TDS on Salary :
The Bangalore Income-Tax Tribunal has held that where an assessee has deducted the tax at source (TDS) on salary every month and adjusted the shortfall of tax in the last month of that year in view of change in structure of salary payment, it cannot be considered as short-fall in deduction of TDS on a month-to-month basis.
The assessee deducted TDS on salary every month and adjusted the shortfall in the last month. The assessing officer (AO) compared the average monthly TDS with that deducted by the assessee month-wise and found that the monthly deduction was less. The AO levied interest for short deduction of TDS on salary.
The tribunal held that Section 192(3) of the I-T Act provides liberty to the employer at the time of making of deduction, to increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency in the deduction in the financial year. The assessee having exercised this liberty has adjusted the shortfall in the last month of the year and so there was no case of shortfall. Hence, it was held that interest for short deduction of TDS was not leviable.
Disallowabality of expenses u/s 14A Notified :
Section 14A provides that expenditure that has been incurred in relation to tax-free income should not be allowed as a deduction while computing taxable income. To elucidate the provision: any expenditure incurred in earning tax-free dividend income (like interest on borrowings made to invest in shares) cannot be deducted while computing the taxable income of a taxpayer. However, it is usually experienced that revenue authorities, after inclusion of Section 14A, not only disallow the expenditure directly related to earning the exempt income, but also attempt to disallow proportionate indirect expenses like salary paid to staff, administrative and management expenses on the pretext that direct and proximate relation is not necessary for Section 14A.
The Mumbai Tribunal in the case of Infomedia India Limited (ITA 1381/Mum/2005) held that unless there is substantial evidence to show that the amount sought to be disallowed by the revenue under Section 14A proportionately is ‘clearly related` to investment, income of which is exempt, no disallowance could be made on estimate basis.
Read the whole article in Eure CAtalyst : June '08
Finance Bill 2008 gets presidents' assent. :
The Finance Bill, 2008, today received the President's assent. Soon after, the finance ministry issued notifications to give effect to various provisions related to service tax. The amendment regarding transaction between associated enterprises which says that service tax will have to be paid even if the consideration is not actually received comes into effect from today.
Service tax on seven new categories of services and amendments to existing taxable services will come into effect from May 16. The seven new categories are services provided by stock exchanges, commodity exchanges, processing and clearing houses and management of unit-linked insurance plans.
Others include services provided in relation to IT software for use in the course of business, services provided in relation to supply of tangible goods without transferring right of possession and services provided in relation to internet telecommunication.
Amendments in Export of Services Rules, 2005, and taxation of services provided from outside India and received in India will also come into effect from May 16. The optional scheme for payment of service tax on purchase or sale of foreign currency will also come under the tax net from the same date.
The finance ministry also notified service tax refunds to exporters on three additional services, including purchase or sale of foreign currency under banking and other financial services, purchase or sale of foreign currency under foreign exchange broking services and services related to supply of tangible goods for use. These provisions will come into effect from May 16.
Certain provisions related to the levy of service tax in the Finance Act, 2008, will come into force from a date that it yet to be notified.
[Source: The Business Standard]
Mandatory e-payment of taxes for Corporates :
Electronic payment of taxes has become mandatory for the corporate assessees with effect from April 1, 2008. The mandatory e-payment norm would also apply to other assessees who are liable to tax audit. Such category of taxpayers can make electronic payment through the Internet banking facility offered by any of the authorised banks. They also have the option of using credit or debit cards for making the e-payment. Currently, electronic payment is optional for income tax payers. This optional scheme was introduced in 2004.
Capital gains tax payable on Inter-NRI transactions outside India.
It is quite common these days that foreign companies, which hold shares in Indian companies (whether as holding companies or otherwise), transfer the Indian shares to other group companies or other non-residents outside India. When the transaction of sale and purchase takes place outside India between the two non-residents, a question arises as to whether any capital gains tax would be chargeable in India or not. In such a situation, does the transaction have any nexus with India?
Section 9(1)(i) of the Income Tax Act specifically provides that income through the transfer of a capital asset situated in India will be deemed to accrue or arise in India. The Authority therefore observed that: “The insertion of the clause, i.e., the location of the capital asset being in India, has been ushered in the statute to take care of the situations like transactions between two non-residents taking place outside India. In simple words, even if the transaction relating to a capital asset takes place outside India, but if the capital asset is situated in India, the profits or gains thereon is accruing or arising in India in consonance with the provisions of section 9(1)(i) of the Act and is thus assessable under the head ‘Capital gains’ under the relevant provisions of Income-tax Act.”
Read the whole article in Eure CAtalyst : May '08
Two Housing Loans on one property :
Will the interest on both of these loans qualify for deduction?
The interest on both of these loans will qualify for deduction under Section 24 while computing income from house property.
The interest on the loan taken for purchase or construction will qualify for a deduction of Rs.1,50,000 p.a.
How do you deal with one loan for purchase or construction & one loan for repairs, etc ?
The interest on the loan taken for renovation shall not exceed Rs.30,000 per annum, it may be remembered that in general only a loan taken for purchase or construction will qualify for a higher deduction of Rs.1,50,000 p.a. while the interest on the loan taken for repairs, renewals or reconstruction shall only qualify for a deduction up to a maximum of Rs.30,000.
It may also be remembered that the total interest payable on loans taken for purchase, construction, repairs, renewals or reconstruction cannot exceed Rs.1,50,000. p.a.
When can penalty u/s 271(1)(c) for inaccurate furnishing of particulars be levied?
The Assessee claimed depreciation on a bio-gas plant and that was disallowed by the Assessing Officer on the ground that the plant had not started giving the end product, that is, biogas during the relevant previous year but only from the subsequent accounting year. According to the Assessing Officer, by claiming depreciation in the assessment year 1990-91, the Assessee had furnished inaccurate particulars for reducing its tax liability and was, therefore, liable to be penalized.
The Delhi High Court observed that the claim of depreciation by the Assessee was in terms of Section 32(1) of the Act and as pointed out by learned counsel for the Assessee, what is of importance is that the plant or machinery should be owned by the Assessee and used for the purposes of its business. According to the Assessee, both conditions were satisfied by the Assessee but, unfortunately, the Assessing Officer took a different view. This Court was of the view that passive user of machinery such as by keeping it in good working condition so that it could be used at any moment would be the correct approach to adopt for interpreting the expression 'used for the purposes of the business' occurring in Section 32 of the Act. This is precisely what the Assessee did and the view taken by the Assessee was certainly a plausible view, it just so happens that the Assessing Officer did not agree with the Assessee. But that by itself would not mean that the Assessee had furnished inaccurate particulars for the purposes of reducing its tax liability.
In case AO did not agree with the Assessee, it does not mean that the Assessee had furnished inaccurate particulars. Penalty u/s 271(1) (c) is not imposable.
Can reimbursement of out of pocket expenses to auditors be disallowed as non-business expenditure?
The Assessing Officer had made an ad hoc disallowance of out of expenditure incurred on account of reimbursement of travelling and other expenses incurred by the auditors while conducting the audits. The plea of the Assessing Officer was that some parts of the expenses were in the nature of entertainment. Out of total disallowance of Rs.50, 000/- made by the Assessing Officer, the CIT (Appeals) restricted the disallowance to the extent of Rs.5, 000/-. The ITAT in assessee's own case for the assessment years 1990-91 and 1991-92 dealt with similar disallowances and the same were deleted by observing that expenditure incurred on refreshment to the auditor was initially for the purpose of business, no disallowance is warranted. As the facts and circumstances during the year under consideration are the same, respectfully following the order of the ITAT, the disallowance was deleted.
TDS on Salary – Liability only with regard to amount paid by ‘employer’
CIT vs. Woodward Governor India P. Ltd. [2007] 295 ITR 1 (Delhi)
The assessee was a joint venture between Mr. Keshav Thiran and his associates and M/s. Woodward Governor Company, USA. During the impugned assessment year the assessee had engaged one Kenneth Allen Axelsen as a managing director. He was paid a sum by the American collaborator by way of annual salary. The assessee was not aware that the foreign collaborator was paying salary to the managing director. However the assessee deducted tax at source on the salary which it was paying to its managing director. The Assessing Officer made the addition under section 192 by observing that the assessee was required to deduct tax at source even on the salary component paid by the foreign collaborator. Being aggrieved by the above order the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). However the first appellate authority upheld the action taken by the Assessing Officer.
Being aggrieved by the above order of CIT(A), the assessee preferred an appeal before the Income-tax Appellate Tribunal. Hon’ble Tribunal allowed the appeal in favour of the assessee.
The Department being aggrieved by the Appellate Tribunal’s Order preferred an appeal before Hon’ble Delhi High Court under section 260A of the Act. The Hon’ble High Court upheld the order of the Appellate Tribunal with the observations that as regards the liability to deduct tax at source in terms of section 192 of the Income-tax Act, 1961, the assessee was only liable to deduct tax at source on the payment that it made to its managing director and it could not be burdened with the liability of deducting tax at source on any other payment, either by way of salary or otherwise which the managing director received from some other sources. Thus, the assessee was not liable to deduct tax at source on payments received by its managing director from the foreign collaborator by way of salary.
Is non-recoverable advance paid to suppliers of tools and dyes a revenue expenditure?
CIT vs. Honda Siel Power Products Ltd. [2007] 212 CTR (Del) 314
The assessee company manufactures portable generator sets in technical collaboration with Honda Motor Company of Japan. Prior to the impugned assessment year the assessee company was amortizing the advances made by it to the manufacturer of tools and dyes on the basis of the actual quantity of the components used in the production of generator sets. The payment made by the assessee company as advance was non-recoverable and the ownership of the tools and dyes remained with the supplier of tools and dyes. The advance was charged to profit and loss account in the year of advance. The assessee claimed the payment of tooling advance as revenue expenditure. The Assessing Officer had however disallowed the claim of the assessee by observing that the changed method of claiming the amount paid as tooling advance as revenue expenditure was not a standard method. On appeal the first appellate authority confirmed the Assessing Officer’s action.
Being aggrieved by the Order of the CIT (A) the assessee preferred an appeal to the Income-tax Appellate Tribunal. The Appellate Tribunal allowed the appeal filed by the assessee on the ground that the tooling advance was for facilitating the trading operations of the assessee and further that the tools and dyes continued to remain the property of the manufacturer. Therefore, the expenditure on tooling advance was revenue expenditure.
3 steps to Tax Planning
Conventionally, tax-planning has always been considered as an end-of-the-financial year exercise. So investors usually get very busy over the January-March period with paying their insurance premiums and investments in small savings schemes. Investors must note that while tax-planning can assume many forms (i.e. Section 80C, Section 80D, Section 24(b)) we have considered the more flexible Section 80C because of the breadth of options available under it. For the uninitiated, Section 80C allows for a deduction of upto Rs 100,000 from the gross total income.
Tax-planning can be bifurcated in 3 easy steps:
1. Computing liabilities :
The first step is to ascertain your liabilities that earn a tax benefit. The only area over here that qualifies for a tax benefit is home loans (maximum limit of Rs 100,000 on repayment of principal). So if you have an outstanding home loan, you need to isolate the principal amount from the interest in the EMI, to calculate the tax savings under Section 80C.
2.Compute your fixed investments/contributions :
The second step is to calculate your annual contribution to EPF (employees' provident fund) and life insurance premium. Your EPF contribution can be best discussed with your employer; he can tell you exactly how much you will contribute to your EPF. Add this amount to your annual life insurance premium, if any. We have not considered PPF (public provident fund) as a fixed investment simply because it's not fixed as investors can choose to increase/decrease their contribution upto a maximum of Rs 70,000 (there is a minimum annual contribution of Rs 500 to keep the account active). More importantly, we think investments in PPF (if any), must be made under Step 3 below.
3. Invest the balance in suitable avenues :
Although the last, it’s the most important step in tax-planning. Here you need to compute how much is still available under the Section 80C ceiling of Rs 100,000 after the above adjustments. The balance must be invested judiciously in avenues that suit your risk profile and help you fulfill your investment objectives. For instance, if you can take on risk and plan to set aside money for your child's education over the next 10 years, then investing in tax-saving funds (also known as ELSS - equity-linked saving schemes) could be the answer. If you can take on only moderate risk, then you could divide the money between tax-saving funds and PPF. Investors need to give tax-planning a lot more thought and evaluate how they can use the Rs. 100,000 tax-saving bounty a lot more fruitfully and judiciously.
Can losses in derivatives (a loss under the head, ‘Business income’) be set off against income under, ‘Salaries’?’.
Section 70 of the Income-Tax Act, 1961 deals with the set-off provisions. As per Section 43(5), from assessment year 2006-07, derivative transactions will be treated as ‘Business transactions’ instead of ‘Speculative transactions’. It is mentioned in Finance Act, 2005, that an eligible transaction in derivatives on a recognised stock exchange shall not be considered as a speculative transaction.
Loss from trading in derivatives shall be allowed to be set off in the same assessment year as against any other business income or even from speculative income. When there is no such income, it can be set off in the same assessment year against any other head of income except income from Salary. If such loss cannot be set off in the same assessment year, it shall be carried forward to be set off in subsequent years against income under the head, ‘Profit and gain of business or profession
Is Registration Fees a Revenue Expenditure u/s 37(1) ?
The Assessing Officer disallowed the assessee’s claim that fees paid by it to SEBI for registration as a merchant banker was revenue expenditure. The CIT(A) allowed the claim of the assessee.
The Tribunal upheld the CIT(A)’s order. The Tribunal noted as under :
(1) Registration with SEBI is mandatory for the purpose of dealing in securities and stocks. The payment made to SEBI is in the nature of fee for the purpose of enabling the assessee to carry out its business.
(2) Registering with SEBI is only to identify the person who is dealing in securities. Therefore, the subscription to SEBI will not give any enduring benefit to the assessee.
(3) The fee paid by the assessee is only a fee paid to a regulatory authority. By the payment of fee to SEBI, the assessee is not getting any capital asset. Therefore, it is revenue expenditure.
Amount of penalty should not be more than the chargeable duty.
The Supreme Court has ruled that the amount of penalty under Section 114A of the Customs Act could not be more than the amount equal to the chargeable duty.
In this case, UK Enterprises imported integrated circuits made by Philips Ltd, Motorola Ltd and NEC from Hong Kong. The customs commissioner in Goa found that the items were heavily undervalued and imposed a fine of Rs 50,000.
On appeal, the Customs Tribunal raised it to Rs 10 lakh, which was more than the duty demanded which was Rs 4.91 lakh. The firm appe
