Monday, March 2, 2009

TDS on Hire-purchase/Interest Charges




Hi Balu, Jaysukh, Madhu and Rajendra,


Theoretically, you guys are correct. But I am looking at thesubstance of the transaction rather than its form. I understand mostof these car finance companies enter into some sort of an agreementthat on paper at least looks like what may be called a hire-purchaseagreement. But if you look beyond the fine print of the agreement,you'd find these are simple finance transactions with a lender and aborrower. Assessees often try to sidestep their TDS responsibilitiesby advancing the argument that such transactions are Hire-purchasein nature. Since the ownership hasn't passed on to them, whatthey're paying is not interest but hire charges.But in almost all such cases, the same assessees also don't want toforego the depreciation on these assets. They incorporate the costof the car in the books and start claiming depreciation on it rightfrom year one. Now you have to be the owner of the asset in order toclaim depreciation on it. If you've put forward a claim ofdepreciation, you can't in the same breath contend that you'remerely a hire-purchaser, when it comes to making the TDS.So I think if an assessee purported to be a hire-purchaser, isn'tclaiming depreciation on the car, then it might be okay not todeduct TDS on the hire charges paid to Maruti Countrywide, et al.Balu, the CBDT circular of 1981 you've quoted from must have had itsrelevance in its heyday, but not any more. There's a huge emphasison Substance over Form in interpreting business transactions thesedays. And yes we have to refer to AS 19 as well to resolve thisissue, in view of the fact that AS 19 includes hire-purchaseagreements within the meaning of leases. There're two kinds ofleases: A Finance lease and an Operating lease. Hire-purchasecontracts are treated as finance leases. The soul of a finance leaseis the passing of all risks and rewards of ownership of the asset tothe lessee. Since this practically makes the lessee the owner of theasset, AS 19 requires us to recognize the leased asset in the booksof the lessee. Not doing so wouldn't reflect a true and fair view ofthe state of affairs. An asset actively deployed in the services ofthe business ought to be reflected in the books at some value.The Supreme court in the case of Asea Brown Boveri Ltd. v.Industrial Finance Corpn. of India [2005] 56 SCL 21 hascategorically said that a finance lease is merely a loan indisguise. A finance lease is a transaction current in the commercialworld, its primary purpose being the financing of the asset by thepurchaser, the court said.Another thing to be noted is lessor in finance lease cases istypically a financial institution, like we have the MarutiContrywide in the instant case. By its very nature, a financialinstitution is in the business of dispensing money. It merelystepped in as an intermediary between the assessee and the cardealer. Maruti Countrywide and other such finance companies havebeen formed for engaging in the business of financing and not thebusiness of giving assets on hire. Section 194-I, in my opinion,gets attracted where the person we hire the equipment from is in thebusiness of giving those equipments on hire. A car finance companyisn't in the business of giving cars on hire. The car has alreadybeen bought and sold for. The dealer is out of the picture. MarutiCountrywide made the payment on our behalf on the promise that weshall repay it over a period of time. We can't say we hired the carfrom Maruti Countrywide.So methinks, TDS u/s 194A would be applicable on the interest(doesn't matter what you call that amount—Substance over Form!)comprised in the EMIs paid to the car finance company.And Mr Soodan, yes that's a practical problem—how to "deduct" TDSwhen you've already parted with the pre-filled PDCs? I guess wemight have to somehow recover the tax amount from them separatelyagainst the issue of Form 16-A. The TDS issues need to be clearlysorted out before we go in for financing through these privatecompanies.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "balunand" wrote:>>> The instant case is one of Hire Purchase and since the vehiclecan be> repossessed anytime during the period of contract for default, the> additional amount paid is only hire charges and not interest. This> view has been given by the CBDT itself in the context of InterestTax> Act in Instruction No. 1425 in F. No. 275/9/80-IT(B) dated> 16-11-1.981, which is reproduced below.>> 'In a hire-purchase contract the owner delivers goods to another> person upon terms on which the hirer is to hire them on a fixed> periodical rental. The hirer has also the option of purchasing the> goods by paying the total amount of agreed hire at any time or of> returning the same before the total amount is paid. It may bepointed> out that part of the amount of the hire-purchase price is towardsthe> hire and part towards the payment of price. The agreed amountpayable> by the hirer in periodical instalments cannot, therefore, be> characterised as interest payable in any manner with the meaning of> section 2(28A) of the Income-tax Act, as it is not in respect ofany> money borrowed or debt incurred. In this view of the matter, it is> clarified that the provisions of section 194A of the Income-tax Act> are not attracted in these transactions.'>> Now the question is would sec 194I be attracted?>> Balu> > From: ICAI_CIRC_MEERUT_CA@yahoogroups.com> > [mailto:ICAI_CIRC_MEERUT_CA@yahoogroups.com] On Behalf OfSanjeev Bedi> > Sent: 22 December 2008 22:08> > To: ICAI_CIRC_MEERUT_CA@yahoogroups.com> > Subject: {amresh's-CA's} Re: TDS on Interest on car loan fromMaruti> > Countrywide> >> >> >> > Hi Mr Mohan, Madhu and Gowdhaman,> >> > In my opinion, TDS would be deductible u/s 194A. This is because> > Maruti Countrywide is neither a banking company registered underthe> > BRA 1949 nor a body that's been notified by the government u/s194A> > (3)(iii)(f). And companies like Maruti Countrywide and Kotak> > Mahindra don't seem to be covered under any of the otherexemptions> > listed in sub-section 3 of Section 194A either.> >> > The onus to prove that TDS isn't deductible on interest toMaruti> > Countrywide or the like is on those who claim so. If we can'tfind a> > notification or circular supporting such a claim, Section 194A> > stands applicable to such interest payments.> >> > Thanks,> >> > CA Sanjeev Bedi> >> > --- In ICAI_CIRC_MEERUT_CA@yahoogroups.com> > , madhu tapuriah> > wrote:> > >> > > but why? under which provisions ????> > >> > > --- On Mon, 22/12/08, gowdham wrote:> > > From: gowdham > > > Subject: Re: {amresh's-CA's} TDS ON INTEREST ON LOAN> > > To: ICAI_CIRC_MEERUT_CA@yahoogroups.com> > > > > Date: Monday, 22 December, 2008, 10:56 AM> > >> > >> > >> > >> > >> > >> > >> > >> > >> > >> > >> > > Dear Mr.Mohan,> > > Â> > > You need not deduct TDS.> > > Â> > > Thanks &regards> > >> > >> > > R.S.GOWDHAMAN> > >> > > --- On Fri, 19/12/08, mohangee wrote:> > >> > > From: mohangee > > > Subject: {amresh's-CA' s} TDS ON INTEREST ON LOAN> > > To: ICAI_CIRC_MEERUT_ CA@yahoogroups. com> > > Date: Friday, 19 December, 2008, 12:33 PM> > >> > >> > >> > >> > >> > > Sir,> > > My client is a partnership firm took loan from maruthi country> > wide for a vehicle.> > > Whether tds is to be deducted for the interest paid on loanto> > maruthi countrywide?> > > CA MohanÂ

Exemption u/s 54F--Possession Letter Date or Date of Payment?




Hi Nareshji,


Suppose it'd been the other way round: your client had made thepayments within 2 years AFTER the transfer of the asset but he'dbeen issued the Letter of Possession after the expiry of 2 yearsfrom the date of transfer of the original asset. Then, in thatevent, would you or would you not have argued that since thepayments were made well within the allotted time of 2 years for thepurchase of the house, the client was eligible for exemption u/s54F, even if he took physical possession of the house after 2 yearshad lapsed from the date of transfer?Normally we come across cases where an assessee has made the payment(s) towards purchase of house before the deadline of 2 years and haseven got the allotment letter issued in his favour, but he hadn'tyet moved into the house (or hadn't yet acquired some sort of rightof passage on it in the sense that nobody can trespass the propertywithout his permission) by the time the period stipulated u/s 54Fcame to an end. But in your case, since we want to drag the date ofpurchase down to the point where it is within one years BEFORE thedate of transfer of the asset, we have to do a volte-face and arguethat the payments from 2002 till May 2005 didn't create anyinalienable right to property in our favour. I don't know what thefine print in the documents says, but prima facie, it appears theonus to prove that an inalienable right over the residential flathad been created in your client gradually over the period of 3 yearswhile the assessee was making the payments lies on the AO. Paymentsmade gradually over a period of time as such certainly don't make usthe owner of a property, till the time we've got some right ofpassage (which doesn't necessarily mean having some documentaryevidence, incidentally) over that property. The finalallotment/handing over of possession would depend upon fulfillmentof other conditions as well. The AO wants to set the clock behind byearlier than 1 year to deny you the exemption. But I don't thinkhe's being fair, if indeed you have a letter of possession thatcategorically and unambiguously states that the risks and rewards ofownership were shifted to your client on the date of issue of thepossession letter, and not before.If you had sold this property say in 2007 (assume the last paymenttowards the property was made in 2004—36 months before the sale),would the AO have readily agreed to treat the CG as LTCG? No! Hewould then have taken the stand that the date of issue of possessionletter was the date of purchase! STCG fetches more revenue! It's ahypothetical scenario, but there's nothing that prevents you fromadvancing this as an argument.We do have case laws where the courts have ruled that "purchase" inSection 54F should be given a commonsensical meaning—if we've made aseries of payments in pursuance of a contract which is binding onthe authority in the sense that we get an irrevocable right toacquire that piece of property by way of the issue of a letter ofallotment in our favour, we'd be said to have "bought" that propertyon the date the letter of allotment/possession bears.In the case of CIT v. Smt. Beena K. Jain [1994] 75 Taxman 145(Bom.), the registration of the sale deed had taken place a bitlater than the actual handing over of the flat and the AO had deniedthe exemption u/s 54F as mere possession, he argued, didn't amountto "purchase". The court ruled that the relevant date for thepurposes of section 54F is when the petitioner paid the fullconsideration amount on the flat becoming ready for occupation ANDobtained possession of the flat.In your case, it seems the transaction of purchase of the flat gotCRYSTALLIZED upon the issue of the possession letter. Till the timeyour client hadn't had that letter, his right to buy that flat wasrevocable. Therefore, he "purchased" the flat on the date he got itspossession.All the best,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "CA.Naresh" wrote:>> Dear all>> Please help on the following isue which is stuck up in a scrutinycase:>> Land sold in May 2005 for Rs 3000000/->> Residential Flat was booked in June 2002 and payments were madefrom 2002 till May 2005. Possession letter was dt 25th June 2005.>> The assessee has claimed exemption u/s 54F .>> The assessing office has disallowed the exemption since thepayments were made before 1 year from the transfer date. I amcontesting the allowability on the basis of the Possesion letterwhich is within 1 year before the transfer date.>> A.O has rejected the arguement.>> Any case law or favourable opinion>

TDS on Interest on car loan from Maruti Countrywide




Hi Mr Mohan, Madhu and Gowdhaman,


In my opinion, TDS would be deductible u/s 194A. This is becauseMaruti Countrywide is neither a banking company registered under theBRA 1949 nor a body that's been notified by the government u/s 194A(3)(iii)(f). And companies like Maruti Countrywide and KotakMahindra don't seem to be covered under any of the other exemptionslisted in sub-section 3 of Section 194A either.The onus to prove that TDS isn't deductible on interest to MarutiCountrywide or the like is on those who claim so. If we can't find anotification or circular supporting such a claim, Section 194Astands applicable to such interest payments.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, madhu tapuriah wrote:>> but why? under which provisions ????>> --- On Mon, 22/12/08, gowdham wrote:> From: gowdham > Subject: Re: {amresh's-CA's} TDS ON INTEREST ON LOAN> To: ICAI_CIRC_MEERUT_CA@yahoogroups.com> Date: Monday, 22 December, 2008, 10:56 AM>>>>>>>>>>>> Dear Mr.Mohan,>  > You need not deduct TDS.>  > Thanks &regards>>> R.S.GOWDHAMAN>> --- On Fri, 19/12/08, mohangee wrote:>> From: mohangee > Subject: {amresh's-CA' s} TDS ON INTEREST ON LOAN> To: ICAI_CIRC_MEERUT_ CA@yahoogroups. com> Date: Friday, 19 December, 2008, 12:33 PM>>>>>> Sir,> My client is a partnership firm took loan from maruthi countrywide for a vehicle.> Whether tds is to be deducted for the interest paid on loan tomaruthi countrywide?> CA MohanÂ

Section 50C--FMV vs Stamp valuation figure


Hi Moiz,

What you should do now is claim, in terms of the right given to youu/s 50C(2), before the AO that the value adopted by the stampvaluation authority exceeds the fair market value of the property ason the date of transfer. The valuation on which the state governmentauthorities demand stamp duty can't be treated as sacrosanct,something that can't be called into question under anycircumstances. Section 50C merely puts the onus of proving that theactual FMV of the property is less than that considered by the stampduty authorities on the assessee. Unless the assessee is able toprove it, the AO would go ahead and treat the stamp valuation figureas the real sale consideration.Upon the plea by the assessee, the AO would refer the matter ofvaluation to the Departmental Valuation Officer. And if the DVO endsup certifying the value to be more than the figure considered by thestamp authorities to levy the stamp duty, the lower value i.e. theone taken for the purposes of stamp duty, will be considered as thesale consideration u/s 50C. In other words, the assessee has gotnothing to lose when he insists upon a fresh valuation by the DVO.The stamp duty rates aren't always reflective of the real marketvalue of a property. The circle rates on which the stamp authoritiesbase their valuation are fixed on an ad hoc basis, many times as awhole even for a huge locality. They don't take into account thecharacteristics of a specific piece of property. For example, aproperty that is set back a little from the main street won't fetchas much price as the one that is situated up front. These twoproperties may be set only a few feet apart from each other, buttheir FMVs would differ substantially. Despite that, the stateauthorities will recover the stamp duty at the same rates in theevent of sale of both of these properties. In such a situation, theowner of the first-mentioned property would be hard put by Section50C—he would be required to pay capital gains tax on the amount henever realized!The law isn't so harsh fortunately. We do have sub-section 2 ofSection 50C. But the onus, like I said before, that the FMV isn'tnearly as much as the stamp valuation figure, would fall upon you—the assessee. The fact that there is a provision for referring thevaluation to the DVO itself indicates that the department realizesthe stamp valuation authority shouldn't be the final arbiter when itcomes to determining the capital gains tax recoverable from anassessee.Below I quote a Delhi Tribunal judgement where the Tribunal rejectedthe valuation report of the DVO because he had relied too much onthe stamp valuation itself in framing his own report. This judgementmight help you cope with the situation better.[On a perusal of valuation report, however, we find that even thevaluation by the DVO has placed too much of emphasis on theassessment or valuation by the stamp valuation authority. This isneither desirable nor permissible. The reason is this. The valuationby the stamp valuation authority is based on the circle rates. Thesecircle rates adopt uniform rate of land for an entire locality,which inherently disregards peculiar features of a particularproperty. Even in a particular area, on account of location factorsand possibilities of commercial use, there can be wide variations inthe prices of land. However, circle rates disregard all thesefactors and adopt a uniform rate for all properties in thatparticular area. If the circle rate fixed by the stamp valuationauthorities was to be adopted in all situations, there was no needof reference to the DVO under section 50C(2). The sweepinggeneralizations inherent in the circle rates cannot hold good in allsituations. It is, therefore, not uncommon that while fixing thecircle rates, authorities do err on the side of excessive caution byadopting higher rates of the land in a particular area as the circlerate. In such circumstances, the DVO's blind reliance on circlerates is unjustified. The DVO has simply adopted the average circlerate of residential and commercial area, on the ground that interiorarea of the locality, where the assessee's property is situated, ismixed developed area, i.e., shops and offices on the ground floorand residence on the upper floors. When DVO's valuation required tocompare the same with the valuation by the stamp valuationauthority, it is futile to base such a report on the circle reportitself. Such an approach will render exercise under section 50C(2) ameaningless ritual and an empty formality. In our considered view,in such a case, the DVO's report should be based on considerationstated in the registration documents for comparable transactions, asalso factors such as inputs from other sources about the marketrates. For the reasons set out above, and with these observations,we remit the matter to the file of the Assessing Officer. The DVOwill value the property de novo, in the light of our aboveobservations, and in case the valuation so arrived at by the DVO isless than Rs. X (the stamp duty valuation), the Assessing Officershall adopt the fresh valuation so done by the DVO for the purposeof computing capital gains under section 48 of the Act. We directso."]--Ravi Kant v. ITO [2007] 110 TTJ (Delhi) 297Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "moizjaorawala" wrote:>> Dear Friends> In one of my client's case, ITO has not accepted valuation reportof> govt. approved valuer, certifying value of the sold property atless> than the sale consideration received and instead has substitutedthe> amount on which stamp duty is paid.> I would like to know from members:>> 1.what are my chances of succeeding in appeal?> 2.are there any case laws decided either by CIT(A) or Hon.Tribunal?> 3.Can there be penalty levied u/s 271(1)(c).>> If members can guide me in this matter and provide usefulmaterials,> information etc., I would be thankful .> moiz>

More on write-back of Loans and Section 41(1)




Dear Pramod Ji,


That's one way to look at it. I had thought along these lines too,but couldn't bring myself to conclude that a working capital loanwritten back won't be hit by Section 41. I understand we made thefull payment to the supplier of goods. But did my liability onaccount of purchase of those goods cease? No, it did not. When Imade out a cheque to the supplier of goods (or shares, which is thestock-in-trade in your case), what I effectively did was replace onetrading liability with another trading liability. So after thesupplier's account got squared up, the entry in the books thatremained was Purchases debit; Bank credit. The liability to thesupplier of goods was my primary liability and the liability to thebank is my secondary liability. Till the time I do not pay to thebank there has been no outflow of any resources controlled by me.But I am able to charge Purchases to my revenue account and claimthose as expenditure—the accrual method of accounting permits me todo that.What you're saying is since the primary liability to the supplier ofgoods is discharged, there's no question now of its cessation orremission. So Section 41 can't be brought into action in such acase. But if we really go by the spirit of Section 41—allowingexpenditure only to the extent there's been an outflow of cash orother resources and not allowing expenditure to the extent it wasa "freebie"—it's difficult to draw the conclusion that once theprimary liability to the supplier of goods is discharged, Section 41ceases to be applicable.Section 41(1) speaks of "obtaining any benefit, whether in cash orin any other manner whatsoever" in respect of a loss or expenditurealready claimed as a deduction in an earlier year. Isn't the waiverof a trade loan tantamount to "obtaining any benefit"? The bankmerely acted as our agent when it honored the cheque we drew upon it—it stepped in to clear my dues to the supplier on the understandingthat I shall have that debit adjusted through credit by way ofdeposit of sale proceeds with the bank. When I didn't do that andgot myself absolved of my liability to pay to the bank, how can Isay that I haven't "obtained any benefit" in respect of theexpenditure that the bank paid on my behalf?When you say "never a claim for loan is allowed", you're looking atonly the credit aspect of the transaction. How do we claima "deduction" for a loan anyway? Obviously it's the debit aspect ofthe transaction that we have to look into. The bank certainly is asource for funds, but it's difficult to ignore the clear nexus thissource of finance has with the payments made on account of purchasesMay be you're right; may be I am wrong. But as I understand Section41(1), the above is what I feel. Of course if I was practicallyhandling this case, I would argue the case before the AO exactly inthe manner that you do here! And your argument that we can'tinterpret the words "trading liability" u/s 41(1) in so wildlyliberal a manner as to go after the ultimate source of funds itselfdoes have a lot of weight. Admittedly, this issue doesn't concern mein the same manner it concerns you.Regarding the unilateral write back of the liability, I don't thinkany case law would bail us out any longer after the insertion ofExplanation 1 to Section 41(1). A person writes a liability backafter he's decided not to pay it. Now when it comes to paying tax onit, he can't contend that although the debt he owed has become time-barred, the creditor can still recover the amount from him and theliability therefore hasn't ceased. Unilateral write-back wouldinvoke Section 41(1), the debt being time-barred notwithstanding.I had brought up Section 56 just to make the discussion academicallyinteresting. It won't apply to cases where the sums of money havebeen received before 01.09.2004.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, PRAMOD GOENKA wrote:>>> Dear Sanjeev bhai>> Thanks a lot for the detailed reply. I wish to clarify and discussa few points.>> 1. It is true that the broker used the loans to purchase shares onhis own account. However, never a claim for a loan is allowed, whatis allowed is a claim for purchases. The source of funds is, to me,totally irrelevant. Had the purchase price not been paid finally,there would have been a case under section 41. But that is not thecase here. The purchase price has been paid to the opposite partiesand it is not being wirtten back. What is being written back is theloan that was taken to purchase the shares. Interest has been paidand claimed on these loans. Probably in the case cited by you, sincethe purchase was confined to fixed assets, the assessee had astronger case and it did not argue and distinguish between thepayment of purchase price and repayment of loan, since in any event,no deduction was taken even for the purchases made. In my case, Ifeel, we can plead that the deduction has never been claimed for theloan, what has been claimed is the purchase price, which is notbeing remitted. Please think over this aspect once again.>> 2. In case you have any case law to support the contention thattime-barring, and consequent unilateral write back is not aremission as contemplated by section 41 of IT Act, please pass it on.>> 3. Section 56, in its preset form, probably applies to moniesreceived after 2004. In this case, all the monies were actuallyreceived before 2001. Please confirm in that case if the sectionwill apply.>> Thanks and regards;>> CA. Pramod Goenka

Write-back of Loans and Section 41(1)




Dear Pramodji,



First of all, we write OFF a debit balance in an account; but ifit's a credit balance that's no longer payable, we write it BACK.It's important to understand the linguistic semantics in play herein order to keep confusion at bay.A query exactly similar to yours will be raised when we are facedwith a situation where an assessee has had some amount he owed tothe bank on account of a C/C limit written off by the bank inpursuance of a rehabilitation package to nurse the ailing unit backto health. The interest component in the C/C account will without adoubt be treated as deemed profits chargeable to tax u/s 41. Thesine qua non for taxing receipts under section 41 is that at somepoint of time in the past, the amount sought to be taxed should havebeen allowed to the assessee as an expenditure in the computation ofhis taxable income. Since this test is met, interest would betaxable u/s 41.But what about the principal amount itself? The capital of abusiness consists of owner's equity and the debt fund comprising ofC/C limits, term loans, etc. If some portion of the debt fund isn'tDebt anymore because the lender has waived it or like in your case,the borrower being unable to discharge it, has unilaterally decidedhe's not going to pay back this amount, then in that situation, whatwould be the treatment of the amount in the borrower's hands? Inthis year's Budget, the government waived loans owed to it by thefarmers. Would that amount be taxable in the farmer's hands? No,because the farmers' income isn't taxable anyway. But what would bethe status of such receipts in a non-agriculturist's hands?Let's examine this issue in the context of Section 41. We use a C/Climit to meet our working capital needs. We buy raw materials andincur other direct and indirect expenses by issuing cheques out ofour C/C account in the bank. Since all those purchases and expensesare Profit and Loss items and as such are claimed by us, in asituation of the unit turning sick and the bank waiving some portionof the loan, how can we say it isn't a cessation of tradingliability in terms of Section 41? The C/C limit certainly was inthe nature of a trading liability in the sense that we used it tobuy goods we trade in.You haven't mentioned what use the broker-assessee put the loans to?Since he was merely a broker, he can't have acquired any fixedassets, not to a substantial extent anyway. So presumably most ofthose borrowed funds were deployed in the day-to-day running of hisbusiness. Apparently, besides being a broker, he did proprietaryshare trading of his own and needed some additional money to pumpinto the market. And the fact that he pledged shares with thecreditors makes this a case similar to a C/C limit where the stockswe buy with the bank's funds are hypothecated back to the bank. Sothose loans he owed his clients were clearly in the nature oftrading liabilities because the debit aspect of those transactionsgot reflected in the P & L account and not the Balance Sheet. Whenyou take a term loan, say a loan to buy machinery, the debit aspectfinds its place in the Balance Sheet. So upon a waiver of such aterm loan by the lender, could this amount be brought to tax u/s 41(1)? Absolutely not. We shall discuss a case below that I believewould settle this issue.In Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501/128 Taxman 394(Bom.) the assessee had obtained a loan from a foreign company forthe purchase of machinery. For some reason or the other, the foreignlender waived the loan later. The AO wanted to tax the amount ofloan waived in the assessee's hands u/s 41(1). The Court ruled outthe applicability of Section 41(1) on the grounds that the assesseehad never claimed any deduction in respect of such loan at any timein the past. The assessee had invested the amount of loan in thiscase in buying Tools and Dies that constituted its fixed assets.Since the Tools & Dies were assessee's fixed assets, and not itsstock-in-trade, section 41(1) could not be invoked, the Bombay HCsaid.Now, had the Tools & Dies constituted the assessee's stock-in-trade,it is clear the decision of the Bombay HC would have been differentand the amount of loan waived would very well have been held to betaxable u/s 41(1) as a remission of a trading liability.So to me it seems the AO does have a case when he seeks to tax thoseloans your client has unilaterally written back as being no longerpayable. Section 41(1) in my view admits of waiver of loans thatconstituted our trading liabilities, i.e. loans with which weacquired the things we trade in.You've said that some of those loans had become time-barred. We havehad cases in the past where the courts have ruled that in case ofwrite back of time-barred debts, Section 41 couldn't be invoked.This is because this is neither cessation nor remission of a tradingliability. A unilateral write back by the borrower doesn't amount tocessation—a liability ceasing to exist—or remission—waiver by thecreditor. Upon a debt becoming time-barred, the debtor loses hisright to enforce the debt through a court of law, but the liabilityas such doesn't cease to exist, the courts have ruled. But with theaddition of Explanation 1 to Section 41(1) w.e.f 01.04.1997, thosejudgements have been rendered ineffectual.To conclude, let me reiterate: "An allowance or deduction in anearlier year" is the very soul of Section 41(1). To know whetherthis has happened in your case, you would need to track the user ofthe funds within the business—where did the assessee spend thoseamounts? You said "that is not the case here"—are you sure there'sno nexus in the books of account between a claim of an expense andthe utilization of those loans? The burden of proof, however, that adeduction or allowance has been allowed to the assessee in the pastis on the revenue and not on the assessee, the Delhi HC said inSteel & General Mills Co. Ltd. v. CIT [1974] 96 ITR 438 (Delhi).If the AO is able to prove that a deduction or allowance has beengranted to the assessee in respect of those loans and you aren'table to counter it, the amounts written back on account of loans nolonger payable would constitute your income u/s 41(1).Another Section that comes to mind is Section 56. It's been quite awhile since the Gift Tax reincarnated itself in its new avatar inSection 56 of the I T Act. Gifts of money exceeding Rs 50k inaggregate are taxable in the recipient's hands. If I were the AO, Iwouldn't hesitate to invoke Section 56 in a case where I see loansfrom people not related to the assessee being written back onaccount of being no longer payable. Who knows the whole thing may bea façade. The loan was a mere smoke-screen; you never intended topay it back and the lender never intended to get it back from you.It was a gift of money from the very beginning camouflaged as a loanand hence taxable u/s 56!All the best,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, PRAMOD GOENKA wrote:>>> Dear Sanjeev ji;>> This is a query directed to you personally since I believe you areexperienced/learned enough to answer this. That does not excludeothers from giving their views on the issue; rather it is welcome.>> A person is a share broker (with membership of one of theexchanges) and runs business under the name of a proprietoryconcern. Before 2001, he took loans from many of his clients. Tomany of his creditors, he gave shares as security for loan taken bytranferring the shares to their demat account. Some of the creditorswere totally unsecured. In 2001, the share market crashed, and thevalue of the shares held by the broker/creditors came down. Thecreditors started asking for their money which the broker was unableto pay. Some of the creditors went to court and other appropriateforum from recovery of their money, but most of the creditors didnot do so.>> Now, in 2006, the broker decided that he is not going to be ableto pay back to his creditors. He therefore, wrote off all the loanswhere there were no court cases and which had been barred bylimitation by transferring the loans to his capital accountdirectly. In some cases, where the loans were secured by shares, thestock of shares (to the extent pledged to each individual creditor)was adjusted against the loans. Some other assets, that had lost allits value like junk shares and certain deposits were againtransferred directly to capital account. Thus, the broker did notsurrender the loans written off for taxation nor did he claim anydeduction for written off assets. The case pertains to theassessment year 2006-07 and is under scrutiny.>> The assessing officer wants to tax the loans written off. Can hedo so ? Under what section ? One section that comes to mind issection 41 - ceasation of liability. But that section requires aprior claim of some loss/expenditure and its subsequent ceasation.That is not the case here.>> Please guide me.>> Thanks a lot.>> CA. Pramod Goenka

No Ownership of Asset--No Allowance of expenses?




Hi Mr A K Singh,


What is meant by the word "owned" within the context of Section 32of the I T Act is commercial ownership. The word "owner" isn't to beinterpreted in a manner as to mean that unless you possess some sortof documentary evidence in support of your claim to be the owner ofthe machinery, plant, etc, you'd be denied depreciation and otherexpenses incurred in the running and maintenance of the asset.Particularly in case of a proprietary concern there shouldn't be anyproblem at all. Besides Section 31, under which section you'reseeking to claim the expenditure on repairs of machinery doesn'ttalk about ownership at all. As long as the machinery has beendeployed in the business, it matters little who owns it. You couldhave incorporated the replacement cost of the machinery in theBalance Sheet of the proprietary firm to forestall any objection atleast on account of expenditure on repairs and maintenance. At themost the AO could have withheld depreciation on account of therebeing no evidence to ascertain the actual cost in terms of Section43. But expenses towards repairs, inevitable as those are in nature,can never be denied to the assessee in such a situation. The ground—lack of ownership--on which the AO is basing his disallowance ofexpenditure on repairs is too shaky.A tenant is allowed to claim expenses incurred on repairs tobuilding he occupies because the test of User trumps the test ofOwnership. It's the user of the asset, and not the ownershipthereof, that matters in the allowance of expenses under our taxlaws.The Supreme Court in the case of Mysore Minerals Ltd. v. CIT [1999]239 ITR 775 / 106 Taxman 166 (SC) has held that where the assesseedidn't have any registered deed in its name evidencing the ownershipof the building on which it had claimed depreciation, depreciationwas to be allowed to the assessee. What mattered, the court said,was who had the right to use the asset by virtue of having anexclusive dominion over the asset to the exclusion of everyone else.If this test was fulfilled, depreciation couldn't be denied to theassessee.Now if depreciation, which entails writing off the actual cost ofthe asset, can be claimed in the absence of a legal ownership,there's no reason why the claim of expenditure towards repairs andmaintenance of plant and machinery, which even a person who's hiredthose assets will have to incur, should be held back from theassessee.The ITO isn't following the law.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, adamya singh wrote:>> DEAR ALL,> MY CLIENT IS A PROP FIRM. IT IS A MFG UNIT HAVING A SALES OF 38LACS. NO PLANT MACHINERY IS ISHOWN IN FIRM BALANCE SHEET.> MY QUERY IS-> 1.CAN WE CLAIM EXPS INCURRED IN DIESEL ETC IF MACHINERY ISEXISTING IN PROP INDIVIDUAL NAME.> 2. IS THERE ANY CASE LAW ON THE SUBJECT . PLEASE PROVIDE.> 3. ITO IS SAYING TO DISALLOW THE EXPS ON FUEL,> THANKS> AKSINGH> Â

TDS on Car Repair--Amt borne by Insurance Co.


Hi Jagdeesan and Anoop,

An important word to note in Section 194C is "responsible". TDS isto be made by the person who's responsible for making the payment tothe contractor. In this case, since the company had taken out aninsurance policy on the car, the primary responsibility to meet theexpenses arising out of getting the car fixed up consequent to anaccident lay on the insurance company. True, the bill was raised bythe Repair Shop in the name of the company. But I don't think theinsurance company acted as an agent of the assessee company whilstmaking the payment to the repair shop. It was discharging its ownliability and therefore duly made the TDS on its part of the burdenof expense.Even if the same amount being subjected to tax twice isn't a goodenough argument here, it still doesn't seem the company can be madeliable to make TDS on the amount it never paid and never wassupposed to pay. The repairer should have raised a net bill of Rs15000 on the company after it'd got Rs 185000 from the insurancecompany. So we'll book an expense of only Rs 15000. But the repairerseems to have raised the entire bill of Rs 200000 in the name of thecompany without reflecting therein any adjustments on account ofpayment already realized from the insurance company. Still, I feelTDS, if at all it is deductible, need be deducted only on Rs 10000.These repair and insurance agreements these days are mostlytripartite in nature, the parties being the assessee, the repairerand the insurance company. The insurance company stepped into thepicture the moment the car met with an accident; it didn't reimbursethe amount to the assessee company. If the assessee had got thecheque for Rs 185000 from the insurance, crediting it to CarExpenses account, then I might have had a different opinion on this.Anyways, if this was a one-off payment, then the discussion we arehaving is merely academic in nature. TDS u/s 194C isn't required tobe made if the individual payment doesn't exceed Rs 20k and theaggregate during the year is below Rs 50001.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, Anoop Bhatia wrote:>> Dear Mr. Jagdeesan>> It's an interesting query. I may say if bill of Rs.50000/- is madein the> name of company and the company books an amount of Rs.50000/- inits books> as expenditure of repairs of car as well as it books the claimreceived> from the insurance company to the tune of Rs. 40000/- (which isreceived by> way of direct payment to the repair agency by the insurancecompany) the> TDS on the balance payment of Rs. 10000 should be applicable.>> But if bill is booked with an amount of Rs.10000/- only and noamount is> shown in the books as receivables from the Insurance company onaccount of> insurance claim, I may say TDS may not be applicable.>> But in TDS one may follow a golden rule, "in case of doubt deductthe tax> at source". So being on a practical side I suggest to deduct TDSu/s 194C.>> I know some memeber may not be agreeing to the opinion framed byme, their> valuable opinion on the issue is welcome.>> Warm regards>> Anoop Bhatia> Jaipur>>>>> Dear Esteemed Members,>> A car owned by a company met with accident and it was> sent for repair. The repairer sent quotation and as> per the quotation Rs. 1,50,000 is payable towards> material cost and Rs. 50,000 is payable towards> labour.>> Insurance company sanctioned Rs. 1,45,000 towards> material cost and Rs. 40,000 for labour charges> relating to repairing the vehicle. The insurance> company paid the above amount directly to repairer and> deducted TDS on Rs. 40,000 being the labour charges it> sanctioned.>> The balance amount of Rs. 15,000 is payable by the> company to the repairer.>> The query is while making the balance amount of Rs.> 15,000, whether TDS is be made on the entire labour> charges of Rs. 50,000 or TDS is required to be made on> the balance Rs. 10,000 (Rs. 50,000 - Rs.40,000 - TDS> made by the insurance company).>> Regards,>> V. Jagadeesan.>>>>>> Disclaimer :The information contained herein (including anyaccompanying documents) is confidential and is intended solely forthe addressee(s). If you have erroneously received this message,please immediately delete it and notify the sender. Also, if you arenot the intended recipient, you are hereby notified that anydisclosure, copying, distribution or taking any action in relianceon the contents of this message or any accompanying document isstrictly prohibited and is unlawful. The organisation is notresponsible for any damage caused by a virus or alteration of the e-mail by a third party or otherwise . The contents of this messagemay not necessarily represent the views or policies of HousingDevelopment Finance Corporation Limited.>

TDS on foreign artists in India


Hi Naresh,

If we refer to the Income tax Act alone, it'd seem the income of aforeign artist performing in India is taxable here. But we can'tdetermine the taxability of income of a foreigner in India withoutconsulting the DTAA India has with her country. Services rendered bya performing artist amount to "Independent Personal Services" asreferred to in the DTAA. I quote below the relevant Article of theIndia-Australia DTAA:[ARTICLE XIV - Independent personal services - 1. Income derived byan individual or a firm of individuals (other than a company) who isa resident of one of the Contracting States in respect ofprofessional services or other independent activities of a similarcharacter shall be taxable only in that State unless :(a) the individual or firm has a fixed base regularly available tothe individual or firm in the other Contracting State for thepurpose of performing the individual's or the firm's activities, inwhich case the income may be taxed in that other State but only somuch of it as is attributable to activities exercised from thatfixed base; or(b) the stay by the individual or, in the case of a firm, by one ormore members of the firm (alone or together) in the otherContracting State is for a period or periods amounting to orexceeding 183 days in a year of income, in which case only so muchof the income as is derived from the activities of the individual,that member or those members, as the case may be, in that otherState may be taxed in that other State.2. The term "professional services" includes services performed inthe exercise of independent scientific, literary, artistic,educational or teaching activities as well as in the exercise of theindependent activities of physicians, surgeons, lawyers, engineers,architects, dentists and accountants.]So unless the Australian artist coming down to perform in India hassome sort of a permanent base here, her income can't be taxed inIndia. It'd be taxed in Australia only. The relevant clause in theIndo-UK DTAA reads virtually the same, except the period of stay inIndia before their income from performances in India becomes taxablehere, in the case of the UK, is 90 days.So, income of the English and Australian artists coming to India forgiving performances won't be taxable in India by virtue of theprovisions of the DTAA India has with these countries. I don't knowwhere you got the TDS rate of 10% from. This is the rate prescribedu/s 194J for making TDS on payments to professionals, who areRESIDENTS. And those artists aren't resident in India. If at all TDSwould be applicable here, Section 195 would be the governingsection.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "CA.Naresh" wrote:>> Dear All>> My client is into Event mamngement. He wants to bring dome foreignArtist from Australia and U.K to perform in India for a week. He hasenquired about the TDS liability .>> In my view TDS shall be deducted @10% plus sc & cess. However myclient says that the professionals are not willing to deduct TDS asthere is no tax on them in their country.>> Please give your views if there is anyway out or can they claimrefund on account of DTAA.>

Excess Deposit of TDS--The Remedy


Hi Subodh,

Clearly, an additional Zero was added whilst depositing the TDS onthe net, the client ending up paying 10 times the amount he wasliable to pay! Such are the hazards of online payments.You haven't said which section was the tax paid under—194A, C, H, J,etc? Actually we do have a CBDT circular on this. It was issued wayback in 1980, on October 21. The Circular number is 285. Itmentioned sections 192 to 194D and laid down the procedure for claimof excess TDS deposited by the assessee under any of sectionsfalling between 192 and 194D. Sections requiring TDS on commission(194H), professional payments (194J), Rent (194I), etc weren't invogue back then. But that the circular intended to cover the entiregamut of TDS on payments to residents seems obvious from the mannerin which sections are mentioned—rather than mentioning the sectionsindividually, the Circular gives us the "range" of sections—192 To194D. So relying upon the rule of beneficial construction, I thinkwe can safely extend the application of Circular No 285 to taxwithheld on all kinds of payments made to residents.I quote below relevant paras of the Circular:[1. The Board have been considering the manner of refunding theamount paid in excess of the tax deducted and/or deductible(whichever is more) under sections 192 to 194D of the Income-taxAct. The Board are advised that such excess payment can be refunded,independently of the Income-tax Act, to the person responsible formaking such payment subject to necessary administrative safeguards.3. The excess payment would be the difference between the actualpayment made by the deductor and the tax deducted at source or thatdeductible, whichever is more. This amount should be adjustedagainst the existing tax liability under any of the Direct Tax Acts.After meeting such liability the balance amount, if any, should berefunded to the assessee.5. The adjustment of refund against the existing tax liabilityshould be made in accordance with the present procedure on thesubject. A separate refund voucher to the extent of such liabilityunder each of the direct taxes should be prepared by the Income-taxOfficer in favour of the "income-tax department" and sent to thebank along with the challan of the appropriate type. The amountadjusted and the balance, if any, refunded would be debitable underthe sub-head "Other refunds" below the minor head "Income-tax oncompanies"—major head "020—Corporation Tax" or below the minorhead "Income-tax other than Union Emoluments"—major head "021—Taxeson incomes other than corporation tax" according as the payment hasoriginally credited to the major head "020—Corporation tax" or themajor head "021—Taxes on incomes other than corporation tax".]Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, subodh agrawal wrote:>> One of my clinet has deposited TDS Rs. 70000/- instead of Rs.7000/- in the month of December 2008, Now what remedy is to getrefund of Rs. 63000/- excess deposit of TDS.>  > From CA Subodh Agrawal, Satna>

Mr Capital Asset--How old are you?


Hi Mr Madhu and everyone,

I am more inclined towards the majority opinion here. Theword "month" hasn't been defined in the Income Tax Act. The GeneralClauses Act defines "month" to mean a month reckoned according tothe British Calendar. This merely means that we can't refer to theHindu Samvat Calendar (I think 14th Jan is the first day of the yearaccording to the Hindu Calendar), or some other Calendar, fordetermining the period of holding for calculating capital gains taxon the sale of assets. We shall have to abide by the BritishCalendar.Now, when does a month begin and when does it come to an end? Like Isaid the reference to the British Calendar month in the GCA doesn'tmean the clock will start ticking for an asset on the first day ofthe month, even if the assessee bought the capital asset in themiddle of the month; nor does the assessee have to wait till thearrival of the 14th month (April—May) (38th in case of assets otherthan shares) in order to have the CG treated as LTCG. A month I feelfor the purposes of determining whether a CG is LT or ST comprisesof a period of 30 days. In other words, 12 months means 365 days.Had the intention of the legislature been any different, thenwouldn't it have inserted a Rule on the lines of Rule 119A of theIncome Tax Rules 1962? Rule 119A says for the purposes of levy on,as well as payment of interest to, the assessee a fraction of amonth shall be reckoned as the full month. So if you're required tofile your return latest by 31st July, but wake up only on the 1stSeptember, you'd be supposed to deposit two months' interest u/s234A.In the absence of any such mandate in respect of determining the ageof capital assets, I think a period of 12 months will be reckoned inthe same way as we reckon the age of a human being. A baby born on15th April 2007 will turn 12 months old on 14th April (Yes 14th andnot 15th!) 2008. So shall the shares or any other capital asset forthat matter.Madhuji, I am curious to know the ruling you're saying you know ofthat laid down that a fraction of a month had to be rounded off toone month for determining the age of a capital asset. It thereindeed is such a ruling, it'd be applicable to all sorts of capitalassets and not to shares alone.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, madhu tapuriah wrote:>>> For the purpose computing period of holding in case of shares 12months means 12 alendar months and not 365 days.There has been aruling on this issue.I will let you know in due course.>> Regards> CA Madhu Soodan Tapuriah> --- On Tue, 20/1/09, RAJEEV AGARWAL wrote:> From: RAJEEV AGARWAL > Subject: {amresh's-CA's} period for Short term capital gain> To: ICAI_CIRC_MEERUT_CA@yahoogroups.com> Date: Tuesday, 20 January, 2009, 7:52 PM>>>>>>>>>>>> Dear Group members,>>>> My query is regarding time period on short-term capital gain.>>>> As per section 111-A,read with section 2(42A) a short term capital>> gain will be for a period less than 12 months, where securitiesare>> listed. Hence if a person purchased any share on 15th April 2007and>> sold it on 17th April 2008, whether it will amount to long-term>> capital gain or short-term, as the transaction has not concededfull>> 12 calendar completed months.>>>> Kindly enlighten whether 12 months means 365 days or 12 calendar>> months.>>>> Thanks in advance.>>>> CA Rajeev Agarwal,>> Agra>>

Going Concern going downhill


Hi Syam,

The Going Concern assumption clearly got rebutted the moment thecompany decided to wind up its business. Has the company passed aresolution authorizing the Board to dispose off the company'sassets?As an auditor, in the event, you're supposed to follow SA 570 akaAAS 16 titled "Going Concern". Since the Going Concern is no longervalid here, the question before you is how to go about signing theaudit report. Had there been a Going Concern uncertainly, you wouldhave been advised to express a disclaimer of opinion. But now thatthe company has on record decided to call it a day, you'd be calledupon to express an opinion that properly brings this to light. Youshould go through the second-last para—numbered 18—of the SA 570.Deviating from the normal format of the audit report, you shouldunambiguously state that the going concern assumption, which happensto be one of the fundamental accounting assumptions—apart fromConsistency and Accrual—in the preparation of financial statements,no longer holds good in the case of the company.Do not state that subject to the fact of the GC being inappropriate,the financial statements present a true and fair view. That would beakin to a doctor issuing a health certificate to a patient: Subjectto the fact the patient has full-blown AIDS and is liable to die anymoment, he is maintaining good health!Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, syamsunder v wrote:>> Dear Members,> I need clarification/suggestion in the following case.> A private Limited Company engaged in the business of Hospital,intends to wind up, as it wsa not able to do profitable business.In the meantime, it got a buyer who is prepared to buy all fixedassets consists of Plant & Machinery and Furniture & Fixtures. Inthe event if the company sells all its fixed assets, will it have aneffect on Going Concern concept. The company do not have anycurrent assets other than Cash & Bank balances and Deposits. If thegoing concern concept is going to be effected as per AccountingStandard, how the same has to be reported in Accounts.> kindly clarify.> Thanks> CA Syam Sunder V> Hyderabad

Going Concern going downhill


Hi Syam,

The Going Concern assumption clearly got rebutted the moment thecompany decided to wind up its business. Has the company passed aresolution authorizing the Board to dispose off the company'sassets?As an auditor, in the event, you're supposed to follow SA 570 akaAAS 16 titled "Going Concern". Since the Going Concern is no longervalid here, the question before you is how to go about signing theaudit report. Had there been a Going Concern uncertainly, you wouldhave been advised to express a disclaimer of opinion. But now thatthe company has on record decided to call it a day, you'd be calledupon to express an opinion that properly brings this to light. Youshould go through the second-last para—numbered 18—of the SA 570.Deviating from the normal format of the audit report, you shouldunambiguously state that the going concern assumption, which happensto be one of the fundamental accounting assumptions—apart fromConsistency and Accrual—in the preparation of financial statements,no longer holds good in the case of the company.Do not state that subject to the fact of the GC being inappropriate,the financial statements present a true and fair view. That would beakin to a doctor issuing a health certificate to a patient: Subjectto the fact the patient has full-blown AIDS and is liable to die anymoment, he is maintaining good health!Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, syamsunder v wrote:>> Dear Members,> I need clarification/suggestion in the following case.> A private Limited Company engaged in the business of Hospital,intends to wind up, as it wsa not able to do profitable business.In the meantime, it got a buyer who is prepared to buy all fixedassets consists of Plant & Machinery and Furniture & Fixtures. Inthe event if the company sells all its fixed assets, will it have aneffect on Going Concern concept. The company do not have anycurrent assets other than Cash & Bank balances and Deposits. If thegoing concern concept is going to be effected as per AccountingStandard, how the same has to be reported in Accounts.> kindly clarify.> Thanks> CA Syam Sunder V> Hyderabad

Query on Private trust



Hi Anoop,

This is quite a settled issue. I had answered a similar query about a year back. You may go through Message No 22767. The income of the trust set up for the benefit of the minor can never be taxed in the hands of the parent. The trust is an assessee in its own right. Setting up a trust for the benefit of the minor is the recommended way to bypass the provisions of Section 64(1A).

We have the judgement of CIT Vs M R Doshi [1995] 211 ITR 1 (SC) to confirm the above view.

And the fact that the grandfather has floated the trust wouldn’t make a difference—the income of the trust will be always taxable in the trust’s hands, and never in the trustee’s hands. In any case, even if the grandfather directly transfers a source of income to his grandchild, there can be no clubbing. Section 64(1A) doesn’t apply to transactions between grandparents and grandchildren.

Thanks,

CA Sanjeev Bedi--- On Fri, 1/30/09, Anoop Bhatia wrote:
From: Anoop Bhatia Subject: Query on Private TrustTo: "Sanjeev Bedi" Date: Friday, January 30, 2009, 11:32 AMRespected Sanjeev ji
I wanted to know the treatment of taxation of income of a trust which is
created by a father for benfit of minor son. Does the income in such cases
revert to the hand of parent or it will remain seperately taxable in the
hands of private trust only. The question assumes significane in the wake
of usage of private as a tax planning tool, becuase if a parent directly
trasfers some source of income to the minor the income will revert for
taxation in the hands of parent only (assuming that such parent has higher
income to the other). So here in place of transferring the source to minor,
if it is transferred to a private trust would still clubbing provisions of
section 64(1A) prevail.
In above case if the trust is created by Grand Father for the benefit of
minor Grand Son, the clubbing will be done in the hands of Father (i.e.
Parent) or it will remain taxable in the hands of trust only.
Now my query is, if income in both the cases mentioned above becomes
taxable in the hands of parent and not in the hands of trust then what is
the sense of creation such trust. Your valuable opinion on both the matters
is solicited.
I have raised this query in group forum but could not get a to-the-point
reply, hence seperately writing to you. May be while answering this query
you may mark a copy to gruop for the benefit of all.
Warm regards
Anoop Bhatia
Jaipur

Service Tax refund to exporters




Hi Rajeev,


41/2007 dated 06 Oct 2007 is the Mother Notification for the refundof service tax to the exporters. A number of notifications have beenissued subsequent to this one adding more services on which claim ofrefund of service tax may be sought. The first thing you've got todo is fill up Form attached as an appendix to the above notificationsetting out details of your client firm. This Form is required to befilled in order to be allotted a STC (Service Tax Code).I would just give you the broad category of services on which thepayment of ST is eligible to be claimed back. Nearly all exporterspay a fee to an Inspection Agency for supervising the stuffing ofthe containers. The service tax paid on this fee is refundable(Section 65(105)(zzi)—Notif 41/2007). Service tax paid on Railwayfreight paid to the Container Corp of India is refundable (section 65(105)(zzp)—Notif 41/2007). Service tax paid on Letter of CreditAdvising/Amendment charges and Service tax charged by bank oncharges towards collection/negotiation of documents is liable to berefunded (section 65(105)(zm)—Notif 17/2008 dt 01st April 2008). Theservice tax element included in Forward booking and cancellationcharges is also eligible to be claimed as refund vide Notif 24/2008dated 10 May 2008. Commission paid to a foreign agent is alsoeligible to be claimed back (section 65(105)(zzb)—Notif 17/2008.Service tax paid to Customs House Agent will be refunded to you videNotif 17/2008.ST paid on Courier charges paid towards sending export samples tothe buyer will be reimbursed to you (section 65(105)(f)—Notif 3/2008dated 19 Feb 2008.You can access all these notifications by logging on towww.servicetax.gov.inThe exporter pays sea freight through the clearing and forwardingagent. The C & F Agent charges us Terminal Handling Charges over andabove the reimbursement of Ocean freight paid by him in dollars tothe Shipping Line. On the THC he charges us Service tax. Since theTHC is also a reimbursement (although owing to the C & F agent'sinability of furnish any proof of this payment being a merereimbursement, we have no choice but to subject the THC to TDS), itrightfully goes to Shipping Line. So it is really service tax paidin connection with transportation of goods from the Inland ContainerDepot to the Port of Export (section 65(105)(zzp)), which is aneligible service under Notif No 41/2007. But the Commissioners aredenying refund of ST on the THC paid to the clearing agents on thehyper-technicality that the payment made doesn't precisely fit intothe nature of payment specified u/s 65(105(zzp) because the C & Fagents haven't got themselves registered under this section of FA1994. Since the exporters do not get to deal with the Shipping Linesdirectly, they tend to lose out on the Service tax paid to C & Fagents for no fault of theirs. But you may still lodge this claim.However, we recently have had another notification come out--NotifNo 33/2008 dated 07 December 2008. This Notification seeks to allowclaim of refund of ST paid to Clearing and Forwarding agents u/s 65(105)(j). So it seems we won't be able to press our claim for STrefund on THC paid to C & F agents prior to 07 December 2008?The claim has to be lodged within 60 days of the end of eachquarter. But I think this period has been extended to 6 monthsrecently (Don't think the government has any altruistic intentionsbehind this move—it just wants to defer the refund for as long as itcan; the longer the exporters take to claim the refund; the longerthe government gets to sit on our money!). You'll have to do a greatdeal of paper work. Have you Photocopier serviced. A bulky filecontaining copies of bank-attested invoices, Bills of Lading, BankRealization Certificates and copies of each of the bills/receiptsevidencing the payment of ST will have to prepared and submitted.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "RAJEEV AGARWAL" wrote:>> Dear group members,>>>> I have a query regarding service tax refund to exporters.>> As per circular no.41/2007 dt.06/10/07, exporters are allowed toclaim> service tax refund on service tax paid by them. Now my query is on> which services this refund is allowed and also kindly forwardrelevant> forms and procedure to claim this refund.>> Whether this ervice tax refund is also applicable on commission> payments by an exporter.>> Thanks in advance>> CA Rajeev Agarwal> Agra> 983700-2731>

More on Share Warrants, Share Certificates and Capital gains


Dear Pramodji,

Mea culpa! :(Actually my understanding of Share warrant was a hangover from my CAIntermediate days! I failed to apply my mind to the problem andquoted Section 114, which section clearly states that share warrantscan be issued only in respect of FULLY-PAID shares. In the instantcase, the assessee had paid Rs 2.50 per share some two-and-a-halfyears back. The shares were partly-paid up. It was only on 20 April2008 when the remainder of the face value was paid that the sharesturned fully paid-up, capable of being converted into share warrantsu/s 114. But till those shares were partly paid-up, Section 114 hadno business being invoked!All the same, I do think the term "Share Warrant" is a misnomerhere. It'd better be avoided. What X Ltd had got in this case was aCall Option like the ESOP. They had an option to or not to buy theshares when the time to exercise that option arrived. If indeed thisis how it was, then clearly, Mr Milind Shah, the original querist,isn't using proper terminology to describe the problem when hesays "X Ltd purchased warrants of Y Ltd on 30.09.2006 for Rs 2.50".It is liable to be interpreted as the price of the shares havingbeen paid in parts over a two-year period—Rs 2.50 being the firstcall and Rs 7.50 being the second call along with a premium of Rs15.Regarding the taxability, let's see what the CBDT in its Circular No9/2007 dated 20 Sept 2007 states in answer to the FAQ 17:[17. Whether ESOPs issued to non-executive directors or non-employees liable to FBT?Answer: Benefit arising out of ESOPs issued to non-employees willnot be liable to FBT. However, in such cases, the taxability of suchbenefits in the hands of the non-employees will be determined inaccordance with the existing law. ]So the taxability of the stock options in the hands of non-employeeswill be determined in accordance with the existing law. What is theexisting law on the taxability of stock options—does the Optionitself constitute a capital asset and therefore liable to be taxedas CG upon its exercise? In the absence of concrete information inthis particular case, I am not sure if X Ltd had the right tofurther transfer that option to a third party. To determine whetherwe have relinquished our rights in a capital asset, first we have toascertain whether we had a Capital Asset to begin with. And as Idiscussed in my previous post, the Option (or Warrant, if you like)had to be a "Marketable security" of the nature like the shares,scripts, the stocks, the bonds, et al. A capital asset in terms ofSection 2(14) of the I T Act can qualify to be so only if it'scapable of being held and transferred like any other item ofproperty. If it isn't, then I don't see how can there be an occasiongiving rise to CG tax when the option to buy shares is exercised.Yet again, there's a need to look more at the substance of thetransaction rather than its form. And without prejudice to what Isaid in my first para, there still could be a possibility that Rs2.50 was merely the first call, the shares—in substance though notin legal form—having been bought on 30 Sept 2006 itself. In thatevent, the gain will be an LTCG.Actually, I am a little skeptical to take the terminology used insome queries at its face value. In many cases, the terms don't meanwhat we traditionally understand them to mean. So it's important tocut through the fog of misleading terms to look at what thetransaction really is.Thanks a lot Sir.CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, PRAMOD GOENKA wrote:>>> Dear CA. Bedi>> With due respect, I disagree to equating warrants with shares. Awarrant gives one an entitlement to apply and get shares - in thecase cited by Mr. Milind, the warrant holder had to pay Rs. 22.50per share to get the share. The warrant holder could have very wellchosen not to exercise the option - in that case, Rs. 2.50 paid byhim for acquisition of the right to apply for shares would havelapsed and he would have incurred the loss to that extent only. Instock market terminology, both of these are never equated.>> Sec. 114 of the Companies Act talks about a different conceptaltogether, as you have rightly said, making the shares transferableby delivery instead of by registration of transfer deed. There werehardly any companies that issued warrants that way. Presently, theterm warrant is used to describe an entitlement to the apply for theshares, a route initially used by many companies to make their non-covertable debentures attractive by linking such warrants to thedebentures.>> Probably, the confusion is due to use of one term for two entirelydifferent things.>> With the concept of warrants as understood by me, I reiterate thatperiod of holding of shares will commence only on the date whenthese were actually allotted by the company, and there will be aseparate tax issue invovled in taxability of warrants when thesewere extinguished on exercise of option.>> CA. Pramod Goenka>> Hi MKK, Since a Share Warrant is a creature of the Company law, Ithink we need to examine the meaning of a Share Warrant in thecontext of the Companies Act to better understand what it really is.Here's what Section 114 of the Cos Act states:[114. (1) A publiccompany limited by shares, if so authorised by its articles, may,with the previous approval of the Central Government, with respectto any fully paid-up shares, issue under its common seal a warrantstating that the bearer of the warrant is entitled to the sharestherein specified, and may provide, by coupons or otherwise, for thepayment of the future dividends on the shares specified in thewarrant.(2) The warrant aforesaid is in this Act referred to asa "share warrant".(3) A share warrant shall entitle the bearerthereof to the shares therein specified, and the shares may betransferred by delivery of the warrant.]So a share warrant ISN'T inmy opinion a Rights Entitlement. It is a Right in itself. The sharewarrant is a kind of a bearer cheque, whilst a share certificate(demat or physical) is akin to an account payee cheque. The holderof a share warrant is an anonymous shareholder. Since the holder ofa share warrant is entitled to dividend on the shares specified onthe warrant, it stands to reason that he's the de facto owner of theshares, though he isn't a member by virtue of Section 2(27). And sub-section 3 above even speaks of how the transfer of the shares may beeffected by mere delivery of the warrant. So clearly a Share warrantconstitutes an asset at least as far as the Companies Act isconcerned. A share warrant seems like a surrogate share certificate.It was invented to get around the cumbersome procedure that involvestransferring shares through a share certificate (although in thepresent-day Demat regime, share warrants seem like things of thepast). I don't see any reason why we should interpret thingsdifferently when we have to judge the taxability of the gains fromthe sale of share warrants under the Income Tax Act. But evenconsulting the Income Tax Act seems to lead us to the conclusionthat a Share Warrant is a capital asset. The proviso to Section 2(42A) that fixes the age of certain capital assets at 12 monthsafter which they turn "long-term", says:[……. in the case of a shareheld in a company or any other security listed in a recognised stockexchange in India…..]A security is defined u/s 2(h) of theSecurities Contracts (Regulation) Act 1956 as follows:[(i) shares,scrips, stocks, bonds, debentures, debenture stock or OTHERMARKETABLE SECURITIES OF A LIKE NATURE in or of any incorporatedcompany or other body corporate; (ii) Government Securities (iia)such other instruments as may be declared by the Central Governmentto be securities; (iii) rights or interests in securities;]So evenif we argue that Share Warrants are Rights, they would still amountto Securities in the view of the (iii) above. Since share warrantstoo are securities in terms of the proviso to Section 2(42A), thetime-clock for determining whether they're long- or short-termcapital asset would start ticking from the date of allotment of theShare Warrant. So as far as the taxation law is concerned, it seemsshare warrants and share certificates are two sides of the samecoin. Mr Goenka, I think no CG will arise at the time of conversionof warrants into shares. The transaction seems a mere ceremony—aKacha shareholder becoming a Pucca, registered shareholder. I can'tsmell anything resembling a relinquishment or exchange orextinguishment of rights in a capital asset. In my view, the CG willbe LTCG in nature and the cost will be indexed with reference to theyear in which incurred.Thanks,CA Sanjeev Bedi--- InICAI_CIRC_MEERUT_CA@yahoogroups.com, "M.K.KRISHNAN" wrote:>> > > Dear Mr.Milind Shah,> > Shares are ordinarily acquiredon the date of allotment and the> period of holding of such sharesbegins with the date of their> allotment. This rule equally applieswhere shares are allotted in> pursuance of the Rights Entitlement.Warrants are in the nature of> Rights Entitlement and the period ofholding of the shares issued in> pursuance of such Rights begin withthe date of allotment This is> confirmed by section 2(42A)(d) whichlays down the period of holding for> such assets as follows:> > "inthe case of a Capital Asset, being a share or any other> security(hereinafter in this clause referred to as the financial asset)>subscribed to by the assessee on the basis of his Right to subscribeto> such financial asset or subscribed to by the person in whosefavour the> assessee has renounced his Rights to subscribe to suchfinancial asset,> the period shall be reckoned from the date ofallotment of such> financial asset "> > Therefore I am of the viewthat on the facts explained by you the> sale of shares will beassessed as Short term Capital Gains only.> > Regards> >CA.M.K.Krishnan> > Vellore> > Tamilnadu> > > > > --- InICAI_CIRC_MEERUT_CA@yahoogroups.com, Milind Shah > wrote:>>> > Sir,> >> > But the warrants are held since 2006.> >> > Whatshould be the effect of that?> >> > Regards> >> > Milind Shah> >> >>> Since the Gains have arisen from the capital asset being theShares> (which> > is held for less than a year) - it would result inShort Term Capital> Gains.> >> > Regards, unni> >>> >> > Friends> >>> I have come across a very typical problem> >> > X Ltd haspurchased Warrants of Y Ltd. on 30.09.2006 for Rs.2.50> >> > Lateron 20.04.2008 the warrants get converted into Shares after> payingthe> > balance Rs.22.5 (F.V. 10 + Premium 15)> >> > Of the abovepart shares are sold on 20.10.2008 for Rs.35 off market.> >> >> >> >1. Now will it be Short Term or Long Term Gain?> > 2. This Gain canbe setoff against what loss?> >> > Please reply.> >> >> >> >Regards> >> > Milind Shah

Of Share Warrants, Share Certificates and Capital gains




Hi MKK,


Since a Share Warrant is a creature of the Company law, I think weneed to examine the meaning of a Share Warrant in the context of theCompanies Act to better understand what it really is. Here's whatSection 114 of the Cos Act states:[114. (1) A public company limited by shares, if so authorised byits articles, may, with the previous approval of the CentralGovernment, with respect to any fully paid-up shares, issue underits common seal a warrant stating that the bearer of the warrant isentitled to the shares therein specified, and may provide, bycoupons or otherwise, for the payment of the future dividends on theshares specified in the warrant.(2) The warrant aforesaid is in this Act referred to as a "sharewarrant".(3) A share warrant shall entitle the bearer thereof to the sharestherein specified, and the shares may be transferred by delivery ofthe warrant.]So a share warrant ISN'T in my opinion a Rights Entitlement. It is aRight in itself. The share warrant is a kind of a bearer cheque,whilst a share certificate (demat or physical) is akin to an accountpayee cheque. The holder of a share warrant is an anonymousshareholder. Since the holder of a share warrant is entitled todividend on the shares specified on the warrant, it stands to reasonthat he's the de facto owner of the shares, though he isn't a memberby virtue of Section 2(27). And sub-section 3 above even speaks ofhow the transfer of the shares may be effected by mere delivery ofthe warrant. So clearly a Share warrant constitutes an asset atleast as far as the Companies Act is concerned. A share warrantseems like a surrogate share certificate. It was invented to getaround the cumbersome procedure that involves transferring sharesthrough a share certificate (although in the present-day Dematregime, share warrants seem like things of the past).I don't see any reason why we should interpret things differentlywhen we have to judge the taxability of the gains from the sale ofshare warrants under the Income Tax Act.But even consulting the Income Tax Act seems to lead us to theconclusion that a Share Warrant is a capital asset. The proviso toSection 2(42A) that fixes the age of certain capital assets at 12months after which they turn "long-term", says:[……. in the case of a share held in a company or any other securitylisted in a recognised stock exchange in India…..]A security is defined u/s 2(h) of the Securities Contracts(Regulation) Act 1956 as follows:[(i) shares, scrips, stocks, bonds, debentures, debenture stock orOTHER MARKETABLE SECURITIES OF A LIKE NATURE in or of anyincorporated company or other body corporate;(ii) Government Securities(iia) such other instruments as may be declared by the CentralGovernment to be securities;(iii) rights or interests in securities;]So even if we argue that Share Warrants are Rights, they would stillamount to Securities in the view of the (iii) above.Since share warrants too are securities in terms of the proviso toSection 2(42A), the time-clock for determining whether they're long-or short-term capital asset would start ticking from the date ofallotment of the Share Warrant. So as far as the taxation law isconcerned, it seems share warrants and share certificates are twosides of the same coin. Mr Goenka, I think no CG will arise at thetime of conversion of warrants into shares. The transaction seems amere ceremony—a Kacha shareholder becoming a Pucca, registeredshareholder. I can't smell anything resembling a relinquishment orexchange or extinguishment of rights in a capital asset.In my view, the CG will be LTCG in nature and the cost will beindexed with reference to the year in which incurred.Thanks,CA Sanjeev Bedi--- In
ICAI_CIRC_MEERUT_CA@yahoogroups.com, "M.K.KRISHNAN" wrote:>>>> Dear Mr.Milind Shah,>> Shares are ordinarily acquired on the date of allotment and the> period of holding of such shares begins with the date of their> allotment. This rule equally applies where shares are allotted in> pursuance of the Rights Entitlement. Warrants are in the nature of> Rights Entitlement and the period of holding of the shares issuedin> pursuance of such Rights begin with the date of allotment This is> confirmed by section 2(42A)(d) which lays down the period ofholding for> such assets as follows:>> "in the case of a Capital Asset, being a share or any other> security (hereinafter in this clause referred to as the financialasset)> subscribed to by the assessee on the basis of his Right tosubscribe to> such financial asset or subscribed to by the person in whosefavour the> assessee has renounced his Rights to subscribe to such financialasset,> the period shall be reckoned from the date of allotment of such> financial asset ">> Therefore I am of the view that on the facts explained by youthe> sale of shares will be assessed as Short term Capital Gains only.>> Regards>> CA.M.K.Krishnan>> Vellore>> Tamilnadu>>>>> --- In ICAI_CIRC_MEERUT_CA@yahoogroups.com, Milind Shah > wrote:> >> > Sir,> >> > But the warrants are held since 2006.> >> > What should be the effect of that?> >> > Regards> >> > Milind Shah> >> >> > Since the Gains have arisen from the capital asset being theShares> (which> > is held for less than a year) - it would result in Short TermCapital> Gains.> >> > Regards, unni> >>> >> > Friends> >> > I have come across a very typical problem> >> > X Ltd has purchased Warrants of Y Ltd. on 30.09.2006 for Rs.2.50> >> > Later on 20.04.2008 the warrants get converted into Shares after> paying the> > balance Rs.22.5 (F.V. 10 + Premium 15)> >> > Of the above part shares are sold on 20.10.2008 for Rs.35 offmarket.> >> >> >> > 1. Now will it be Short Term or Long Term Gain?> > 2. This Gain can be setoff against what loss?> >> > Please reply.> >> >> >> > Regards> >> > Milind Shah

TDS on Audit fee--Who's the Payee?



Dear Pradeep,
Interesting Question. So the company makes provision for audit feeat the end of the year; withholds and deposits tax on it; and hasalready uploaded Form 26Q mentioning the PAN and name of theauditor. But when it comes to actually conducting the audit, thecompany has changed its mind and appoints someone else to be auditor(by passing a special resolution in a specially convened EGM, I amsure).There have been case laws that said that where the identity of thepayee is not known, there is no need to make TDS when we makeprovision for the expense. But in this case, we can't pretend thatwe didn't know the identity of the payee—the auditor conductingaudit in the previous year is automatically reappointed in the AGM,unless removed by the shareholders. So the liability to deduct taxat source was there.Revising the TDS return is a good idea. Wrong names and PANs of thepayees often get mentioned in the e-TDS return. In that event also,it is advised to revise the TDS returns so that the payees don'thave any trouble in claiming TDS when their incomes are assessed.Although TDS isn't something that is negotiable, the practical wayout of this situation would be revision of the e-TDS return. Wecan't recover the amount of tax from the previous auditor since he'sgot no income to have that tax adjusted against.And although we do have a CBDT circular that says that TDS depositederroneously or deposited excess, can be claimed back by the deductorhimself, and can even be adjusted against the deductor's own advancetax liabilities, etc, invoking that circular isn't advisable in thiscase, since we have problem only with the payee's identity here, andnot with TDS as such.Regarding the problem in mentioning of the date of TDS while e-filing our ITRs, that's only a procedural problem to overcome forwhich we need to work out a practical solution rather than referringto sections. But I wouldn't agree with your thinking that "we had nochoice but to forget such tax which may of handsome amount". Notbeing able to claim TDS would mean enhancing our tax liability,which would be in violation of Section 205. Section 205 says thatwhere tax is deductible and has been deducted at source on anassessee's income, the revenue can't burden the assessee once againwith the tax that's already been deducted from his income. Whatabout a case where the deductor doesn't deposit the TDS or doesn'tfile the e-TDS return? Would the payee stand to lose the amount oftax that's been withheld from him from out of his income? Section205 seeks to protect the payees from the negligence of the payers.Section 205 will certainly be pressed into service to bail out theassessees in a case where there is a clash between the years whenthe payer deducted the TDS and the year in which the payee accountsfor the income.I shall try and have this thing sorted out after discussion with afew people and will get back to you if I have got somethingworthwhile to say.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=8WAJVhgGD0UHc28FFrz-Rw1j-KQmU0A16-YS-S0X-aHGE5k6gDxjhDKcwMPAbK5p-6V6WrVSKj7kDhTmRI2IjxpDelqdTl-zFGL0hr8s, pardeep gupta wrote:>> Dear Sanjeev Ji> First of all i would like to thank 4 clarifying the matter sosoon. i m really surprised to see such a quick response from ur end.by the way thanks a lot.> may u please clarify wheteher there would be any change in case ofsystem of accounting is mercantile basis. i think there should beequally applicable, becoz either it is cash basis or mercantilebasis, we would book TDS in the year in which we are booking income.> Am I right?> I think until any rules being framed by the Government under subsection (3) to section 199, we may carry on the practice.> One more issue, if suppose a company deducts tax in name of one CAfirm while making provision of audit fee on 31st March 2009. andfile form 26 Q. Later on say the said CA firm doesn't conduct theaudit due to resignation etc.. Then wheteher it is suggested torevise the TDS return by the company and indulge the name of newlyappointed CA firm. > Moresoever In my personal opinion there should be amendment insec. 194 j that company (incl. other assessee) should be liable todeduct TDS on professional fee whenever they receive the bill fromthe concerned professioanl and not on basis of making provision.> In other words Explanation 3 to subsection 3 of sec. 194 J shouldbe abolished.> CA Pradeep Gupta> Haridwar> 09897238017> --- On Sat, 2/28/09, Sanjeev Bedi wrote:>> From: Sanjeev Bedi > Subject: {amresh's-CA's} Re: TDS on Audit fee> To: http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=8WAJVhgGD0UHc28FFrz-Rw1j-KQmU0A16-YS-S0X-aHGE5k6gDxjhDKcwMPAbK5p-6V6WrVSKj7kDhTmRI2IjxpDelqdTl-zFGL0hr8s> Date: Saturday, February 28, 2009, 12:05 AM>>>>>>> Hi Pardeep Ji,>> No issue at all here! You need to go through Section 199 of the IT> Act.>> It's been held in numerous Tribunal cases that credit for TDS isto> be given in the year in which the assessee (the recipient ofincome)> offers the income for taxation. Chartered accountants follow cash> system of accounting. Their auditee companies on the other hand> follow the mercantile system of accounting, which requires thatthey> provide for accrued expenses on 31st March. Now the year mentioned> on the TDS certificate, in case of TDS made on 31.03.2009, wouldbe> A Y 2009-10. But the payee would be accounting for that incomeonly> in the financial year 2009-10, the relevant A Y for which is 2010-> 11. So in the event, would he have any problem in claiming suchTDS> in his computation of income? No.>> But the FA 2008 has amended Section 199 to insert the followingsub-> section:>> [(3) The Board may, for the purposes of giving credit in respectof> tax deducted or tax paid in terms of the provisions of thisChapter,> make such rules as may be necessary, including the rules for the> purposes of giving credit to a person other than those referred to> in sub-section (1) and sub-section (2) and also the assessmentyear> for which such credit may be given]>> The power to make rules for the purposes of giving or denyingcredit> for TDS has been vested in the CBDT. I am not aware of any rules> being brought onto the statute book that have disturbed the status> quo. I think we shall still continue to be entitled to claimcredit> for TDS in the year in which we offer the income for taxation. IfI> follow cash system of accounting, I shall claim, and be allowed by> the AO, the TDS deducted by my clients on 31st March 2009, in my> return of income for the A Y 2010-11. TDS works on the matching> concept: you get to claim an amount of TDS only in the year inwhich> you submit for taxation the income upon which tax has beendeducted> at source.>> In Pradeep Kumar Dhir v. Asstt. CIT [2007] 107 ITD 118 (Chd.)(TM),> the assessee, a commission agent received commission from various> principals and TDS was made by the payers on accrual basis as soon> as they booked the commission expense. The commission agent sincehe> followed cash system of accounting accounted for the income only> after he'd actually received it. The Tribunal held that the TDS> claim was admissible as and when the assessee offered forassessment> the income subjected to TDS.>> The decision of the Mumbai Bench in the case of Toyo Engg. India> Ltd. v. Joint CIT [2006] 5 SOT 616 (Mum.) is also an instructive> one. In this case also, it became difficult to establish a nexus> between income and TDS, the assessee being engaged in providing> technical services and recognizing his income only on thecompletion> of a project. The Tribunal laid down the following rules:>> [The income or loss is the cumulative result of the workingcarried> on by the assessee and measured for each assessment year. There> could be no immediate or direct nexus between the incomechargeable> to tax and the tax deducted out of the payments made.>> Tax deduction is basically a machinery provision for collectingtax> on the potential income of the assessee. But there is noconclusive> presumption that tax is invariably deducted out of income. That is> why the expression is `tax deducted at source' instead of `tax> deducted from income'>> It is not possible to correlate the amount of TDS with a specific> amount of income earned by the assessee in a particular assessment> year. When section 199 says that credit shall be given for the TDS> on the production of TDS certificate for the assessment year for> which such income is assessable, it is implied that the nexus> between the TDS and the income would remain rather notional or> conceptual only]>> Based on the above discussion, I think we should have any problemin> claiming TDS deducted by a company on 31st March 2009 even if we> account for that income in the A Y 2010-11.>> Thanks,>> CA Sanjeev Bedi>> --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, pardeep gupta> wrote:> >> > Dear Sanjeev Ji> > I have joined the group very recently, and i have gone throughur> reply on various queries which are extremely helpful and logical.> After reading ur views I m really a big fan of urs. I will behighly> obliged if u please help me in clarifying a issue related to TDSon> Audit fee.> > > > As u know in every balancesheet a provision for audit fee isbeing> created on say as on 31st March of previous year. while we (CA)are> issuing the fee bill in the year we conduct our audit and charge> service tax (if applicable). Now if the company deducts TDS on> provision of audit fee (as is required by Sec. 194 J), how can we> (CA) can claim benefit of that Tax deducted by the compnay during> previous year while we would be able to show the same only during> next financial year when we actually conduct the audit and raised> fee bill. now if the company does not deduct tax on provision made> in books , we are liable to qualify our report. and if the company> deducts tax we are not able to claim the benefit of TDS.> > Could u please suggest the remedy for this practical situation,> since i think most of our member will be facing the same problem.> > > > CA Pradeep Gupta> > Haridwar> > 9897238017> >>