS is not deducted and the relevant amount is paid to the payee, it cannot be deducted from the payee at all and any how the amount is to be paid from the personal coffers of the deductor only. Whether this amount of  deducted TDS is allowable u/s 201(1) or not is a separate question altogether and is not relevant for our discussion. However, What ultimately government wants is the amount of TDS is to be deposited in governments kitty from the deductor in the form of TDS. It is immaterial, in my personal opinion,  whether it is paid from the personal funds of the deductor or from the funds to be paid to the deductee.  That is why it is provided that the disallowed expenditure u/s 40a(ia) is allowable when the TDS is deposited in the governments account in the subsequent year(s). If the proposition that the TDS deductible in the months of Apr to Feb is deducted in March and deposited before filing of return of income, then also disallowance can be made is accepted then it becomes absurdity because, without deduction if the amount is paid to the deductee it cannot be deducted again from the deductee at all and the amount should be paid from the personal coffers of the deductor as stated above. If the argument is accepted then the expenditure is not at all allowable as it cannot be recovered  from the amount to be paid to deductee in subsequent years also. How the deductor will pay that TDS in subsequent years, without deducting from the payment to be made from the deductee, when the entire amount has already been paid to him and his present whereabouts are not known to the deductor. Just because he didnot keep the address of the deductee, he has to forego the expenditure eternally and he had to bear the consequential disallowance. Therefore,  the second limb of the section that it will be allowed as and when the same is paid in subsequent years will become otiose and redundant. This is not the intention of the legislation. Therefore, the decision of RajKot do not appear to be logical and the right course of action would be to charge interest from the date of deductible to the date of actual deduction and any how that is paid before filing of return of income the expenditure should have been held as allowable.   This is my view..................... if any other view is there, it is whole heartedly welcome.............................

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Discussion / Re: Liability to pay advance tax in case of non deduction of Tax - Sec 209.

« on: February 16, 2013, 06:15:36 AM »

I think the queriest missed a point in the amendment . For the sake of clarity the amendment made is as under-

Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.

If the second part of the above mentioned proviso is analysed it is clear that  the deductor should pay the the entire income without deducting tax and receipient should receive the entire income and then only he cannot claim that he is under bonafide bellief that tax will be deducted by the deductor. In the case of narrated facts, it is mentioned that "would be required to pay advance tax in respect of salary income pertaining to current FY but not  received on or before 31st March 13".  Please note the  very important and pertinent point here which is "but not received". Once it is not received then the proviso is not applicable and only the provisions of sec. 209(1)(d) are applicable and accordingly the receipient can claim that he is under bonafide belief that required tax will be deducted from the amount to be received from the deductor and therefore he need not pay advance tax to escape from interest chargeable under 234B and 234C. Is it not correct. ..............................

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: February 10, 2013, 05:49:48 AM »

Only to communicate that if the tax is paid( either by the deductor in the form of TDS  or by the deductee in the form of regular taxes) after the due date of filing of return of income in the immediate succeeding year or following  years to immediate succeeding year then the legislation wanted to communicate that in that year( may be immediate succeeding year  or following years to immediate succeeding year) only the expenditure of the deductor should be allowed. If you still dont agree, you try to draft a provision communicating the above meaning and I am sure you will also end up drafting in  the same way legislation had done. So, try to draft the provision communicating the above meaning......................

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: February 02, 2013, 02:25:29 AM »

I think the discussion took so many interesting twists and Sri Rama Samy had argued in a way and I took another argument in a different way. Let us examine the evalution of sec. 40(a)(ia) from the beginning. Initially the section was incorporated as under according to which the TDS not deducted or if deducted but not paid during the previous year or within the time allowed under the provisions of sec. 200(1), then expenditure pertaining to such TDS is not allowable as deduction.  The sec originally enacted is reproduced hereunder for ready reference……………….

   “(ia)   any interest, commission or brokerage, fees for profes¬sional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time pre¬scribed under sub-section (1) of section 200 :
      Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deduct¬ed in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
      Explanation.—For the purposes of this sub-clause,—
   (i)   “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H;
   (ii)   “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
   (iii)   “professional services” shall have the same mean¬ing as in clause (a) of the Explanation to section 194J;
   (iv)   “work” shall have the same meaning as in Explanation III to section 194C;”

As per my understanding, the TDS which is deducted and which is to be paid on 7th of the immediately following month should be paid during the previous year itself and the amount deducted during the last day of the financial year should be paid on or before 31st day of May of the following year in order to get the allowance of the said expenditure. If the expenses of the nature specified in the section are not paid as per the dates mentioned above, then such expenditure is not allowable under the provisions sec. 40(a)(ia). It was further provided that if the TDS is paid  after the dates specified, then relevant expenditure is allowable in the F.Y. in which the TDS is paid.

   However, by the Finance Act 2008 an amendment has been brought into the section and as per the amended provisions, TDS deductable during the previous year other than for the month of March ( first 11 months of the financial year upto Feb)  should be paid before the end of the financial year and TDS deductable for the month of March should be paid before the due date of filing return of income u/s 139(1) to get the relevant expenditure allowed during the year itself .  Needless to say that it was also provided that if the TDS is paid after the dates specified above, then such expenditure is allowable in the F.Y. in which the relevant TDS is paid.
For the sake of clarity the amendment brought into the sec  is reproduced hereunder-

“(a)   in sub-clause (ia), with effect from the 1st day of April, 2005,—
   (i)   for the words, brackets and figures “has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200”, the following words, brackets and figures shall be substituted and shall be deemed to have been substituted, namely:—
      “has not been paid,—
   (A)   in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or
   (B)   in any other case, on or before the last day of the previous year”;
   (ii)   for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted, namely:—
      “Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted—
   (A)   during the last month of the previous year but paid after the said due date; or
   (B)   during any other month of the previous year but paid after the end of the said previous year,
      such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”;”

However, another amendment is brought into the sec. by the Finance Act 2010 as per which if the entire TDS of the previous year is paid before filing return of income u/s 139(1) then the relevant expenses are allowed (cannot be disallowed) in that previous year itself. If the TDS of the previous year is paid after the due date of filing return of income, then the relevant expenses are allowable during the year in which the relevant TDS has been paid. The amendment brought is reproduced as it is for better understanding.

“Amendment of section 40.
12. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia),—
   (a)   for the portion beginning with the words “has not been paid,—” and ending with the words “the last day of the previous year”, the words, brackets and figures “has not been paid on or before the due date specified in sub-section (1) of section 139” shall be substituted;
   (b)   for the proviso, the following proviso shall be substituted, namely:—
      “Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”.”

Finally to rationalize the provisions an amendment is carried out in sec. 40a(ia) in the Fiinance Act 2012 as per which if the deductee had filed return of income duly paying the taxes on the  income received from the deductor and the deductor is able to fulfill the conditions specified therein then it is deemed that the deductor has deducted and paid the TDS on the date of filing return of income by the deductee. The exact amendment is as under-

“Amendment of section 40.
11. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia), after the proviso and before the Explanation, the following proviso shall be inserted with effect from the 1st day of April, 2013, namely:—
"Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.".”

If we analyse the amendments brought into the sec. chronologically, then it is clearly evident
that the rigours of the provision are toned down and ultimately have been brought down
substantially. If the arguments of Sri Rama Samy are analysed, then the amendment brought by F. Act  2012 will lose its relevance. By the amendment brought by F.Y. 2010 the deductor got time to deposit the entire TDS (either deducted or not deducted) upto the due date of filing return of income u/s 139(1). Governments ultimate goal is to collect the tax due  from the income embedded in the amount exchanged between deductor and deductee. It can be in the form of TDS from the deductor or in the form of regular taxes from deductee. When the section already says that the payment of TDS can be made upto the date of filing return of income by the deductor to get the allowance and the amendment is only to rationalize (make the provisions more logical and reasonable) the said provisions, can we say that even if the tax is paid by the deductee, disallowance is required for the previous year and the same can be allowed during the subsequent year.  As stated earlier the provisions of sec. 40(a)(ia) are enacted to ensure that due taxes are collected on the income from the receipt that changed hands between deductor and deductee. By the amendment brought through F. Act  2012, the legislation cannot go back and say that even  if the deductee files return before the due date  duly paying taxes on the income received from the deductor then the expenses for the previous year should be disallowed in the hands of deductor and the same should be allowed in subsequent year. In my opinion, the provisions should be read harmoniously and cannot be permitted to pick out a part of sentence from one proviso and attach that part to another part of the sentence of other proviso to attribute different meaning to the section which even the legislation can not visualise ( Please refer to SC decisions reported in 198 ITR 297 and 287 ITR 242).   

Accorignly, I still feel that if the deductee files return of income duly paying taxes, then the
expenditure of deductor should not be disallowed during the previous year. Please correct me if I am wrong.     

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: January 31, 2013, 02:55:57 PM »

Even now I failed to understand the situation narrated by you and how it is different from the discussion made above. For your clarity the amendment brought into the  Act is as under "Provided further that where an assessee fails to deduct the whole or any part of the tax ........................................................... Thus the amendment brought also deals with a situation where tax has not been deducted during the year the deductee had filed return of income duly paying the taxes. In such a situation, as per the amended provisions the disallownace cannot be made under 40(a)(ia). That is my understanding. I may be corrected If I am wrong.

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: January 31, 2013, 07:36:14 AM »

while coming to the above conclusion, I think a point was missed. By the amendment brought in sec. 40(a)(ia) in F.Y. 2010, the deductor is getting time to deduct and deposit all the TDS  upto the date of filing return of income. One should not forget that "all the TDS" means the entire TDS deducted during the previous year and "the date of filing of return of income" will always be in  the subsequent financial year which means that TDS deducted during this year can be deposited during the next financial year, of course, before filing the return of income. If it is proved that due taxes have been paid by the deductee before filing return of income where is the question of deductor being punished under the amended provisions sec. 40(a)(ia). I think the intent of legislation can be explained in this way also. Is it not so.

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: January 29, 2013, 06:08:50 AM »

Return of income will always  be filed in subsequent year. It is true not only in the case of deductee but also in the case of deductor. Ergo, while filing return of income by the deductor he can ascertain that the particular receipt from him was included by the deductee and due taxes were paid by him and finally ensure that he also filed return of income. Then there is no question of any disallowance u/s 40(a)(ia) in his hands. In my opinion, this is the intent of legislature while making the amendment. Moreover, scrutiny assessment of the deductor will be taken up only after 1 year or so. If it is proved that all the conditions specified are fulfilled then it is sufficient compliance to get out of the rigours of the provisions of sec. 40(a)(ia).

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Discussion / Re: Sec- 40 (a) (ia)- Amendments, Clarifications, Controversies & Litigation

« on: January 27, 2013, 08:24:17 AM »

as per amendment brought in Finance Act 2012, if the assessee is not deemed to be in default then the expenditure need not be disallowed u/s 40a(ia). I am surprised to note that as to how you have seen one amendment in sec. 201(1) and missed the consequential amendment in sec. 40a(ia).

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Discussion / Re: Interest on Late depsoit of TDS

« on: December 28, 2012, 07:26:03 AM »

this decision is also on interest u/s 220(2) but not on interest u/s 201(1A). The issue in question is about the allowability of interest u/s 201(1A). Therefore, the issue is still open for discussion.

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Discussion / Re: Taxation of Carbon Credits

« on: November 07, 2012, 06:00:35 AM »

All the above arguments have been considered by Hyderabad ITAT in the case of My Home Power Limited and finally it has been held by the ITAT that  the proceeds  received by selling CERs i.e. carbon credits are capital receipts and accordingly not taxable. The same is reported in 27 taxman.com 27. Till a High Court reverses this decision, the same can be utilised by everybody to strengthen the argument that carbon credits are not revenue receipts to attract tax liability.  However,  the alternative argument that the deduction u/s 80IA should be extended to carbon credits also is not answered by ITAT as it was felt that this argument is academic in nature. Therefore, we have to wait till a decision comes on the issue of allowability of 80IA deduction on CERs.

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Discussion / Re: Deduction u/s. 80-IA on carbon credit income

« on: November 07, 2012, 05:51:59 AM »

on 02-11-2012,  Hyd ITAT has held in the case of My Home Power Ltd  that  the proceeds  received by selling CERs i.e. carbon credits are capital receipts and accordingly not taxable. The same is reported in 27 taxman.com 27. Till a High Court reverses this decision, the same can be utilised by everybody to strengthen the argument that carbon credits are not revenue receipts to attract tax liability.

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Discussion / Re: sec. 268A of IT Act, comparison with the other issues when same question of law

« on: November 07, 2012, 05:47:59 AM »

on 02-11-2012, Hyd ITAT has held in the case of My Home Power Ltd that  the proceeds  received by selling CERs i.e. carbon credits are capital receipts and accordingly not taxable. The same is reported in 27 taxman.com 27