Disallowance of Expenses due to non-deduction of TDS--Section 10B case

Hi Mr Kalra,

I don't think you need to add back the amount of expenses on which TDS though ought to have been deducted hasn't been deducted. Section 40 says "the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". And Section 10B forms part of Chapter III, which chapter is titled "Incomes which do not form part of total income". But Section 10B speaks not of "exemption" but of "deduction". The Chapter heading carries more weight than the section itself. So I feel since income eligible for Section 10B exemption never forms part of our total income and therefore we never undertake the exercise of "computing the income chargeable under the head B/P", there's no question of disallowance u/s 40a(ia) in case TDS hasn't been made on the specified expenses.Other consequences of non-deduction of TDS will follow, of course.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "verendra Kalra" wrote:>> > > Dear Members, > > The income of an enterprise is exempt u/s 10B. Pl. advise what will be the> impact on the exempt profits, in respect of any disallowance due to failure> to deduct TDS on expense payments made to earn the export income of that> enterprise?> > > > Verendra Kalra> Nangia and Company> Chartered Accountants> 75/7, Rajpur Road,> Dehradun -248001 (India)> O +91-135- 2747084,2743283> F +91-135- 2740186> E-mail: verendra.kalra@ ... > W-Site: www.nangia.com Please note change

TAX AUDIT OF CO-OPERATIVE SOCIETY

Dear Mr Agrawal,

Yes of course the co-operative society engaged in the business oflending money to its constituents would be required to get itsaccounts audited u/s 44AB if the interest receipts exceed Rs 40lacs. The fact that the whole of the profits of the co-op might bedeductible u/s 80P does not bear upon the applicability of Section44AB. Section 80P admits of the deduction from "profits and gains ofbusiness". Interest income being business receipts in the co-op'shands, it'd be called upon to appoint a CA u/s 44AB.I also reproduce the relevant para below from the ICAI's guidancenote on tax audit:[A co-operative society carrying on business may enjoy exemptionunder section 80P. Such institutions/associations of persons willhave to get their accounts audited and to furnish such audit reportfor purposes of section 44AB if their turnover in business exceedsRs. 40 lakhs]Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Anil Kumar Agrawal" wrote:>> Dear friends,Will any body let me know whether a co-operativesociety of bank engaged in the activity of financing to its membersand getting the interest ` require to get its a/c audited u/s 44AB.The objective of the society is not to make profit although it hasearned some profit.CA Anil Agrawal

TDS on Payments to Foreigner--Commission and Content-writing on the web

Hello Amreshji and Mr Parmar,

There is no doubt that no TDS is deductible in case commission is paid to a foreigner for soliciting orders abroad. This is despite the Explanation to Section 9(2) added by the Finance Act 2007. I'd discussed this issue very thoroughly some time back. Please look up my Message No 13373 dated May 14, 2007. About the fee paid to the American for writing content for an Indian website—what we need to see is: Does payment for writing made to a writer abroad constitute fee for technical services as defined in Explanation 2 below Section 9(1)(vii)? Writing something worth putting up on a site definitely involves skill. There's a technique behind it. Besides Amreshji you said the American would be appointed as the Site Club "Manager". Here's how "fee for technical services" is defined in the Explanation 2:[Explanation [2].—For the purposes of this clause, "fees for technical services" means any consideration […] for the rendering of any MANAGERIAL, technical or consultancy services…[…..[ .A site club manager would certainly be doing much more than banging away at the keyboard. The Explanation added by FA 2007 dispenses with the requirement of the non-resident having a place of business or business connection in India for his income to be subjected to tax in India. So it's difficult, based on a reading of Section 9, to argue that the revenues shared with the American manager of an Indian website won't be subjected to tax in India. But no final conclusion in respect of taxability of a non-resident in India can be drawn until we have referred to the relevant DTAA—in this case the DTAA with the USA. I quote below Article 15 of the Indo-US DTAA because the kind of services in question I think would be in the nature of "Independent Personal Services":[ARTICLE 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or(b)if the person's stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. ]Here the Contracting state means the US and the other contracting state, India. So independent personal services rendered by a resident of the United States would be taxable in the US only, unless the American has spent some time in India in connection with the work, which in the present situation isn't the case. Alternatively, if we take the case of someone in India being appointed to write content for an American website, would his income received in dollars abroad would be taxable in India? Yes very much. So based on this logic, an American writing from abroad for an Indian website can't be brought to tax in India. The new Explanation to Section 9 does not seem to have taken online services rendered across the internet into account. Unless such services are specifically charged to tax in India by suitable and explicit amendments in the Income Tax Act and the DTAA tells us in unambiguous terms the situs of taxation of such incomes, we can safely conclude that payment to a foreigner for services rendered abroad won't be taxable in India. More than the income tax, what you'd need to worry about is the Service Tax by reverse charge. There's no Rs 10 lac-exemption in such cases!Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "CA. PRAMOD PARMAR" wrote:>> Dear Memebrs,> > A firm paid commission to a foreigner in foreign currency for getting client> in US> > The foreigner has no office/agent in India> > Whether tds is deductible> > If yes than at what rate.> > Regards,> CA P R Parmar>Hi,I also add here a similar query .A company is running a on line site and now want to engage a person as Site Club manager in US and shall share the new revenue with the individual staying at US who of course is an American. He will be contemporary writer and shall write for the site. Whether tds is deductible u/s 195? If yes, at what rate? How to file TDS returns as the receiver is not having PAN?CA AMRESH VASHISHT

: Lineal Ascendant/Descendant and Manu Bhajji

Dearest Balu,

For your kind information, I have read Manusmriti, though surely not as thoroughly as I have read the Income Tax Act! I am no pseudo-liberal who takes a sadistic delight in denigrating my own culture after having read a couple of Angrezi books. Swami Vivekananda said that Hinduism isn't afraid of the Truth. The greatest thing about Hinduism is its inbuilt self-correction mechanism. So whilst we had the system of Sati—women being set alight on the funeral pyres of their dead husbands; we also had people like Raja Ram Mohan Roy who rose in protest and had it banished. What distinguishes Hinduism from the Semitic religions is that the Hindus do not treat their scriptures as Words of God, unlike the followers of Semitic religions. Manusmriti, many people believe, says nasty things about women and Shudras. May be we can argue those aren't original verses, but later interpolations. I am no scholar of Sanskrit and have no means of knowing whether the English texts faithfully render what Manu wanted to say originally. But from what I have read from writings of eminent and unbiased authors—and not what Arun Shourie describes as "eminent historians" mind you--it's difficult to believe Manu had a high regard for women.And yes I said "Manu-like" to convey a sexist attitude. This I did despite having known that Friedrich Nietzsche, probably the greatest German philosopher and one of Osho Rajneesh's all-time favourites, had this to say about the Manusmriti:"Close the Bible and open the Manu Smriti. It has an affirmation of life, a triumphing agreeable sensation in life and that to draw up a lawbook such as Manu means to permit oneself to get the upper hand, to become perfection, to be ambitious of the highest art of living".And I don't think I contradicted myself by quoting from the HMA the definition of Sapinda. Hinduism is much bigger than Manusmriti. While we have had a history of oppression of women and other people, we have been able to move on, because we didn't believe our scriptures had any divine sanction. Let's not strip our great heritage of its greatest strength—self-criticism and self-correction. Namaskara,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "balunand" wrote:>> Dear Sanjeevji,> > I am a little surprised and disappointed that you too find it > fashionable to indulge in Manu bashing, a normal practice that I > have found among people who have never bothered to read what he has > written. Nowhere does Manu say that mother is not part of the > ancestry. Whether in inheritence or offering funeral oblations the > three generations from both father and mother's side are always > considered. In fact you contradict yourself in your last para when > you quote the definition of sapindaship as per HMA. Are you under > the impression that the 500 odd politicians sitting in our > parliament suddenly came up with that definition in 1956??. In > reality it is nothing but an english version of Shastric law. > > > --- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Sanjeev Bedi" > wrote:> >> > Hi Priyank,> > > > Lineal ascendant/descendan t refers to people who form a vertical, > > unbroken line in their relationship. An ascendant is usually more > > remote than a grandfather. It seems the draftsmen decided to use > the > > words "lineal ascendant/descendan t" instead of saying Father, > > Grandfather, Great grandfather and so on. In terms of Section 56, > > this line can be extended to any degree. Since Ascent refers to a > > thing going skywards, and Descent means heading down south, it is > > clear that people related to you horizontally viz your cousins > > aren't your relatives for the purposes of Section 56 at least. > > > > Probably there has been a case or two where it's been held that > > lineal ascendant/descendan t refers to a person related to us > through > > the male lineage only—our mother, since she took our father's name > > after marriage, changed her lineage. Another school of thought is > > that the mother's mother i.e. the Nani and the mother's father > i.e. > > the Nana too are relatives within the meaning of Section 56 and > > there shouldn't be any problem accepting gifts from them. > > > > I am more inclined to believe the second line of reasoning. > > Especially in these times it seems too sexist and Manu-like to > argue > > that mother's Mom and Dad have got nothing to do with our > ancestry. > > But for our mothers we wouldn't be here. But for our fathers we > > could still have been here since this is the age of artificial > > insemination! In the absence of any statutory definition of lineal > > ascendant/descendan t in the I T Act, we can safely derive our > > meaning from the sense in which these words are understood > > ordinarily-- we have descended from our Mother as much as, if not > > more than, our father. > > > > The Hindu Marriage Act 1955 also defines a "Sapinda relationship" > as > > a relationship that "extends as far as the third generation > > (inclusive) in the line of ascent through the mother, and the > fifth > > (inclusive) in the line of ascent through the father, the line > being > > traced upwards in each case from the person concerned, who is to > be > > counted as the first generation"> > > > So the HMA recognizes "ascent through the mother".> > > > Based on the above, in my opinion, Nanas and Nanis are relatives. > > > > Thanks,> > > > CA Sanjeev Bedi> > > > > > --- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "priyankkabra" > > wrote:> > >> > > Who all are covered in Lineal Ascendent or Descendent?> > > Whether father, mother, grandfather, grandmother paternal as > well > > as > > > maternal, i.e., dada dadi n nana nani are covered?

TDS on Hostel--Boarding and Lodging

Hi Ganesh,

I would put my money on tax being deductible u/s 194I rather than Section 194C. The meaning of "rent" given in Section 194I is pretty wide. Amount paid to a hostel owner for accommodating the company's workers seems to fit more snugly into Section 194I than Section 194C. You yourself have said that your company has contracted with the hostel owner to rent out a dormitory with a view to cut down attrition rates. So it's basically a contract for "accommodation" . You can't prevent employees from changing jobs by holding out the incentive of boarding alone. Primarily it's the guarantee of lodging that you hope to bring down your attrition rate with. The hostel owner is always going to argue in favour of Section 194C as the TDS rate for Rent is 7.5 times. And it doesn't really matter what's the structure of the bill—a predominant part of the hostel bill may constitute expenses on account of boarding. That wouldn't alter the nature of this payment. The following case law is an instructive one:[The definition, for the purpose of the Income-tax Act, of the nomenclature `rent' as expounded in the Explanation to section 194-I itself amply reveals that the same is projected as the generic term which includes within its ambit payment made ON WHATSOEVER ACCOUNT for occupation of a tenanted portion. After taking into account the definition of rent, it apparently appears to be a composite concept. Once the rent is comprehended as a composite concept then it is not capable of being fragmented - Smt. Bishaka Sarkar v. Union of India [1996] 219 ITR 327 (Cal.).]In view of the above interpretation of "rent" by the court, I think you can't even bifurcate the payment into Boarding and Lodging Expenses and deduct TDS at two different rates. The whole of the amount paid to the hostel owner would be subjected to TDS u/s 194I.How about the employees directly paying up to the hostel owner and getting reimbursement from the company?Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Ganesh P." wrote:>> Dear Professionals> > I have a query on TDS on the amount payable to the Hostel owner. I give> below the facts of the case and seek your valuable advise:> > Facts of the case:> We have introduced a dormitory system in order to tackle the attrition> problem with relation to our Operators. We have tied up with a Working> employees hostel who will provide an entire floor of the premises> exclusively for us to use for our operator purposes. We would be paying> a flat amount as the Accommodation charges (as we refer presently) which> includes the charges for a minimum of 100 employees for their stay, food> and other charges viz. electricity, water etc.> > Query:> Now would like to know whether the above payment would attract TDS u/s> 194I or u/s 194C as the predominant portion is for the catering services> only as arguable by the Service provider. The net inflow for the> service provider would be very less if the case is argued as "Rent" as> the rate is higher.> > Your views please...> > Best regards,> Ganesh> Senior Executive - Finance Intimate Fashions (India) Pvt Ltd Ph: +91> 44 6740 4400 Extn: 4452 Ph: +91 44 6740 4452 (D) Fax: +91 44 6740> 4692 Mobile: 98400 89137