Dear Reddy Saab,
Ha ha ha! Thanks for bestowing Gurudom on me! Please read my Message
No 26494 addressed to Mr J P Agarwal.
But I wonder how is it that you're so "clear" about it being a
windfall gain. I wish I had such gifts of telepathy and clairvoyance!
Vineet himself said his client had received a professional fee of Rs
70 lacs after due deduction of TDS. Is there any TDS section that
requires deduction of tax at source on windfall gains? Does the
Memorandum of Association of the company empower it to shower Rs 70
lac-largesse on people who have "certain right connections" ? I don't
think it does, and therefore this transaction is ultra vires the
company.
There is no such thing as Windfall gains, Sir! We never get tired of
saying "There are no free lunches in the world", do we? There is
always a Quid Pro Quo. Nobody will scratch my back unless I scratch
theirs.
But even if for a moment I assume that Rs 70 lacs WAS windfall, then
how do you conclude that it would be taxable under the head IFOS?
The Windfall gains are NOT taxed at all! Suppose walking down the
road, I see a wallet lying by the side. I pick it up and take it
home. It has currency notes of Rs 1 lac in it. Dishonest as I am, I
keep that money myself rather than turning it over to the nearest
police station. Would that amount be taxable in my hands? No, Sir.
But this is too hypothetical a scenario to materialize. If I am
crooked enough not to try and trace the rightful owner of that
purse, I wouldn't be so foolish to go out seeking advice on whether
or not I'm liable to pay Income tax on that money! That's why I
said: there's no such thing as a windfall gain in Circa 2008. A
windfall gain is a sourceless income. And an income to be taxed has
to have a source. I sit beneath an apple tree; a gust of wind causes
an apple to fall into my lap. Do I have to pay tax on that apple?
No, because it is a windfall! Now tomorrow at the same time, I again
sit below the same apple-yielding tree, HOPING to have another ripe
apple fall into my lap. And fall it does. Would this apple be
taxable in my hands? Yes.
Burden of proof of an income being a windfall is entirely on the
assessee. If indeed it can be proven that Rs 70 lacs, or whatever
amount, was a pure windfall, accidental and sourceless income, it
won't be taxable at all. The question of deciding between the head--
B/P and IFOS—-won't arise at all!
Don't you notice the contradiction in your statement: "This is a
clear case of some wind fall money to him due to certain right
connections" ?
Read it again, Sir. The Contradiction is begging to be pointed
out. "Wind Fall" and "Due to Right Connections"— sound like an odd
couple to me. Windfalls don't happen Due To something. They just
happen of their own accord, out of nowhere. If he got the money due
to right connections, that means he must have pulled some strings to
make that money. So where's the element of windfall in it? He must
have been developing those connections all along to someday be able
to encash them. And encash them he did, and now you think it is a
wind fall gain?! Anyway, you never argued for the amount being not
subjected to tax.
I fail to fathom if he didn't object to TDS on Rs 70 lacs being made
u/s 194J and would be duly taking credit for that TDS in his ITR, on
what grounds would he contend that Rs 70 lacs is IFOS? Section 194J
defines "professional services" as those mentioned in Section 44AA.
And we all know Sections of the Income Tax Act beginning with 28 and
ending with 44AF are wholly devoted to laying down the law relating
to Profits and Gains of Business & Profession.
Thanks,
CA Sanjeev Bedi
--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "raj_reddy_ca"
>
> Dear Sanjeev Bedi Guru
> This is a clear case of some wind fall money to him due to certain
> right connections. I do not think it is out of exercise of his
> profession or vocation. Service Tax is applicable. But tax audit?
Is
> it not income from other sources?
>
> I have a client swamiji,managing trustee of a trust. He makes one
> devotee to do some favour to other devotee.The devotee got benefit
> pays donation to the trust.This way his trust have lot of money and
> enjoying the great benefit of tax exemption. So it appears that it
> is more money making business than purohitji,pandaji, astrologistji
> etc.
>
> When he consulted me, I said it has to be taken as his professional
> income because if IT conducts an enquiry with the donar seriously
he
> will reveal that the payment is for the benefit he got from the
> swamiji.In this angle, IT dept had conducted enquiries in certain
> educational and hospital trusts.
>
> Swamiji was not happy with my advise and deserted me. I lost a
great
> swamji connection.
> Beware swamijis
> Regards
> Raj Reddy
> --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Sanjeev Bedi"
>
> >
> > Hey Vineet,
> >
> > I forgot to bring up this issue in my previous mail, but have you
> > thought about the Service Tax liability of your client on the
> > professional charges of Rs 70 lacs he's got from the company? If
> not
> > any other service u/s 65(105) of the FA 1994, he'd surely get
> > covered by the Business Auxiliary or Business Support Services.
> And
> > the ST liability works out to a whopping Rs 8.50 lacs!
> >
> > Actually, I'd suspected it: The master-servant relationship
> existed
> > between him and his "client" company. But for some reason, he
> didn't
> > want to be a salaried employee. Just like some CAs, who, too
> > reluctant to part with their COPs, do full-time jobs
> > drawing "professional charges". Now you can't have your cake and
> eat
> > it too. You may have drawn some other benefits on account of not
> > being projected as a salaried employee, but you can't shy away
> from
> > your responsibilities when it comes to honouring the Tax Audit
and
> > more seriously the Service Tax law commitments. If the gross
> > receipts exceed Rs 8 lacs, you've got to pay service tax. And if
> > those exceed Rs 10 lacs, you've got to have your accounts audited
> >
> > Thanks,
> >
> > CA Sanjeev Bedi
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