kabhi khushi kabhi ghum……… The Union Budget 2009 presented by Hon’ble Finance Minister Shri Pranab Mukherjee this time had a tough task of managing the moods of the ‘Aam Admi’ and ‘India Inc’ at a time when the world is still struggling with an unprecedented financial crisis and an economic slowdown that has also affected India. Very speculative views are moving around as to the phase of recession where some may see a turnaround in the financial crisis whereas some are still worried of the larger impact of recession yet to roll up. The Budget proposals did not boost the spirits of the financial market which is evident from the fact that the Stock market which was about 100 points up in the morning on the day when the Bill was presented by Hon’ble FM, has fallen by as low as 650 points on conclusion of the Budget speech, and by 900 points at the end of the day, perhaps, one of the largest hit by the Budgets so far. This is so because this market had far more expectations from the Government. The Hon’ble FM has rightly said (with this kind of budget)…. “With strong hearts, enlightened minds and willing hands, we will have to overcome all odds and remove all obstacles to create a brave new India of our dreams.” Yet, there are some reasons to rejoice as well. The tax limits under Income-tax and Wealth Tax are enhanced for the Aam Admi. Sticking to the theme of “inclusive growth” espoused by the UPA Government, the FM also unveiled breaks for exporters hard-hit by the global downturn and direct subsidies for farmers. The Commodity Transaction Tax as well the Fringe Benefit Taxes are also abolished. All in all, the Budget may be called as neutral budget. We have tried to analyze the Budget proposals as enunciated in the Finance (No. 2) Bill, 2009. A copy is also available on our website http://www.amcount.com . This material is prepared by Smart Consultants Pvt. Ltd.While due care has been taken to ensure the accuracy of the information contained herein, no warranty, express or implied, is being made, by Smart Consultants Pvt. Ltd. as regards the accuracy and adequacy of the information contained herein. The information in this material is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. This material is intended only for the use of the entity / person to whom it is addressed and the others authorized to receive it on their behalf. The recipient is strictly prohibited from further circulation of this material. Smart Consultants Pvt. Ltd. Page 1 of 29
Transcript
kabhi khushi kabhi ghum………
The Union Budget 2009 presented by Hon’ble Finance Minister Shri Pranab Mukherjee this time had a tough task of managing the moods of the ‘Aam Admi’ and ‘India Inc’ at a time when the world is still struggling with an unprecedented financial crisis and an economic slowdown that has also affected India. Very speculative views are moving around as to the phase of recession where some may see a turnaround in the financial crisis whereas some are still worried of the larger impact of recession yet to roll up.
The Budget proposals did not boost the spirits of the financial market which is evident from the fact that the Stock market which was about 100 points up in the morning on the day when the Bill was presented by Hon’ble FM, has fallen by as low as 650 points on conclusion of the Budget speech, and by 900 points at the end of the day, perhaps, one of the largest hit by the Budgets so far. This is so because this market had far more expectations from the Government. The Hon’ble FM has rightly said (with this kind of budget)…. “With strong hearts, enlightened minds and willing hands, we will have to overcome all odds and remove all obstacles to create a brave new India of our dreams.”
Yet, there are some reasons to rejoice as well. The tax limits under Income-tax and Wealth Tax are enhanced for the Aam Admi. Sticking to the theme of “inclusive growth” espoused by the UPA Government, the FM also unveiled breaks for exporters hard-hit by the global downturn and direct subsidies for farmers. The Commodity Transaction Tax as well the Fringe Benefit Taxes are also abolished.
All in all, the Budget may be called as neutral budget. We have tried to analyze the Budget proposals as enunciated in the Finance (No. 2) Bill, 2009.
A copy is also available on our website http://www.amcount.com.
This material is prepared by Smart Consultants Pvt. Ltd.While due care has been taken to ensure the accuracy of the information contained herein, no warranty, express or implied, is being made, by Smart Consultants Pvt. Ltd. as regards the accuracy and adequacy of the information contained herein. The information in this material is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. This material is intended only for the use of the entity / person to whom it is addressed and the others authorized to receive it on their behalf. The recipient is strictly prohibited from further circulation of this material.
Just as one plucks fruits from a garden as they ripen, so shall a King have revenue collected as it becomes due. Just as one does not collect unripe fruits, he shall avoid taking wealth that is not due because that will make the people angry and spoil the very sources of revenue.
- Kautilya
Democracy is the art and science of mobilizing the entire physical, economic and spiritual resources of various sections of the people in the service of the common good of all.
A4 Business expense – Capital Exp. To specified activity
A19 FBT – Abolished
A5 Business Expense - Partner’s Remuneration
A20 Income-Gift
A6 Business expenses- Cash payments A21 Limited Liability PartnershipA7 Capital Gains – Stamp Duty
valuationA22 MAT-Book profit
A8 Chapter VIA deduction – Tax holiday
A23 Presumptive Taxation
A9 Chapter VIA Deduction – New Businesses
A24 Transfer Pricing- Range
A10 Chapter VIA deduction - maintenance of disabled dependent
A25 Transfer Pricing – Safe Harbour Rules
A11 Chapter VIA deduction Interest of education loan
A26 TDS – TDS on contractors
A12 Chapter VIA/III deduction - Definition of ‘Manufacture’
A27 TDS – TDS on rent
A13 Chapter VIA deduction – Tax holiday
A28 TDS – Surcharge and Cess
A14 Chapter VIA/III deduction – SEZ A29 TDS – assessee in defaultA15 Charitable Purpose A30 Wealth Tax – Threshold LimitSection B – rates of tax on income Section C – snapshot of the judicial decisions consideredSection D – service TaxD1 Notifications D4 Existing Services- Scope ModifiedD2 Rules D5 Exemptions IntroducedD3 New Services Covered D6 Refund scheme for exporters
Smart Consultants Pvt. Ltd. Page 6 of 29
direct taxes……
Sr. No. SubjectA1 Alternate Dispute
ResolutionIntroduced
Sec. +/-144C + 01.10.2009
Highlights
1. It is proposed to introduce an Alternate Dispute Resolution Scheme for certain classes of Eligible Assessees.2. ‘Eligible Assessees’ means:
In whose case a TP adjustment has been made; and
Any Foreign Company
3. The ADR mechanism involves setting up a Dispute Resolution Panel, which would be set-up by CBDT in due course.4. The order of the AO finalized based in pursuance to an order of the DRP can be appealed to the ITAT.
Comments
1. The amendment is proposed to curtail and streamline the dispute process for the foreign companies. It will provide an alternative forum to settle complicated tax disputes outside the normal appellate proceedings.2. As per the said new process, once the AO has
forwarded the draft order to the tax payer, the tax payer has to file within 30 days from receipt of such order (i) acceptance of the order with the AO; or (ii) objections if any to order with the DRP and the AO. It appears that the tax payer may chose not to respond at all in which case the Assessing Officer may pass the order based on the evidences which are available on record.3. The Assessing Officer has to finalize the assessment order within 1 month from the end of the month in which such acceptance is received or the expiry of the period by which the objection is to be filed.4. The DRP will provide guidance to the AO to complete the assessment based on review of objections and evidence/ information. It can either reduce, accept or enhance the variation proposed in the order by the Assessing Officer. 5. However, the DRP shall not have any power to set aside or issue any directions to the Assessing Officer. This means that the DRP will have to decide based on the evidences gathered by the Assessing Officer and is required to examine only the correctness of the view taken by the Assessing Officer based on the existing records.
6. The direction of the DRP is binding on the Assessing Officer. The direction shall be given within a period of 9 months from the end of the month in which the draft order is forwarded to the Eligible Assessee.7. The DRP shall not pass any directions which are prejudicial to the interest of the Assessee, without hearing the assessee.8. The provisions relating to DRP is a welcome provision since it seeks to bring some accountability with the officers as the orders of the Assessing Officer now will be under review by the officers of the rank of commissioners constituting DRP.9. In case where the order is passed by the Assessing Officer under the directions of DRP, the appeal could be filed only with the Tribunal and not with CIT(A).
Sr. No. SubjectA2 Advance Tax
AmendedSec. +/-208 + A.Y. 2010-11
Highlights
The limit for attracting liability to pay advance tax has been enhanced from Rs. 5,000/- to Rs. 10,000/-.
Comments
With the proposed amendment, the interest u/s. 234B and 234C will not be attracted if the advance tax liability of the assessee is less than Rs. 10,000/- as against the present limit of Rs. 5,000/-.
Sr. No. SubjectA3 Business expense –
Weighted deductionIntroduced
Sec. +/- w.e.f.35(2AB) + A.Y. 2010-11
Highlights
Weighted deduction of 150 % allowed for in-house R and D activity carried out by the companies will be extended to those engaged in business of manufacture or production of an article or things except those specified in the Eleventh Schedule of the IT Act.
Comments
1. Weighted deduction is present allowed to companies engaged in the business of biotechnology, drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemical or any other article or things notified by Board. This deduction will now be extended to all the companies engaged in the business of manufacture or production of article or things except those specified in the Eleventh Schedule.2. This will largely benefit the companies who are required to incur expense on in-house R & D facilities.
Sr. No. SubjectA4 Business expense –
Capital Exp. in specified activity
IntroductionSec. +/- w.e.f.
35AD/73A + A.Y. 2010-11
Highlights
1. It is proposed to provide benefit of the capital expenditure wholly and exclusively for the following specified business –
a) Setting up and operating of cold chain facilities for specified products;
b) Setting up and operating of warehousing facilities for storage of agricultural products;
c) Laying and operating of cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network
2. Expenditure shall not include any expenditure incurred on acquisition of land or goodwill or financial instruments.3. The benefit is also available if the same is spent for laying of cross-country pipeline, the benefit being available in case if the business commences on or after 1 April 2007.4. For other specified business, the benefit will be available if such business commences its operations on or after 1 April 2009.5. However, no deduction will be allowed under Chapter VI A for the specified business.6. Loss arrived on any of specified business can be
set off against the profits or gains from another specified business. If loss cannot be set off the same can be carried forward for subsequent assessment year(s) against specified business. Since there is no limit specified for carry forward of such loss, the same can be carried forward infinitely.7. Income received or receivable on any capital assets for which deduction has been claimed under section 35AD, being demolished, destroyed, discarded or transferred will also be considered as income of the assessee and shall be taxable.8. For the purpose of computation of capital gains the cost of acquisition of the capital assets will be considered to be NIL if deduction has been claimed under section 35AD.
Comments
1. The Hon’ble FM has stated in the Budget speech that he proposes to introduce the investment based deductions as against the profit based deductions.2. In line with the said objective and with a view to create rural infrastructure and environment friendly alternate means of transportation for bulk goods, it is proposed to provide investment linked tax incentives by inserting a new Section 35AD. 3. This provisions are applicable to the specified business in respect of capital expenditure
incurred by them other than expenses incurred for acquisition of land or goodwill or financial instruments.4. However, what constitutes financial instruments has not been defined. The deduction will be allowed for the expenses capitalized in the earlier year and also for the expenses incurred during the previous year of its applicability. 5. However, no deduction under Chapter VIA for the same will be allowed.6. Further deduction under section 80 IA to the business of laying and operating a cross country natural gas distribution network will be discontinued. However, they would be allowed to claim deduction under section 35AD.7. Of course, no deduction will be allowed unless the accounts are audited or due to close relationship the profits earned from the specified business are more than the ordinary profit earned in such business.
Sr. No. SubjectA5 Business Expense -
Partner’s RemunerationAmended
Sec. +/-40(b) + A.Y. 2010-11
Highlights
1. The limits for allowing the deduction on account of partners’ remuneration is enhanced.2. Further, the said limits of remuneration to the partners of the business
firm and professional firms were different. These limits are now brought at par.
Quantum of profits Amount allowed as
remunerationFor the first Rs. 3,00,000/- of the book-profit or in case of a loss
Rs. 1,50,000 or at the rate of 90% of book-profit, whichever is more.
For the balance of the book-profit
At the rate of 60%.
Comments
This was a much needed change since the limits under the Act are years old.
Sr. No. SubjectA6 Business expenses- Cash
paymentsAmended
Sec. +/- w.e.f.40A(3) + 01.10.2009
Highlights
1. Cash payments are disallowed if the same are in excess of limit of Rs. 20,000/- in a day.2. No disallowance is proposed now for aggregate payment in cash upto Rs.35,000 for payment made for plying, hiring or leasing goods carriages
Comments
1. It appears that the Govt. has accepted that the transport sector is still an unorganized sector and hence the payment to them by cheque was causing a great hardship for small transporters.
2. In an attempt to reduce such hardship, the limit of payments made in cash is enhanced from Rs. 20,000/- to Rs. 35,000/- in respect of payments made for plying, hiring or leasing of goods carriages.
Sr. No. SubjectA7 Capital Gains – Stamp Duty
valuationAmended
Sec. +/-50C - 01.10.2009
Highlights
1. Section 50C provides that stamp value of the property shall be considered full value consideration if the stamp value exceeds the actual transaction value2. The scope of aforesaid section has been expanded to include transactions which are not registered with the stamp duty valuation officer.
Comments
1. Recently in Navneet Kumar Thakkar v. ITO [298 ITR 42] (Jodhpur), it was held that s. 50C is applicable only in case where the agreement is registered with the stamp duty authorities. Hence, if the document is not registered with the stamp duty authorities, s. 50C cannot be invoked and the assessee cannot be held liable on enhanced capital gain tax.2. The amendment seeks to overrule the said view and provides for the valuation mechanism in such a case stating that
the value of the property shall be the value which the stamp duty valuation officer would have determined had the transfer of property been registered with such officer.
Sr. No. SubjectA8 Chapter VIA deduction –
Tax holidayClarified
Sec. +/- w.e.f.80A - A.Y. 2003-04
Highlights
1. No deduction under Chapter VI A will be allowed if the tax deduction for the profits and gains has already been allowed u/s. 10A or s. 10AA or s. 10B or under any provision of Chapter VIA. 2. Further, the aggregate of deductions allowed under any of the said sections shall not exceed the profits and gains of the undertaking. 3. It is also proposed that transfer price of goods and services between the undertaking/unit, etc. shall be determined at the market value as on date of transfer. The same will be effective from 1 April 2009 and will apply to any proceedings which are pending before any authority on or after such date. 4. However, it is specifically proposed that no deduction will be allowed under the various provisions mentioned above if the same is not claimed in the return of income.
Comments
1. There was a controversy as to the amount of profits which are eligible for deduction u/s. 10A/80IA, etc. in case where the assessee is also eligible for deduction under any other section under Chapter VI-A or u/s. 10A/10B, etc. 2. The issue had arose in the case of ACIT vs. Rogini Garments & Others [108 ITD 49] which was upheld by 5 member bench in the case of ACIT vs. Hindustan Mint & Agro Products Pvt. Ltd.[119 ITD 107 (SB) (Del).] wherein it was held that in case of an eligible industrial undertaking (IU), the deduction of export profit u./s. 80HHC is required to be computed after reducing the profits which are allowed as deduction under Section 80IA or 80IB. The amendment has thus approved the decision of the 5 member bench.3. It is also proposed that the deduction shall not be allowed in excess of the total profits of the eligible undertaking. This amendment also seeks to resolve the controversy raised by several decisions wherein it has been held that the deduction u/s. 10A/10B had no co-relation with the gross total income.4. This amendment also aims at restricting the benefit if the same is not claimed in the return of income and formalize the law laid down by Apex Court in case of Goetze (India) Ltd. v. CIT [284 ITR 323]. This, of course, goes against the time tested benevolent Circular of the
CBDT No. 14(X1-35) of 1955, dated 11.04.1955 as approved in the cases like Chokshi Metal Refinery v. CIT [107 ITR 63 (Guj)], CIT v. Ahmedabad Keiser-E-Hind Mills Ltd. [128 ITR 486 (Guj)] and many more.
Sr. No. SubjectA8 Chapter VIA Deduction –
New BusinessesExtended
Sec. +/- w.e.f.80-IA + A.Y. 2010-11
Highlights
1. Tax holiday is proposed to be extended for an undertaking which commences following business on or before 31.03.2011:
a) generation or generation and distribution of power;
b) transmission or distribution by laying a network of new transmission or distribution lines;
c) substantial renovation and modernization of existing network of transmission or distribution lines
2. Further, tax holiday benefit will also extended to an undertaking owned by an Indian Company set up for reconstruction or revival of power generation, if such undertaking commences the activity of generation, transmission or distribution of power on or before 31.03.2011.
Comments
The deadline to start the eligible businesses for claiming the benefit u/s. 80-IA is extended from 31.03.2010 to 31.03.2011.
Sr. No. SubjectA10 Chapter VIA deduction -
maintenance of disabled dependentAmended
Sec. +/-80DD + A.Y. 2010-11
Highlights
1. The deduction is presently allowed for expenditure incurred by an individual or an HUF on medical treatment, training and rehabilitation of a dependent possessing disability.2. The limit of the expenditure incurred by the assessee increased from Rs. 75,000 to Rs. 1,00,000.Comments
The enhancement of the limit for deduction to medically handicapped dependants is a welcome move for the specified class of people.
Sr. No. SubjectA11 Chapter VIA deduction
Interest on education loanAmended
Sec. +/-80E + A.Y. 2010-11
Highlights
1. At present, s. 80E allows deduction for the interest paid on loan availed higher education.2. The scope of the term ‘higher education’ is expanded by including additional field of studies.
Comments1. The proposed amendment has sought to include the loans taken for studies to pursue courses after SSC or its equivalent examination (including vocational courses) as also eligible for deduction u/s. 80E.2. The step seems to be in line with government’s endeavor to develop larger and deeper human resource base in India.
Sr. No. SubjectA12 Chapter VIA/III deduction
- Definition of ‘Manufacture’
ClarifiedSec. +/- w.e.f.
Chp. III/VI—A - A.Y. 2010-11
Highlights
1. A new sub-section has been introduced in the IT Act to define the term ‘manufacture’. 2. The term has been defined to mean a change in a non-living physical object or article or thing resulting into an object or article or thing having a different name, character and use or chemical composition or integral structure.
Comments
1. The term ‘manufacture’ has been subject matter of substantial controversy over the years since no such definition is provided under the Act. This is the welcome move as it may give a defined direction while examining the facts relating to ‘manufacture’
2. However, the said definition is differently worded as compared to the definition given under the SEZ Act, 2005 which is presently adopted in many provisions of the Act.3. Since no specific date of implementation is specified and that the term has been defined to resolve the long drawn controversy, it may be looked upon as a clarificatory amendment affecting the past years.4. Further, the term also covers only ‘object, article or thing’ unlike the other sections where the computer software has also been covered. This would mean that the definition of ‘manufacture’ would only be applicable to object, article or thing and not to computer software. The meaning of the manufacture for ‘computer software’ may have to be imported from common sense or the definition as given under SEZ Act, 2005.
Sr. No. SubjectA13 Chapter VIA deduction –
Tax holidayAmended
Sec. +/-10A/10B +
Highlights
S. 10A and 10B provided tax holiday to specified undertakings till A.Y. 2010-11. The said time limit is now extended till A.Y. 2011-12.
Comments
The last year for claiming the benefit u/s. 10A/10B is extended from A.Y. 2010-11 to A.Y. 2011-12.
Sr. No. SubjectA14 Chapter VIA/III deduction
– SEZAmended
Sec. +/- w.e.f.10AA + A.Y. 2010-11
Highlights
1. S. 10AA provided the computation of deduction being such amount as the export turnover of the undertaking bears to the total turnover of the business. Since the deduction was granted as a proportion of the export turnover of undertaking to the turnover of business, there was anomaly in such comparison as the base for determining the turnover was different. 2. The agitation before the Legislature was that the computation of deduction can be made only on identical base and hence the export turnover of the undertaking can be compared only with the total turnover of the undertaking and not the entire business.3. The proposed amendment therefore seeks to remove the said disparity by comparing and determining the proportion of the export turnover of the undertaking to the total turnover of the undertaking.
Comments
Since the deduction was granted considering the
export turnover of the undertaking and the total turnover of the entire business, there was diaparity is calculating the quantum of deduction due to different base and consequently, the deduction granted to the assessee was much less than intended by the proposed section. The said disparity is now removed by the proposed amendment.
Sr. No. SubjectA15 Charitable Purpose
AmendedSec. +/-2(15) + A.Y. 2010-11
Highlights
The definition of “charitable purpose” is proposed to be extended to include activities of preservation of environment (including watersheds forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest.
Comments
This is a welcome move to achieve the “Green India” and also to save the places and items of historical interest.
Sr. No. SubjectA16 Charitable Trusts-
DonationsRe-Introduced
Sec. +/-11 + A.Y. 2010-11
Highlights
1. At present all anonymous donations are taxable in the hands of the charitable trusts.2. It is now proposed to amend the said provisions by permitting the anonymous donations upto Rs. 1,00,000/- or 5% of the total income, whichever is higher and hence any amount in excess of such limit would be taxable.
Comments
Though the limits are low, this is a welcome provision for the trusts genuinely receiving the anonymous donations.
Sr. No. SubjectA17 Commodity Transaction
Tax (CTT)Abolished
Sec. +/- w.e.f.36(1)(xvi) + 01.04.2009
Highlights
The Hon’ble FM had introduced CTT in his earlier budget on the transactions of purchase and sale of commodities. The said tax is now abolished with retrospective effect from 01.04.2009.
Comments
1. The CTT, though not yet operationalised, was introduced to levy tax on trading of commodities in the MCX exchange.2. Since the said tax had created additional burden for the upcoming commodities market, the same appears to have been abolished now.
Sr. No. SubjectA18 Exemptions-VRS
AmendedSec. +/-
10(10C) - A.Y. 2010-11
Highlights1. Section 10(10C) provides for exemption with regard to amount received by an assessee on voluntary retirement provided certain conditions in this regard are satisfied.2. A proviso has been added to the aforesaid Section, to restrict availability of deduction under Section 10(10C) for amount received on voluntary retirement in case the assessee has claimed relief u/s. 89.
Comments
1. Under the current scheme of things, an individual assessee was in a position to claim exemption under Section 10(10C) as well as relief under Section 89 of the Act (relief for tax rate differential), if the payment was made in a staggered manner.2. The proposed amendment seeks to restrict the assessee from claiming exemption who has claimed relief u/s. 89, from claiming deduction under the aforesaid section with respect to the same amount. The corresponding amendment is also proposed to s. 89. The proviso has been introduced to clarify that in case deduction under aforesaid section has been claimed, no relief will be allowed under Section 89.
3. It seems that the amendment negates the ratio of judgments in following cases:
a) CIT v. Koodathil Kallytan Ambujakshan [219 CTR 80 (Bom)].
b) CIT vs. Nagesh Devidas Kulkarni [291 ITR 407 (Bom)]
Sr. No. SubjectA19 FBT – Abolished
AmendedSec. +/- w.e.f.
115WB + A.Y. 2010-11
Highlights
1. Fringe Benefit Tax introduced by Finance Act, 2005 has now been abolished with effect from 1 April 2010, i.e. AY 2010-11.2. However, the taxation of the fringe benefits as perquisites in the hands of employee will be reintroduced (Section 17 (2)(vi), (vii) and (viii))
Comments
Since the cost of compliance and the procedure involved in FBT was substantially high, it was a right move to abolish the said Law.
Sr. No. SubjectA20 Income-Gift
AmendedSec. +/- w.e.f.56 - 01.10.2009
Highlights
1. Few years back, gifts were regarded as income in the hands of the recipients. The amendment
was brought in the past taxing gifts received by way of cash in the hands of recipients in certain situations. 2. The scope is now enhanced to cover the gifts by way of tangible or intangible property exceeding Rs. 50,000/-.
Comments
1. As per the reading of the provisions on the statute, the gifts in kind were outside the purview of the tax net u/s. 56. as income2. The Finance Bill has now sought to expand the said scope to include gifts by way of tangible and intangible property exceeding Rs. 50,000.
Sr. No. SubjectA21 Limited Liability
PartnershipAmended
Sec. +/--- + A.Y. 2010-11
Highlights
1. The new provisions introduced in relation to the taxation of LLP do not treat the LLP as a transparent entity but treat the same at par with the general partnerships under the Indian Partnership Act, 1932.2. Accordingly, all the provisions relating to the firm will apply to LLP. The income of the LLP shall be taxed as the income of the firm and accordingly, the share of the partners from LLP shall be exempt in the hands of the partner.
Comments
1. The proposed amendment seeks to tax LLPs as partnership firm. It is also provided that every partner of a LLP shall be jointly and severally liable for the taxes to be paid by the LLP for the period during which he was a partner, unless the non-recovery of taxes cannot be attributed to gross neglect, misfeasance or breach of duty on his part.2. It is not understood as to what would be the purpose of existence of LLP is the same were to be treated akin to partnership firms. One of the primary benefit of the LLP was the limited liability of the partners. However, the Law has been provided to hold the partner jointly and severally nullifying the very purpose for which the said entity is formed.3. LLPs are also excluded from the provisions of presumptive taxation contained in section 44AD of the Act.
Sr. No. SubjectA22 MAT-Book profit
AmendedSec. +/- w.e.f.115JB - A.Y. 2010-11
Highlights
1. The MAT rate is now increased from 10% to 15% of the book profit.2. Further, it is proposed that amounts set aside as a ‘provision for diminution in the value of any asset’ would need to be added back in computing the ‘Book profits’ u/s. 1115JB.
3. It is also proposed that MAT tax credit will be allowed to be carried forward for a period of 10 years [as against the period of 7 years at present]
Comments
1. Recently, the Apex Court had taken a view in the case of HCL Comnet Systems & Services Limited [305 ITR 408] that the provision for diminution in the value of assets should not be added back for the purpose of computing book profits. The said ruling is now reversed by the proposed amendment.2. Further, while on one hand the MAT rate is increased substantially, the assessees are allowed MAT credit for a period of 10 years instead of 7 years at present.
Sr. No. SubjectA23 Presumptive Taxation
IntroducedSec. +/-44AD + A.Y. 2010-11
Highlights
1. At present the presumptive taxation scheme is applicable only to the specified businesses.2. The proposed section seeks to provide for estimating income of assessee who is engaged in any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE. The income is presumed to be earned at a sum equal to 8% of the total turnover or gross receipts of such
business higher than the aforesaid sum claimed to be earned by the assessee.3. The scheme will apply to such individual, Hindu undivided family and partnership firm but not LLPs whose total turnover does not exceed 40 Lakhs.4. It is also proposed that such an assessee will not be eligible to claim a deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provision of Chapter VIA.5. It is proposed that the provisions relating to the payment of advance tax shall not apply to the assessee, who opts for the said scheme in respect of such business.6. However, it provided that those assessee having turnover less than 40 lakhs and showing profits lower than 8% will have to maintain the boos of accounts and also get his accounts audited u/s. 44AB.
Comments
1. This provision certainly benefits the assessee who intends to avoid any complications of maintain the books of accounts and also avoid scrutiny by the tax department. 2. However, those showing profits lesser than 8% will have to maintain the books of accounts and also get their accounts audited.
Sr. No. SubjectA24 Transfer Pricing- Range
AmendedSec. +/- w.e.f.
92C 01.10.2009
Highlights
It is proposed that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices and further the variation between the arm’s length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm’s length price.
Comments
1. The proposed amendment provides that where the variation between the arm’s length price determined and the price at which the international transaction has actually been undertaken does not exceed 5% of the International Transaction, then such price of the International Transaction shall be considered as Arm’s length Price. At present, the proviso requires for computation of 5% variation on the arithmetic mean)2. However, it is not clear as to when the variation exceeds 5%, what would be the adjustment to the income of the taxpayer. Would the adjustment be restricted to variation in excess of 5% or it would
extend to entire difference including 5%. 3. Till date in various judgments the Tribunal had held that the 5% range should be allowed to the taxpayer even in cases where the price of the transaction was outside the 5% range. Rulings where this principle has been affirmed are as follows:
a) Development Consultants Pvt. Ltd. Vs DCIT [115 TTJ 577 (Kol)]
b) Mentor Graphics (Noida) Pvt. Ltd. Vs DCIT [18 SOT 76 (Del)]
c) Sony India (P) Limited Vs DCIT [2008-TIOL 439 (Del)]
4. The above rulings have now been formalized under the Statute.
Sr. No. SubjectA25 Transfer Pricing – Safe
Harbour RulesAmended
Sec. +/- w.e.f.92C + A.Y. 2010-11
Highlights
1. It is proposed to provide that the determination of arm’s length price u/s. 92C or 92CA shall be subject to safe harbour rules to framed by CBDT.2. It is also proposed to define ‘safe harbour’ to means circumstances in which the income tax authorities shall accept the transfer price declared by the assessee, to be at Arm’s Length.
Comments
The proposed amendment seeks to provide some leverage to small tax payers by allowing the exchequer to accept the price under specified circumstances. In other words, the rigidity of the said provisions of Transfer pricing is diluted.
Sr. No. SubjectA26 TDS – TDS on contractors
ClarifiedSec. +/-194C + 01.10.2009
Highlights
1. The definition of sub-contractors has been done away with and the sub-contractors are considered at par with the contractors.2. As per the proposed amendment there will be only two categories of deductees and accordingly the rates as tabulated herein below are prescribed:
Category of payee
(deductee)
Rates%
Individuals and HUF’s
1
Others 2
3. Further, it is proposed that no TDS to be made by the person in the course of business of plying, hiring or leasing goods carriages subject to the contractor providing PAN 4. It is also proposed not to cover the contract of manufacturing goods as per the specifications of customer by using material purchased from other
persons within the provisions of TDS. 5. It is further proposed to amend the provisions to clarify that no TDS is to be made on the amount of raw material where invoices distinctively specify the value of raw material. If composite bill is raised, then TDS is to be made on the whole amount.
Comments
1. The provisions relating to TDS on contractors are substantially amended to exclude the separate category of sub-contractors and consider them as part of the contractors.2. Similarly, the TDS rates are now rationalized based on the type of payee as compared to based on the type of work involved earlier.3. A dispute was raised in the case of Whirl Pool India Ltd. [16 SOT 435 (Del)] wherein it was held that where vendor purchases raw material on his own and goods are manufactured based on specifications given by the assessee, it is a case of sale of goods and not job work. 4. The controversy which had reached the Hon’ble Bombay High Court in the case of BDA Ltd. v. ITO (TDS) [281 ITR 99 (Bom)] was now settled by holding that if the contractors does any work based on the specification provided by the customer with the help of goods purchased from any person other than customer, it would not be liable to TDS.
5. It is also additionally provided that in case of such transaction involving TDS liability, no TDS would be levied if the value of raw material is distinctly specified in the invoice.
Sr. No. SubjectA27 TDS – TDS on rent
AmendedSec. +/-194I + 01.10.2009
Highlights
1. The TDS rates on the rental payments have also been rationalized by reducing the tax rates. The rates at present are as follows:
Rent payment
Individual or HUF
P & M or equipment
10
Land, building or furniture
15
2. The proposed tax rates are as follows:
Rent payment
Individual or HUF
P & M or equipment
2
Land, building or furniture
10
Comments
This amendment will reduce the burden of TDS liability on the assessee substantially and will also benefit the recipients as the margins in the rental activity have fallen down.
Sr. No. SubjectA28 TDS – Surcharge and
CessAmended
Sec. +/- w.e.f.191 + A.Y. 2010-11
Highlights
1. It is proposed to withdraw surcharge on TDS on all the payments except payments made to foreign companies.2. Further, it is also proposed to levy cess only on TDS on salary payments. Now no cess to be levied on any other TDS payments.
Comments
This is a welcome suggestion reducing the tax burden on the assessee.
Sr. No. SubjectA29 TDS – assessee in default
AmendedSec. +/- w.e.f.201 + A.Y. 2010-11
Highlights
1. It is proposed that an order u/s. 201(1) for failure to deduct tax will be passed within 2 years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. 2. Where no such statement is filed, such order can be passed up till 4 years from the end of the financial year in which the payment is made or credit is given.
Comments
1. The said time limits were required to be set long ago and hence the same would create a bar on the departmental offices as they used to pass the orders after a considerable lag of time. 2. This amendment is also in line with the view of Raymond Woolen Mills Ltd. v. ITO (57 ITD 536) (Mum). In fact, even the Special bench in the case of Mahindra & Mahindra Ltd. [unreported] has held that the order passed after the period of 6 years is invalid.
Sr. No. SubjectA30 Wealth Tax – Threshold
LimitAmended
Sec. +/- w.e.f.WT + A.Y. 2010-11
Highlights
The threshold limit of exemption from Wealth Tax is proposed to be raised from Rs. 15,00,000/- to Rs. 30,00,000/-.
Comments
This is a welcome proposal in light of the increased standard of living and better saving habits.
rates of tax on income ……
The comparative chart showing the tax rates for various levels of income during A.Y. 2009-10 and A.Y. 2010-11 is given below:
For Male (below 65 years of age)
Slab Rates A.Y. 2009-10 A.Y. 2010-11Tax SC EC Total Tax SC EC Total
If the contractors does any work based on the specification provided by the customer with the help of goods purchased from any person other than customer, it would not be liable to TDS.
194C Overturned • BDA Ltd. v. ITO (TDS) [281 ITR 99 (Bom)]
• Whirl Pool India Ltd. [16 SOT 435 (Del)]
Stamp Duty valuation to be adopted even in case where the document is not registered.
• CIT vs. Nagesh Devidas Kulkarni [291 ITR 407 (Bom)]
If the variation between the arm’s length price determined and the price at which the international transaction has actually been undertaken does not exceed 5% , then such price of the International Transaction be accepted as ALP
92C Approved • Development Consultants Pvt. Ltd. Vs DCIT [115 TTJ 577 (Kol)]
• Mentor Graphics (Noida) Pvt. Ltd. Vs DCIT [18 SOT 76 (Del)]
• Sony India (P) Limited Vs DCIT [2008-TIOL 439 (Del)]
An order u/s. 201(1) for failure to deduct tax to be passed within 2 years from the end of the F.Y. in which TDS statement filed. In any other case, the period is 4 years from the date of credit of amount.
201 Approved • Raymond Woolen Mills Ltd. v. ITO (57 ITD 536) (Mum)
• Mahindra & Mahindra Ltd. [unreported]
service tax……
Sr. No. SubjectD1 Notifications
AmendedSec. +/-
As Under +/-Enactment
Highlights1. S. 84 and 86 are being amended to bring the provision relating revision / modification of order passed by an officer subordinate to the commissioner, at par with provisions under S. 34E of Central Excise Act. Now the revision or modification of such order shall take place by a departmental appeal before Commissioner (Appeals).2. S. 94 is being amended to empower Central Government to prescribe rules in respect of (a) relevant date for determination of rate of service tax and (b) place of provision of taxable services.3. At present Notification No. 1/2009–ST is granting exemption for several services received by Goods Transport Agents (GTA) during the movement of goods effective from 5th
January, 2009. Now it has been proposed to give effect retrospectively from 1st January, 2005.
Comments
1. Generally, procedures under Service Tax and
Central Excise are aligned. There was an exception in the treatment to an order-in-original passed by an officer subordinate to Commissioner. If the same is not acceptable to the Commissioner on account of its lack of legality or appropriateness; S. 84 provides revision of such orders, which amounts to recalling the order and re-adjudicating it.
2. At present the service tax rules suffer from the deficiency of not having provisions relating to (1) relevant date for determination of rate of service tax and (2) place of provision of taxable services. This has been plugged out by authorizing Central Government to prescribe rules in this regard.3. While these individual services availed by GTA are taxable at the hands the service providers, the GTA cannot take credit of tax paid on such services, as the abatement allowed to them is subject to condition that no credit should be availed. This matter was agitated by the GTA, and the Government agreed to exempt such services. Now this exemption is extended from retrospective date to close the pending litigations for the past periods. Sr. No. Subject
D2 Rules Amended
Sec. +/-As Under +/- 07-07-2009
Highlights
1. The Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007a. Explanation appearing in sub-rule (3) is being amended to provide that the composition scheme would be available only to such works contracts where the gross value of works contract includes the value of all goods used in or in relation to the execution of works contract whether received free of cost or for consideration under any other contract. b. This condition would not apply to those works contracts, where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before the date of the amendment.
2. CENVAT Credit Rules 2004a. The proposed amendment is to bring parity between manufacturer and service provider. In case of manufacturer, if any input or capital goods, on which CENVAT Credit is taken, has been written off fully in the books of accounts before it has been put to use, the manufacturer is required to pay an amount equivalent to the CENVAT credit taken. The Rule 3 (5B) is being amended to
apply said provisions to service provider also. b) At present u/r 6(3), provider of taxable as well non-taxable service using common inputs or input services and not maintaining separate accounts has an option to pay an amount at 8% on non-taxable services to avail full CENVAT Credit on common inputs and input services. The said rate of 8% has been reduced to 6%.
Comments
1. Now, the benefit of composition scheme under Works Contract Services to pay service tax at 4% on gross contract value will be availed only if the gross contract value includes value of the all the inputs used in relation to the subject work contract whether supplied under separate contract by the contractor or provided free by the principal. This will result in increase in service tax liability of contractors.2. (a) Effectively, CENVAT Credit has been denied in respect of capital goods and inputs which are written off in books before it has been put to use. (b) Under an option the rate at which tax is to be paid on exempted services is reduced to correspond to the reduction in rate of service tax from 12% to 10% announced during Feb.2009.
Sr. No. SubjectD3 New Services Covered
IntroducedSec. +/- w.e.f.65 - Date to be
Notified
HighlightsFollowing are the new services added to service tax net. These services shall be liable to tax from the date to be notified after the enactment of the Finance Bill 2009.
1. Transport of goods through Rail: As on date transportation of goods by non-government railway in containers is liable to service tax. Now it is proposed the transportation of goods either in container or otherwise and whether by non- government or government rail – all shall be liable to service tax.2. Transport of coastal goods and goods transported through inland water: Under this category costal goods and transport of goods through national waterways and inland water 3. Legal Consultancy Services: This category shall cover consultancy, advice and technical assistance in any discipline of law. However, this shall have limited in case of service provided by a business entity to another business entity and shall not cover the services provided by an individual to any other individual or business entity and services provided by a business entity to an individual.
4. Cosmetic and Plastic Surgery Services: This category shall cover cosmetic and plastic
surgery undertaken to preserve or enhance physical appearance or beauty. However, any reconstructive surgery undertaken to restore one’s appearance, anatomy or bodily functions affected due to congenital defects, developmental abnormalities, degenerative diseases, injury or trauma would be outside the scope of this service. Comments
1. In case of transport of goods through rail, transport of coastal goods and goods transported through inland water, it is proposed that suitable abatement and /or exemption to specified goods shall be provided at appropriate time i.e. at the time of notifying these services. 2. Services by legal firms in respect of appearance and representation before any court or statutory authority shall remain out side the scope of this service. 3. The introduction of service category Cosmetic and Plastic surgery service will nullify the impact of decision by Ahmedabad Tribunal in case of New Look Cosmetic Laser Centre.
Sr. No. SubjectD4 Existing Services - Scope
Modified Modified
Sec. +/- w.e.f.65 -/+ Date to be
Notified
Highlights
1. Business Auxiliary Service: At present under this category the production and processing which amounts to manufacture was not covered. The scope of exclusion has been narrowed and accordingly the production and processing which result in manufacture of excisable goods shall not be covered. In other words, services in relation to production and processing amounting to manufacture of non excisable goods shall get covered here.
2. Stock Broker Services: The sub-brokers are excluded from the scope of Stock Brokers and hence sub-brokers who are receiving commission / brokerage from the main-brokers are not liable to service tax under this category. Further, it has been clarified that such sub-broker shall not be liable even under Business Auxiliary Services.
3. Information Technology Software Services: Definition of taxable services has been corrected by replacing the word ‘acquiring’ by the word ‘providing’, considering the fact that it is the providing of ‘right to use’ and not the acquiring of ‘right to use’ which is liable to tax. This correction is effective from 16th May 2008 the date from which the service was
first brought to service tax net.
Comments1. The changes proposed are to cover up the omission or error in existing provisions.
Sr. No. SubjectD5 Exemptions Introduced
IntroducedSec. +/- w.e.f.
Several Sec. + 07.07.2009
Highlights
1. Notification No. 20/2009 dated 7th July, 2009 provides exemption from the payment of service tax to services in relation to point to point transportation of passengers by private bus operators, who operates buses having ‘contract carriage permit’ on specific inter state or intra state routes. The exemption shall not be available to transportation in relation to tourism or conducted tours, or charter or hire.2. Notification No. 19/2009 dated 7th July, 2009 provides exemption from the payment of service tax on the services in relation to inter bank sale / purchase of Foreign Exchange and Money Changing undertaken by Scheduled banks.3. Notification No. 16/2009 dated 7th July, 2009 provides exemption from the payment of service tax on the fees collected by Federation of Indian Export Promotion Organization and specified export promotion councils
from their members. This exemption has been provided for limited period up to 31st March, 2010.
Comments
1. Exemption provided to private bus operators will bring the parity between them and buses run by the State Undertakings.2. Exemption to schedule banks in relation to inter bank transaction shall not make any difference as otherwise tax paid would have been allowed as CENVAT credit.3. The limited exemption that too for period of less than a year shall serve hardly any purpose.
Sr. No. SubjectD6 Refund Scheme for
ExportersAmended
Sec. +/-Several Sec. + To be notified
Highlights1. Notification No. 17 and 18/ 2009 dated 7th July, 2007 has notified revamped scheme of refund of service tax paid on taxable services, received and used in connection with export of goods by merchant/ manufacturer exporter.2. The scheme consists of 2 parts.
(a) Exemption: GTA services in relation to certain transportation and foreign commission agent service in relation to export of goods are exempted to avoid first payment of tax by the exporter, as these are liable under reverse charge method in hands of recipient of services, and then claiming refund by the same exporter. (b) Refund: In case of other services, the exporter can avail refund. The new scheme notified to take care of grievances by the exporters and field staff.3. The important salient features of the scheme are as follow: a) List of eligible services
enlarged by including terminal handling charges.
b) The time period for claiming refund increased to 1 year from the date of export.
c) Condition to file one claim during one quarter is removed.
d) Form for refund claim is being simplified.
Self certified documents if the refund claim is up 0.25% of FOB value of goods exported and documents certified by CA if the claim exceeds 0.25% of FOB value of goods exported.
