Tax News
Court proceedings not under RTI Act: CIC
ITAT held not subject to right to information Act
New Delhi, September 26: In a landmark decision, the Central Information Commission (CIC) has ruled that judicial proceedings of all courts and tribunals are beyond the purview of the Right to Information (RTI) Act.
A judicial authority must function with total independence and freedom. Should it be found that an action initiated under the RTI Act impignes upon the authority of that judicial body, the Commission will not authorise the use of the RTI Act for any such disclosure requirement.
“...a judicial authority must function with total independence and freedom. Should it be found that an action initiated under the RTI Act impignes upon the authority of that judicial body, the Commission will not authorise the use of the RTI Act for any such disclosure requirement,” a full bench headed by Chief Information Commissioner Wajahat Habibullah said in its 22-page order.
Terming any intrusion in regard to judicial work as “unnecessary”, the bench noted that “judiciary is independent and all judicial authorities including all courts and tribunals must work independently and without any interference in so far as their judicial work is concerned.”
The order came on an application of Delhi-based Chartered Accountant Rakesh Kumar Gupta, who had sought from the Income Tax Appellate Tribunal (ITAT) copies of minutes as maintained by members of its bench in an Income Tax assessment case of Escorts Limited and had also asked for inspection of the case records.
The matter, which was taken up with the CIC following ITAT’s denial of the information, was contested by the tribunal on the ground that as per relevant rules of Income Tax Act, such copies of its orders could only be provided to the concerned assesses. The tribunal further contended that Escorts Limited had “strongly objected” to such inspection of the records.
“...It would not be appropriate for the Commission or any entity functioning as part of the RTI regime, to pronounce on the disclosure of a given set of information, if it is found that under another law (such as Income Tax Act), this disclosure function is exercisable as part of the judicial function by a judicial authority, such as the ITAT,” the bench noted.
Dismissing the applicant’s plea that anyone seeking inspection of the records should be allowed on payment of prescribed fees, the Commission said that the RTI Act gave “total discretion” to the court or the tribunal to decide as to what should be allowed for disclosure. The Commission which has remanded the case back to the President and Appellate Authority of ITAT to determine the issue of disclosure of the information, has made it aptly clear that any remedy, if available, to the applicant shall only be under the Income Tax law.
Booming economy lifts lawyers’ fortunes
A spurt in demand for lawyers, especially business lawyers along with a booming economy has seen a sustained increase in lawyers’ fees and salaries
New Delhi: Once upon a time, legal practitioners in England were paid through voluntary contributions of a few guineas dropped into a small pouch attached to the back of their gowns. Even today, advocates in India sport the pouch as part of their traditional robe. But that is where the compensation comparison ends.
International clients, meanwhile, say they still find professional fees charged in India relatively cheaper compared with the West. They add that they appreciate the multi-tasking abilities of many Indian lawyers compared with their peers in, say, the US, where the trend is more towards super specialization in limited areas of law.
As the Indian government mulls opening the legal services sector to foreign law firms, a booming Indian economy and a spurt in demand for lawyers, especially business lawyers, has seen a sustained increase in lawyers’ fees and salaries.
“Post-liberalization, companies are financially stronger, commercial deals are looking different since stakes are higher,” says Anand Prasad, founding partner of Trilegal, New Delhi. “Today, most corporate representatives turn up at the negotiating table with a lawyer.”
Not surprising, given the frenetic pace of mergers and acquisitions, private equity plac-ements, initial public offerings, big-ticket foreign direct investment deals and forging of new joint ventures—all of which require legal advice, especially in the context of India’s still complicated, and sometimes convoluted, multiple laws.
Most law firms that Mint talked to were quite reluctant to discuss their annual revenues. But a cross-section of lawyers across medium and large corporate legal advisory firms, defined by the number of partners and associates, generally said the hourly rates for a junior associate at a corporate law firm would average Rs 3,000-6,000, while for a senior associate it could vary between Rs 6,000 and Rs10,000. This is double of what they charged a decade ago. Over the same period, cost of advice from partners of law firms has risen similarly, from Rs 3,000-8,000 per hour to Rs9,000-16,000, with significant exceptions for specialists and hot-shot names.
Meanwhile, the typical difference in fees that Indian lawyers used to charge for domestic clients and international clients is starting to disappear.
“The difference between rates charged to domestic and international clients is gradually narrowing,” says Som Mandal, partner at Fox Mandal Little, India’s largest law firm with 300 lawyers and 50 partners.
Sanjay Asher, senior equity partner at full-service legal firm Crawford Bayley in Mumbai, also believes that the legal sector is moving to harmonize rates in part because while “business needs that drive corporate law practice are changing, the work done for Indian clients and foreign clients is the same”.
International clients, meanwhile, say they still find professional fees charged in India relatively cheaper compared with the West. They add that they appreciate the multi-tasking abilities of many Indian lawyers compared with their peers in, say, the US, where the trend is more towards super specialization in limited areas of law. Often, in deals involving India, the value-add tends to come from the Indian side largely because of the plethora of regulatory issues in India.
TAX SHIELD
The ITAT has held that foreign loss in one year can be claimed even though foreign profits in another year need not be offered to tax.
The ITAT said owing to various tax treaties, most of the foreign income of Indian companies is tax exempt here. It gave a subtle hint on the need to correct the situation.
Claim tax relief on overseas losses
losses in japan can be set off against indian profits
MUMBAI: Corporates and banks have been allowed to use losses suffered by ‘overseas branches’ to lower the tax outgo in India.
So far, taxes had to be paid on the full profit generated in India, irrespective of whether the foreign branches posted a loss. From now on, the taxable income in India will go down to the extent of losses suffered abroad.
This follows an order by the Income-Tax Appellate Tribunal (ITAT), Pune. The tribunal has ruled that losses incurred by the foreign operations of an Indian company have to be allowed as a deduction from its profits here, even though the profits earned abroad continue to remain exclusively taxable in the foreign country under the terms of Double Taxation Avoidance Agreement (DTAA).
This puts corporates in a win-win situation. What it means is that if overseas operations show profit, corporates will not have to pay additional tax in India, but only in the country where the operations are located. But corporates can take advantage of losses from overseas operations to reduce their tax liability in India.
The ruling, applying to overseas branches but not subsidiaries, was rendered by the Pune Bench of ITAT comprising CL Sethi and Pramod Kumar in the case of Patni Computer Systems, a Pune-based software company with a branch office in Japan.
After incurring a loss of Rs 53 lakh in its Japan operations, Patni Computer Systems had claimed the loss would be deducted from the company’s overall profits taxable in India. The assessing officer declined the adjustment noting that since profit from the Japan office is exclusively taxable in the island nation, the loss incurred there could not be adjusted against profits in India.
The commissioner (appeals) held that the entire income of the company — whether earned in India or abroad — is taxable in India, and therefore losses in Japan are to be adjusted against its domestic profits. The assessing officer appealed against this order before the ITAT.
The tribunal held losses in Japan are to be adjusted against profits in India, whether or not the profits in Japan are taxable here. It also held the Indian company will get a deduction for its overseas profits twice — once in its assessment in India and the next time when it makes profits in Japan, which in tax parlance is called ‘double dip of losses’.
The argument given by the tribunal was that once an income becomes taxable by a foreign government with which New Delhi has a tax treaty, India loses its right to tax the same unless the agreement has a specific provision that income can be taxed in both the countries. Therefore, when an income is taxed abroad, it can not be taxed in India.
Yet, when a company makes a loss abroad, it can be adjusted against profits in India because the provisions of DTAA cannot be thrust upon the Indian company. The tax treaty applies only when it is more beneficial to the taxpayer.
The tribunal observed that a double dip of losses, howsoever undesirable and unintended, is in consonance with the prevailing legal position. It also said that “the present legal position is also somewhat anomalous inasmuch as the scheme of tax credits under the various tax treaties, which India has entered into, has become unworkable to a large extent due to availability of tax exemption to most of the foreign income of Indian residents, which is taxed in the source country — something which was obviously not envisaged when these treaties were entered into”.
But “the remedy, however, does not lie with us”, it noted. Tax professionals perceive this as a subtle hint on the need for legislative amendments.
Double dip of losses can unreasonably enrich the Indian corporate and deny tax revenues to the national exchequer. But experts think this is the correct position of law. According to PwC’s head of taxation Dinesh Kanabar, the overseas losses (in this case, Japan) should be set off against the profit in India, and if the Japanese tax authorities allow a set-off against the profits made in subsequent years, that’s their problem. Senior chartered accountant TP Ostwal said, “The order is in tune with the principles of international taxation.”
There was a similar case in India, but in a reverse form. Sometime ago, the Mumbai tribunal had held that losses suffered in India by Belgian firm Jan Benil would not be set off against profits in Belgium. But the order was later recalled.
MNC advertisers have reason to cheer
expenditure incurred to promote business in India IS allowable
MUMBAI: Multinationals with big advertising spends in India have reason to cheer. The Delhi Income-tax Appellate Tribunal (ITAT), on an appeal field by Nestle India, said that the expenditure on advertisements can be fully deducted to arrive at the taxable income.
Interestingly, the I-T department had disallowed this to Nestle on the grounds that such spending has helped the parent company Nestle S A Switzerland in establishing its brands and products. The assessing officer disallowed 50% of the expenditure (about Rs 52 crore) in this case.
Among MNCs, Hindustan Unilever has the biggest ad budget of over Rs 12,73 cr, followed by Colgate-Palmolive (Rs 207 cr), Reckitt Benckiser (Rs 149.9 cr), GlaxoSmithkline (Rs 143 cr), Cadbury (Rs 122 cr) and Britannia Industries (Rs 107 cr).
In the Nestle case, tax authorities had invoked Section 92 of the Income-tax Act which deals with cross-border taxation. Section 92 was incorporated in the I-T Act to prevent a probable loss of revenue arising from cross-border transactions between related parties, such as transactions between an overseas company and its subsidiary in India.
Senior tax lawyer Dinesh Vyas who represented the company, argued before ITAT that the expenditure on advertisement and sales promotion were incurred only in India and only in relation to products sold in India.
The Indian company alone decided the quantum and manner of expenditure and Nestle SA has no role to play in such matters, he said. Mr Vyas also cited several court decisions holding that expenditure incurred for the purpose of a company’s business development is allowable even if a third party derives the benefits of such expenditure.
The Tribunal held that the expenditure has been incurred to promote business in India. “Therefore, these expenses were incurred wholly and exclusively for the purpose of business of the assessee.
Further, payment for these expenses have been made to third parties in India, who are not in any way related to Nestle SA. Therefore, there is no justification on the part of the assessing officer to invoke the provisions of Section 92 of I-T Act”.
The ITAT also found a precedent in the case of Star India which was decided by ITAT, Mumbai. In this case, ITAT Mumbai had held that the ad spends by the TV channel were incurred for the purpose of its business and it could not be restricted from it on the grounds that such expenditure may have benefited the channel’s overseas parent.
Factors that will decide the levy
Intention of the assessee or investor
How books and records are maintained
Period of holding shares, volume and frequency of trade
Has money been borrowed to invest/trade?
Investor or trader? Taxman will decide
The Circular will not change the spate of litigation
MUMBAI: When you buy and sell shares on the stock exchange, are you investing or trading? The difference is critical, since the tax liability of an investor is treated differently than that of a trader.
In the case of an investor, long-term capital gains are tax-free whereas short-term gains are taxed at 10%. However, for a trader in securities, it is his business and consequently all income earned from his stock market transactions would be classified as business income and taxed at normal tax rates, which in most cases would be 30% plus.
Unfortunately, the Income Tax Act does not define the term ‘investor’ or ‘trader’ and consequently there seem to be no easy answers to this issue.
Now, the Central Board of Direct Taxes (CBDT) has issued a circular (
Circular No. 4/2007) that basically continues to give discretion to the assessing officer (AO) to decide on the issue.
Factors looked into would be things like intention of the assessee, the way books and records are maintained, period of holding the shares, volume of trading, frequency of transactions, percentage of delivery-based transactions to non-delivery based, whether the person has borrowed funds in order to invest etc.
The circular clearly spells out that this is not only a question of law but a question of law and fact — that there is no single principle that would be decisive and the total effect of all principles should be considered to determine the given case.
“The problem with this approach is the lack of objectivity. Different taxmen may consider different factors in arriving at their decisions,” points out a tax consultant.
Sanjay Kapadia, executive director at PricewaterhouseCoopers, says the onus remains with the person (corporate or individual investor) to prove whether the gains made in the stock markets would come under the category of a business income or capital gains.
He thinks CBDT has provided a leeway to the investor by allowing him two portfolios to operate.The trading portfolio can be treated as a business income while the investor’s long-term portfolio could be assessed for capital gains.
Considering the spate of litigations, another chartered accountant said, the new circular isn’t going to change anything.“Instead what are needed are firm, clear-cut, specific guidelines for investors to know what the tax treatment of their stock market transactions would be,” he said.
During July last year, the CBDT had put up draft instructions in this regard to invite a public debate over the matter. The uncertainty led to the market tanking by over 400 points in a single day.
But the circular does make a very relevant and significant point — that is it possible for a tax payer to be both an investor as well as a trader.
In other words, he could have two portfolios, i.e., an investment portfolio comprising securities which are to be treated as capital assets and liable to the capital gains tax regime, and a trading portfolio which are to be treated as trading assets liable to the marginal rate of tax.
This way the taxpayer will have income under both heads —- i.e., capital gains as well as business income.
“Therefore, until such time that CBDT does come out with explicit, unequivocal guidelines for classification of securities income, the best way for investors to tackle this ambiguity would be to maintain separate sets of records and books of account for their investment and trading portfolios. This would apply to individual investors and corporates alike,” the unnamed accountant said.
Beware, Income Tax sleuths are tapping corporate conversations
Does it amount to invasion of citizens' privacy?
MUMBAI: The latest addition to the taxman’s armour is the phone. And Mumbai’s corporate biggies and top bracket tax payers would do well to take note. For the past eight months, the city’s Income Tax department (investigations wing) has been tapping telephone conversations to detect and penalise tax evaders.
The scene of action is Scindia House, which houses the investigations wing.A K Sinha, commissioner of Income Tax (coordination), told DNA: “Since the end of 2006, the investigations wing of the I-T department has been empowered to conduct phone intercepts.
But, as in the case of the Directorate of Revenue Intelligence (DRI) and the Enforcement Directorate (ED), several checks and balances are in place to ensure there is no misuse of power. The permission of the home secretary is needed to intercept a telephone conversation.”
Tapping phone conversations is not a new practice as central government agencies such as the Intelligence Bureau, Research and Analysis Wing (RAW), DRI, ED, Customs department and even specialised cells of the police force are authorised to intercept telephonic conversations to prevent anti-national activities.
But the fact that the I-T department, which does not have the power to arrest anyone, has been permitted to listen in on phone conversations has surprised intelligence agencies in the country.
Interestingly, the I-T department got the Centre’s nod to eavesdrop on corporate calls when the controversy over the tapping of telephone conversations between Samajwadi Party leader Amar Singh and some Bollywood actors was at its height in October 2006.
A senior I-T official, however, warned, “The authority to intercept calls was given to the investigations wing for the discharge of its duties, which are of a civil nature.
Hence, whether it amounts to invasion of citizens' privacy and, therefore, an infringement of their rights is a question that may soon be raised in legal forums."
On how phone interception has helped the department, Sinha said: "It has not been conducted on a large scale. Also, cases of search and seizure in 2006-2007 have not registered a jump as compared to the corresponding period for 2005-2006 when phones were not being tapped."
However, department officials have expressed reservations over the move. "The decision to add the phone tapping weapon to the I-T's armoury is a step backwards and not in sync with the government's resolve to move away from the stringent powers the department already has," a senior I-T official said. When contacted, director general of the I-T department's investigation cell refused to comment on the issue, saying: "Speak to the Union government."
'At Mysore, we are running a US law firm'
"We charge $30 to $90 per hour compared to $200 to $700 per hour in the US"
Some of the most interesting legal matters concerning movies are being handled by a 40 people team out of a Mysore based three-storey, legal process outsourcing (LPO) firm, SDD Global Solutions.
Sample the action: the team is doing legal research for Al Pacino’s next film. All litigation concerning Borat, the comedy film which grossed $300 million is also being done here. The company, Smith Dornan Dehn (SDD) Global Solutions, has been founded by SDD, a Manhattan-based international media and intellectual property firm.
Its clients include HBO, Sony Pictures Television, Universal Pictures, MTV Networks, Channel Four TV (UK), American Broadcasting Companies, and many more. In an interaction with ET, SDD Global Solutions president and chairman Russell Smith tells how he first came to Mysore to learn Yoga and ended up starting the LPO firm. Excerpts:
What kind of clients does SDD Global handle and who are the investors in the company?
SDD Global Solutions is a 24/365, legal process offshoring firm incorporated and headquartered in Mysore. It is the only LPO in India managed, formed and majority-owned, by SDD, a Manhattan-based firm, with most of its clients in New York, Los Angeles and London. We work for over 100 clients, including Universal Pictures, HBO, 20th Century Fox, Sony Pictures, and former US president Bill Clinton’s organisation, the Clinton Foundation.
Funded by State Bank of India and investors from Cisco Systems, Goldman Sachs, Merrill Lynch and Barclay’s Capital, SDD Global provides professional solutions, by leveraging information technology and a high-quality workforce for clients worldwide.
At our Mysore headquarters, we are handling some of the most high-profile entertainment and media litigations in the US, as well as processing visas for actors, directors, producers and other professionals needed by our US clients.
Why did you opt for Mysore?
I first came to the city to study Ashtanga (eight limbs) Yoga under Sri K Pattabhi Jois. There are about two million people who follow this kind of Yoga, and a large number of them are in New York. On my third visit to the city I decided to set up the company (in April 2006). We did lot of research on various cities and then finalised on Mysore.
The city has over one million people with not much to do. Infosys has its training institute here. There are a few small software companies. But that’s about all. There are lot of educated people who go out of Mysore for work.
Traffic congestion is non existent. Commute time is one minute to 10 minutes. Cost of living is very low. We have people from Mysore, Delhi, Kolkata, Bangalore, Mumbai and elsewhere working for us.
Office space in Mysore is 43 times cheaper than in Manhattan. In New York most legal fees go to real estate. We have eliminated that. We pay $2,000 rent per month for a three storey building in Mysore. For that kind of money we won’t get anything in New York.
And neither in Mumbai or Delhi. Also, Mysore is over five times cheaper if you consider legal services fees. We charge $30 to $90 per hour compared to $200 to $700 per hour in the US.
What kind of work are you doing from Mysore?
We do the most interesting legal matters. For instance Borat, the highest grossing comedy film in history ($300 million) has got involved in some law suits. That litigation is being handled out of Mysore. We are also doing legal planning for Universal Pictures movies.
Two teams of 10 people each worked on a Sony Pictures project. We do things like where the film should be shot, best legal climate to shoot a film and so on.
We also do seminars for producers in the US via video conferencing from Mysore. We are doing legal research and insurance work for Al Pacino’s next film.
We represent all kinds of media. We just drafted a motion to dismiss a case in Los Angeles. At Mysore we have a US law firm of the first caliber. We are the only LPO in India run by a US law firm. We have US licensed attorneys working for us.
Are you looking at acquisitions?
We aren’t looking at acquisitions as of now. We have 40 people which comprises 20 lawyers and support staff. We plan to increase the team to 160 in the next 12 months.
What advantages do you offer over services provided by Indian law firms?
There are about 1,000 people working in LPOs in India. The potential is huge. Globally, almost $250 billion is spent per year on legal services. For Indian players credibility and accountability could be an issue. It’s not about starting a company overnight and saying that now I am a LPO and give me work. Companies may get one off assignments but its a long haul to build the business.
Immunity under Voluntary Disclosure not absolute
"A firm is the conglomeration of its partners, and is not a juristic person"
NEW DELHI: The Supreme Court has held that taxpayers cannot claim absolute immunity from disclosing source of income under the Voluntary Disclosure of Income Scheme (VDIS) if they conceal facts while declaring assets.
While upholding a Bombay High Court ruling, a bench of Justice S B Sinha and Justice P K Balasubramanyan said: "Immunity granted pursuant to acceptance of a declaration made under the voluntary taxation scheme or Kar Vivid Samadhan Scheme, 1998 does not lead to a total immunity. The immunity granted under the scheme has its limitations."
Dismissing an appeal filed by a Mumbai-based partnership firm Tanna & Modi, the court said: "It is, however, also well settled that fraud vitiates all solemn acts. Fraudulent actions shall render the act a nullity."
The court observed that a partner represents a firm and he has an implied authority to take any action vis-a-vis the firm unless otherwise specific binds the firm itself.
Noting that each partner need not make a declaration in the event of a firm concealing its income, the court, however, said a firm in its declaration can cover the loopholes when a search warrant is issued in the name of a partner.
At the same time, the court made it clear, that in case of fraud it cannot be oblivious of the fact that each firm acts through its partner.
"A firm is the conglomeration of its partners, and is not a juristic person... As the income of a firm vis-a-vis its partners have a direct co-relation, in our opinion, while construing a statute granting immunity, it should not be construed in such a manner so as to frustrate its object," the apex court said.
I-T dept hot on trail of tax dodgers
Plasma TVs and other high-value purchases to be scrutinized
DEEPSHIKHA SIKARWAR & RAJEEV JAYASWAL
TIMES NEWS NETWORK [WEDNESDAY, JUNE 06, 2007 01:25:12 AM]
NEW DELHI: Tax evaders should brace themselves for tough times as the department plans to intensify scrutiny of I-T returns. The aggressive mood of the taxman is evident by the fact that 294 warrants have been executed in the first month of the fiscal, a 170% jump over the same period of the previous year.
The Central Board of Direct Taxes (CBDT) is planning set a target for field formations for carrying out scrutiny. “Every assistant commissioner will be asked to scrutinise 20 cases in a year. This is the core function of the department that helps in realising higher revenues, hence the increased focus,” a government source said. At present, only 2% of the returns are scrutinised and officials do not have fixed targets. Scrutiny is now attracting more attention as it helps the department unearth concealed income.
It may be noted the Parliamentary Standing Committee on finance had asked the CBDT to intensify scrutiny. The tax department now uses details of transactions revealed in the annual information returns in carrying out scrutiny. The data on high-value purchases such as plasma TVs could also be used during scrutiny to match income and expenditure of individuals with their tax returns. Scrutiny procedures could be made more stringent to improve the quality. With the department facing acute shortage of manpower, concern has been expressed about the quality of scrutiny.
The scrutiny for the assessment year 2005-06 has to be completed by December 31, 2007.
Similarly, there seems to be increased focus on searches and seizures. The aggressive mood of the department can be adjudged with the total amount of seizures in the first month of the fiscal at Rs 33.09 crore. This is against Rs 23.52-crore seizures in April 2006.
Hyundai gets tax breather from SC
THE VERDICT WILL IMPACT THE TAX LIABILITY OF FOREIGN FIRMS
PTI
Friday, June 01, 2007 22:43 IST
NEW DELHI: In a judgement that will impact tax liability of foreign firms operating in India, the Supreme Court has held that Korea-based Hyundai Heavy Industries was not liable to pay tax on any profits arising outside India.
Deciding the issue of computation of profits accruing outside India, a bench comprising Justice S H Kapadia and Justice B Sudershan Reddy said that “only so much of profits having economic nexus with permanent establishment (PE) in India would be taxable in India.”
“Profits, if any, from the Korean operations (designing and fabrication) arose outside India, (and) hence (are) not taxable,” it said.
According to the court, the profits to be taxed in the source country were not the real profits but hypothetical profits which the PE would have earned if it was wholly independent of the parent company.
“As regards to the quantum of profits embedded in the Indian operations attributable to the Indian PE, we hold that the Commissioner of Income Tax (A) was right, in attributing the profits to the Indian PE at 10% of the gross receipts in respect of its activities performed in India. The same shall be taxable accordingly,” they said.
HHI, which had entered into a contract with ONGC for designing, fabrication and commissioning of South Bassein field central complex facilities at Bombay High in March 1985, had filed its return declaring nil income.
The company had argued it was not assessable to tax as it did not have a PE in India and was entitled to exemption under the Convention for Avoidance of Double Taxation.
Revolt in ranks rattles I-T dept
“autocratic way of functioning” BLAMED
MANJU MENON
TIMES NEWS NETWORK [8 May, 2007 0245 hrs IST]
MUMBAI: In an unprecedented incident, perhaps the first one in the history of the income tax department, three officers of the rank of chief commissioner have revolted against their senior alleging breach of administrative norms and harassment.
The three officials -- PP Jauhari, M Narasimhappa and M Ahmed -- all from Hyderabad, have gone a step further by directing their juniors via a official note (in possession of this paper) not to comply with the directions of their senior officer. The note has been forwarded to the Central Board of Direct Taxes (CBDT).
The senior official in the line of ire is DV Dharmik, who is the senior most officers in charge of the Andhra Pradesh revenue cadre.
All three officials have blamed Dharmiks “autocratic way of functioning” for the current stalemate. They have also charged Dharmik for dealing directly with the men who would otherwise be reporting to them.
Under administrative norms, even the cadre's top officials have to go through the respective chief commissioners for dealing with any official not under his `direct' administrative jurisdiction.
Dharmik has, however, dismissed these allegations as ‘personality clashes’. “Such frictions happen at work place. Sometimes it is more, at others it is less,” he told TOI.
CBDT chairperson Indira Bhargava has discussed the issue with all the four officials in Hyderabad last week-end.
Details of this three-hour long meeting were not available.
Senior officials at the I-T department have taken the view that such incidences should be discouraged to inculcate better discipline. In any which case, the department is under intense pressure to meet revenue targets.
Despite this friction, Andhra Pradesh has demonstrated unprecedented growth in revenues. For 2006-07, the revised direct tax collection from the state was Rs 10,200 crore as against a target of Rs 9,600 crore. Even Mumbai and Delhi could not meet the revised targets that were set.
'Dumb document jottings no proof of undisclosed income'
ITAT COMES TO THE RESCUE OF BELEAGURED ASSESSEE
MANJU MENON
TIMES NEWS NETWORK [7 May, 2007 l 0201 hrs IST]
MUMBAI: Innocuous-looking jottings in notebooks seized during income-tax raids have often led to prolonged investigation and unending trouble for the assessee. But recently the Delhi High Court concurred with a decision of the income-tax appellate tribunal (ITAT) that any notings and figures found in a dumb document cannot be said to represent the undisclosed income of the assessee.
The story began on April 21, 1998, when S M Aggarwal, a Delhi resident, was raided under Section 132 of the IT Act. During the search, the officer stumbled upon documents containing details of monetary transactions, such as advancement of a loan of Rs 22.50 lakh and income by way of interest at Rs 3.55 lakh. As the officer tightened the screws, the assessee mumbled and fumbled, before naming this as a loan extended to his daughter.
The temporary relief elapsed when Aggarwal’s daughter, Sarla Gupta, strongly denied having taken any money from her father. The taxman was back at the door and concluded that Aggarwal had earned income from undisclosed sources, which he had given out as a loan to earn interest. Thus, the amount of Rs 22.5 lakh and interest of Rs 3.5 lakh were added to Aggarwal’s income for the assessment year 1998-99.
This addition was opposed by Aggarwal, who contended that the IT department did not have any evidence to show that he was advancing money for interest or had any funds to lend. Therefore, the document in this case, he said, was a dumb document.
After the CIT (Appeals) favoured Aggarwal, the I-T department went in appeal before the next appellate body, the ITAT, which is the final facting body for direct tax cases. The stance of the assessee was further strengthened by ITAT, which ruled that Aggarwal’s daughter’s statement was not relevant or admissible evidence against the assessee, since he was not given an opportunity to cross-examine her. It added that neither conclusion could be drawn that the entries made on the relevant page belonged to the assessee and represented his undisclosed income.
Tax Tribunal clears way for Rs 5-cr bounty
Taxmen train guns on BPO firms
M PADMAKSHAN
TIMES NEWS NETWORK [FRIDAY, APRIL 27, 2007 12:06:31 AM ]
MUMBAI: Last week’s ruling by the Mumbai income- tax tribunal in a case pertaining to SET India Pvt will help income-tax authorities collect as much as Rs 5,000 crore since the decision will have a bearing on all satellite companies, several BPOs and shipping companies operating in India.
According to the ruling, the entire operation of a foreign company in India is liable to be taxed even if the company makes an ‘arms-length payment’ to its agent. For example, a US-based entity X contracts its agent Y in India to make a software. Y develops the software at the cost of Rs 80,000 and sells it to X at Rs 1,00,000, making a profit of Rs 20,000. Y, in turn, sells the software in the US at Rs 10 lakh, making a profit of Rs 9 lakh.
The question here is what would be the taxable income in India. The prevalent thinking in India is in favour of taxing the profit of Y, i.e, Rs 20,000. The view here is that payment of an `arms-length remuneration’ by a foreign enterprise to its dependent agent (in this case Rs 1,00,000 given by X to Y) extinguishes the tax liability of foreign enterprise in India.
However, the ITAT’s order reverses the trend. It’s categorical that the whole profit of X arising from its operation in India, in this case Rs 9 lakh can be taxed in India. The Organisation for Economic Development and Co-operation (OECD) also has a similar view on such issues.
The Australian Tax Office, too, follows the same approach to tax income of non-residents. All these tax bodies think mere payment of an `arms-length price’ to a dependent agent does not necessarily extinguish the tax liability of the non-resident in the host country.
Following this order, the Income-Tax Department can make a tax claim amounting to over Rs 80 crore on SET Satellite Singapore for the assessment years 1999-2000 to 2005-06. Similar tax demand can be raised on other satellite channels, BPO firms and shipping companies.
The order will effectively put an end to the practise by foreign firms of avoiding tax in India by setting up a company in another country with which India has a tax avoidance treaty. In such a structure, the earnings are shown in the name of the offshore company. The order, reaffirming the income-tax demand of Rs 13 crore, was given out by ITAT last week on an appeal filed by the I-T department in the case of SET Satellite (Singapore). The company had said that tax cannot be levied on income generated in India through selling airtime and advertisement revenue because the purchase and sale of airtime are affected in Singapore. Besides, an ‘arms-length price’ was paid to the company’s Indian agent, SET India. It said the money paid to SET India is the only income that can be taxed in India.
The ITAT bench, comprising Pramod Kumar and Madhavi Devi, rejected the contention. It said payment of ‘arms-length remuneration’ to the agent by a foreign company is its expenditure, and the taxability of such expenditure in the hands of the recipient cannot extinguish the taxability of foreign company paying it.
In coming to this conclusion, ITAT has disagreed with the AAR ruling in the case of Morgan Stanely, which was in favour of the taxpayer. ITAT has held that irrespective of whether one carries on the business directly or through the dependent agent, the profit will continue to be taxed in the source country.
Appellate Tribunal raps l-T dept for tax recovery during stay
The Assessing Officer pleaded that he did not want to commitT contempt of the ITAT's order
M PADMAKSHAN
TIMES NEWS NETWORK [FRIDAY, APRIL 06, 2007 03:42:01 AM]
MUMBAI: In a rare case, the Income-Tax Appellate Tribunal (ITAT), the quasi-judicial body for settling tax disputes, came to the support of a taxpayer and directed the I-T department to refund Rs 2.68 crore it has recovered. The taxpayer in this case is a Mumbai-based brewing company, Skol Breweries.
What irked the ITAT more in this case was the timing of the recovery. The amount was recovered from Skol while an interim stay order passed by ITAT was in operation. ITAT observed that by doing this the department was acting beyond its jurisdiction. The unusual order was passed by G E Veerabhadrappa, vice-president ITAT and Madhavi Devi, its judicial member.
The facts of the case are as follows: Skol Brewery had moved an emergency stay petition on March 27, 2007, requesting the Tribunal to intervene as the department had attached all its bank accounts after the I-T Commissioner rejected its stay petition.
The emergency petition was listed for hearing before the ITAT on March 27. After going through the documents, the Tribunal directed the department not to enforce recovery of the disputed tax dues until the matter is decided on March 30.
However, on March 30, Skol’s counsel told ITAT that despite the stay order, the department has recovered the disputed dues from Skol Brewery. “The Tribunal felt that revenue department had exceeded its jurisdiction,” the ITAT said in its order. The ITAT then sought to hear the assessing officer who recovered the money.
During the next hearing on April 2, the assessing officer told ITAT that he was willing to refund the amount to Skol Breweries if so directed by ITAT. He also pleaded before the court that he did not want to enter into any contempt of its order. On the following day, the assessing officer, the I-T Commissioner and the department representative presented the cheque drawn in favour of Skol Brewery and pleaded before the Tribunal to drop the matter.
They also pleaded that recovery was done with a good intention of recovering the outstanding tax arrears. The counsel for the assessee also stated that he did not want to prolong the issue any further and offered his cooperation for an early disposal of the case.
Following this, the ITAT granted an “absolute stay” to Skol Brewery for 180 days or till the disposal of the appeal, whichever is earlier. “The ITAT order is in the right spirit. However, I feel the department should have been asked to pay cost to the taxpayer,” said T P Ostwal, a senior chartered accountant.
HC sees red over 1-day I-T notice
Contempt proceedings have been initiated against the Assessing Officer
Pranati Mehra
TIMES NEWS NETWORK [4 Apr, 2007 0102hrs ]
MUMBAI: A division bench of the Bombay high court on Monday lashed out at the income tax department for having allegedly recovered TDS dues from an assessee within a day of serving a demand notice.
The assessee's plea for two days to reply on the recovery process was not granted, the assessee told the high court in a writ petition heard on Monday.
The assessee, Mahindra & Mahindra, the auto major, was served a notice on March 27 by the income tax officer, TDS, Nashik, asking them to pay up Rs 29 crore towards TDS. The company asked the department to give them time to reply till March 29.
On March 28, apparently, a joint commissioner of income tax in the Nashik range initiated 'garnishee proceedings' to recover the money from the assessee's bank account.
The money was recovered from the account on the same day. The company then moved a writ petition before the high court on March 29.
The division bench of justices S Radhakrishnan and V C Daga heard the company's plea on Monday. The judges took a serious view of the conduct of the department's officers and ordered that the amount be deposited back with the court by Thursday.
They have also asked the ITO to show cause as to why contempt proceedings should not be initiated against him since there is a high court precedent allowing the assessee 30 days to appeal against a demand notice.
Boom time for lawyers as i-banks blaze deal street
Rajesh Unnikrishnan
TIMES NEWS NETWORK [SATURDAY, MARCH 31, 2007 01:50:31 AM]
MUMBAI: On the deal street, investment bankers and corporate lawyers are perceived to be two different animals. Investment bankers are the big cats, who are openly prowling for prey, while on the other hand corporate lawyers are akin to owls, working through the night in closed rooms on the minutiae of the deal.
Given their differing personas it is understandable that all the attention in these deal happy days is focused on the i-bankers. But corporate law firms and consultants don’t seem to mind the lack of attention. For given the rising number of multi-million dollar mergers and acquisitions in India and internationally means they are laughing all the way to the bank like their more glamourous investment banking cousins.
The M&A activity in the first three months of the year has crossed $37 billion, which is close to twice the deal value for the whole year of 2006 and, law firms and consultants are cashing in on the boom. The average revenue at most of the well-established firms operating in this space has gone up around 30% over the past year. While in 2006 they were estimated to have earned close to $100 million this year’s promises to be a much better one. Most firms have already earned nearly 40% of what they netted in the past year’s last three months.
Industry observers believe that the revenues at India’s leading law firms which operate in this space like FoxMandal Little, AZB & Partners, Amarchand Mangaldas, Majmudar & Co, DSK Legal and Mulla & Mulla have gone up considerably. They believe many firms will hit record earnings numbers this year. Cyril Shroff, managing partner of Amarchand Mangaldas said: “We see more private equity deals and inbound-outbound corporate activity in 2007. ”
So when and where exactly does a law firm come into the picture during a deal? Akil Hirani, managing partner, Majmudar & Co says that there are three primary occasions when law firms are always present: term sheet signing, due diligence and during the final negotiation and contract document signing. That the business is booming can be seen by the activity at the firm these days. Mr Hirani says that these days when they are closing deals there could be up to 20 people working on his floor till the wee hours of the morning whereas two years ago there seldom were more than two or three people burning the midnight oil.
“In 2007, law firms are expected to record a revenue growth of 30% to 40% as against revenues in 2006. There are more opportunities for bigger law firms as the size of M&A deals gets bigger. Next year, the growth and revenues will be more than 50%,” said Som Mandal of FoxMandal Little.
While the bankers tend to flaunt their fat payoffs, lawyers are far more discreet. Most of these law firms do not publicly disclose or comment on profits making it hard to know how well they are doing vis-à-vis the i-bankers. However, industry insiders believe that the best paid lawyers raked in between Rs 25 lakh and 35 lakh per month in 2006.
“Now a days, freshers are earning Rs 50,000 to Rs 60,000 a month compared with Rs 25,000 two years ago,” says a lawyer from a Delhi-based leading law firm. Unlike investment bankers, corporate law firms charge their clients on a per hour basis. This means that the profitability of the corporate law firm is more dependent on the complexity of the deal rather than the size of the deal.
Internationally, the record profits of law firms have surprised even investment bankers. Unlike the banks, which use performance-related bonuses, most of the top law firms operate lock-step equity partnerships. This means, once partners have been voted in, they automatically accrue bigger pay packets every year until they plateau after around 10 or 15 years.
Only rarely are they kicked out for underperformance. The theory behind this system is that in boom times corporate partners will share the spoils with their colleagues while those working in counter-cyclical departments such as restructuring or litigation will return the favour when the business cycle is in a downturn.
Also in India, the Bar Council regulations do not allow either performance related bonus or lock-up equity partnership.
Law firms also have less spare capacity than the investment banks, so their strategy for handling a boom is different.
“Investment banking is run on the basis that 95% of their time is spent pitching for business and 5% doing it. We spend almost zero per cent on pitching and 100% on doing them, so we have very little flexibility,” says Mr Hirani.
Chandan Parmar had denied any wrong-doing in an interview to Mumbai Mirror on October 9, 2005
What’s I-T about CAs and taxmen?
Raids on CA Chandan Parmar focuses spotlight on nexus with Income Tax officials
MUMBAI MIRROR Posted On Wednesday, March 21, 2007
Mumbai Mirror Bureau
The raids by the CBI on Friday on S K Sharma, former Director General (Investigation) of Pune has once again brought into focus the alleged nexus between Income Tax (I-T) officials and chartered accountants (CA). The CBI raided 12 places in Mumbai and Pune on the 1971 batch Indian Revenue Service (IRS) Officer, who also served in Delhi before retiring recently, and found details of two unaccounted houses in Delhi, couple of plots in Gurgaon and a fixed deposit of Rs 1 crore with another I-T officer.
The investigating agency also carried out raids on Mumbai-based CA Chandan Parmar and I-T officer Gopal Sharma posted in Mumbai. Sharma has been accused of obtaining illegal gratification from Pradip Runawal, director of Runawal Group of Companies in Pune and Jayant Mhaiskar, director of Ideal Road Builders Private Limited, Mumbai, through Gopal Sharma and Chandan Parmar.
This is the third time Parmar has come under the CBI scanner. On September 30, 2005, the CBI had raided his house and recovered Rs 80 lakh. He was believed to be a collection agent for A K Gautam, then I-T commissioner (appeals), Behrampur, Orissa. Gautam prior to this posting was in Mumbai. Parmar’s first brush with the CBI was in the 1980s when a confidential appraisal report prepared by the I-T department was found in his office.
Parmar had then said he was not a collection agent and the amount recovered from his house was meant for his daughter’s wedding. He also claimed that he was exonerated of the charges in connection with the recovery of appraisal report.
Gopal Sharma was under the CBI surveillance two-and-half years ago. Sources said that on suspicion he even locked two CBI officials in Aayakar Bhavan. The officials had visited the department to gather information on him.
The drama lasted for hours as the two officials refused to disclose their identities. The police was called in and even senior CBI officials had to intervene for their release, the sources said.
