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> >>

TDS on audit fee

Dear Mr Guru Prasad,

Although I would like to, but I find it difficult to agree with yourinterpretation of the provisions of the Income tax law along withthe Company law regarding the nature of office of the auditor andthe need to make a provision for audit fee and the consequentrequirement to make TDS thereon.On 31st March 2009 the company will have an auditor holding officetill the conclusion of the upcoming AGM in September 2009. The listof circumstances you've listed like the death of the auditor;dissolution of the firm of auditors; management deciding to partways with the existing auditor, are only contingencies. In thenormal course of events, such things won't happen. We can't wriggleour way out of a situation requiring legal compliance by conjuringup hypothetical scenarios. Those things may happen, but those thingshaven't happened till they have happened! The case of IndustrialDevelopment Bank of India v. ITO [2006] 10 SOT 497 (Mum.). that youhave brought up had very different circumstances. The IDBI had madeprovision for interest at the close of the year, but they had noidea who the ultimate recipients of the interest amounts would turnout to be. The bonds on which interest was payable were freelytransferable and so the bondholder at the time of making theprovision could be different from the bondholder at the time offinal payment. In such an event, the Mumbai Tribunal held that theIDBI was exempted from the requirement to withhold tax on interestsince one can't deduct TDS on payments to anonymous people.The office of the auditor certainly isn't akin to a Bond of afinancial institution. Barring contingencies, there's a highlikelihood that the auditor of the previous year would be theauditor this year too and continue to hold office till theconclusion of the next AGM. On 31st March all those things werepurely hypothetical. In the IDBI case, the anonymity of the payeesof the interest was a reality on 31st March and not a hypothesis.So in my opinion, as the law contained in Section 194J stands today,TDS would need to be made on provision for audit fee, taking intoaccount only the reality subsisting on that day.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=K2F4uKFXS6y82QT90PKbMHbkEEz-AHNKjBjxku7wH1gUv_lZ48DUHKguHW78xxljX0h2bG4_n2uBThPpLdcmFNe6azeceLPQMPZam-k, "Prasad & Suresh" wrote:>> Dear CA Vishal Guptaji,>> 1. The relevant report is attached.>> 2. My statement that the Auditor will be "indebted" to the companywas in the context of TDS being effected on 31st March - at whichpoint of time there will be no credit in the Auditor's account. TheTDS amount remitted by the company will result in a debit balance inthe Auditor's account. Such debit balance will continue till thedate the Auditor's bill amount is credited to his account.> If TDS were to be made upon completion of audit and receipt ofbill, then obviously the bill amount will be first credited to theAuditor's account, against which the TDS amount will be debited.There will therefore be no resultant "net debit" at any stage.>> The accounting sequence will be :>> On 31st March 08 - Debit Audit Fees / Credit Provision for AuditFees>> On 30th June 08 (assumed date of completion of audit & submissionof Report and Bill) - Debit Provision for Audit Fees / Credit ABC(Auditor)> On or after 30 June 08 - Debit ABC(Auditor) / CreditBank ..........for TDS made / remitted> On or after 30 June 08 - Debit ABC(Auditor) / CreditBank ..........for Net Amount paid>> Warm regards,>> CA Guru Prasad> Dear Guru Parasad Ji>> Kindly provide the complete citation of Mumbai ITAT for IDBIcase as mentioned by you.> Further please check how the TDS amount debited to auditor a/cwill be considered as "auditor" is indebted to the company. In myopinion if you are right then auditor will always be indebted to thecompany.>> Regards,> CA. Vishal Gupta>>> On 3/2/09, Prasad & Suresh wrote:>> A lot has been written about TDS on Audit Fees and how to takecredit for such TDS (when the Bill is raised only in the subsequentyear).>> My view is as follows –>> Companies do make a provision for Audit Fees in the accounts,at the close of the year. This is done in order to comply withmercantile system of accounting and to recognize the expenditure.>> Now let's examine the TDS issue :>> Unlike all other services, the Audit service is carried outafter the close of the year and not during the year. Therefore, theclaim for Audit Fees will arise only after Audit Report addressed toshareholders is received from the Auditor. It is only then that TDScan be effected and Form 16A issued. Even though a company may haveappointed or re-appointed an Auditor, there is no certainty that thesame Auditor will, in fact, carry out the audit for reasons such as(a) Resignation of the Auditor; or (b) Removal of Auditor; or (c)Death of the Auditor. If any such eventuality occurs after 31stMarch and before submission of Audit Report, a new Auditor steps in.Imagine the situation if a Form 16A in favour of the previousauditor is already doing the rounds !!>> Therefore, at the time a provision is made in the books (torecognize the expenditure), the identity of the beneficiary is notknown and hence TDS on Audit Fees cannot be made.>> In a similar context, in IDBI's case the Mumbai ITAT ruled asfollows :> "It is a sine qua non for vicarious tax deduction liabilitythat there has to be a principal tax liability in respect of therelevant income first, and a principal tax liability can come intoexistence when it can be ascertained as to who will receive or earnthat income. In this view of the matter, tax deduction at sourcemechanism cannot be put into practice until identity of the personin whose hands it is includible as income can be ascertained."> The correct step would be to effect the TDS only in the yearin which audit is complete and audit report is received. Therefore,for year ended 31 March, 08 TDS on audit fees should be effectedduring financial year 2008-09. There should be no fear ofdisallowance u/s 40(a) for the reasons cited above.>> Another interesting aspect is the implications under CompaniesAct if TDS is effected on 31st March itself – if the TDS amount wereto exceed Rs. 1,000 (which will be debited to the Auditor's account)would the Auditor not invite disqualification u/s 226(3)(d) forbeing indebted to the company for such sum ?>> CA Guru Prasad

TDS on Audit fee accounted for in more than one F Y

Dear Sandeep,

Yours is a case where the payee owing to the method of accountingfollowed by him ends up spreading his income over a number of years.But the payer that follows the accrual basis of accounting has madethe TDS on the entire amount only on one occasion when it providedfor the expense. In such a situation a question indeed does arise:How would the payee claim credit for the TDS that's been deductedand deposited in one particular A Y relating to one particular F Y?Can the payee claim the amount of TDS on instalment basis, staggeredover a period of time, ending in the year in which he fully realizesthe amount of income?Let's see what the CBDT Circular No 5/2001 02.03.2001titled "Problems faced by assessees in getting due credit for taxdeducted at source under section 199" says in this regard. Thiscircular was issued to address the problem faced by the landlordswho were having a hard time linking up the TDS on rent with theirrental income. Section 194I requires TDS be made even on advancerent, and even on the amount of security deposit if it partakes ofthe character of rent. How were the landlords supposed to claim theTDS in such cases when they weren't going to account for thoseamounts as income in the year they received it?Although this circular was brought out to mitigate the payeescovered under Section 194I, I don't see any reason why we can'textend the same logic to cases involving other TDS sections also.In para 3 (i) the circular says:[Where advance rent is spread over more than one financial year andtax is deducted thereon, credit shall be allowed in the sameproportion in which such income is offered for taxation fordifferent assessment years based on the single Certificate furnishedfor tax so deducted on the entire advance rent.]This circular was referred to by the Tribunal in the case of PradeepKumar Dhir v. Asstt. CIT [2007] 107 ITD 118 (Chd.) (TM) I citedearlier. That case related to commission income, which is subjectedto TDS u/s 194H.Clearly, we have the law on our side on this one. TDS deducted on asingle occasion can be claimed by the payee-assessee on aproportionate basis if owing to his method of accounting being whatit is, he happens to account for that income over a 2-3 year period.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=paA1w8XOmwznmmVlyE9c8poIVLJzcceguHQvKjClq7yZcBfr2gDCDH4caKy_CiYDOSL63nWZlyHQMfezZlrdA7Jsh7raCs-lHC4, SANDEEP GOEL wrote:>> *Sanjeev Bedi ji,> Your reply is to the point and well supported by relevant sectionand case> laws,> thanks for a truely professional answer.> I am claiming the TDS in my own return in the same way for last somany> years and getting refunds too. I used to give note of relevantsection at> the end of Computation sheet> but the same is now not possible as now no paper is enclosed withthe ITR.>> Now my question is that usually fees are received in next year of> provisioning but if the fees is received after 2 or 3 years , canwe still> claim it . e.g. provision is made in a pvt ltd co B.sheet for YE31.3.2006> for an amount of RS 27,500 and TDS deducted in previous year 2005-06 but> fees was recd in financial year 2007-08 partly Rs 17,500 andpartly in> financial year 2008-09 Rs 10,000> I accounted for my income on cash basis Rs 17,500 in FY 2007-08and Rs> 10,000 in 2008-09 **> what will be the position of claiming the TDS credit in such acase , TDS> certificate is one only ?> Can i claim in one finacial year or in 2 years and can i claim TDScredit> even after 2-3 years of deduction ?> **>> CA Sandeep Goel*

TDS on Audit fee

Hi Pardeep Ji,

No issue at all here! You need to go through Section 199 of the I TAct.It's been held in numerous Tribunal cases that credit for TDS is tobe given in the year in which the assessee (the recipient of income)offers the income for taxation. Chartered accountants follow cashsystem of accounting. Their auditee companies on the other handfollow the mercantile system of accounting, which requires that theyprovide for accrued expenses on 31st March. Now the year mentionedon the TDS certificate, in case of TDS made on 31.03.2009, would beA Y 2009-10. But the payee would be accounting for that income onlyin 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 such TDSin his computation of income? No.But the FA 2008 has amended Section 199 to insert the following sub-section:[(3) The Board may, for the purposes of giving credit in respect oftax deducted or tax paid in terms of the provisions of this Chapter,make such rules as may be necessary, including the rules for thepurposes of giving credit to a person other than those referred toin sub-section (1) and sub-section (2) and also the assessment yearfor which such credit may be given]The power to make rules for the purposes of giving or denying creditfor TDS has been vested in the CBDT. I am not aware of any rulesbeing brought onto the statute book that have disturbed the statusquo. I think we shall still continue to be entitled to claim creditfor TDS in the year in which we offer the income for taxation. If Ifollow cash system of accounting, I shall claim, and be allowed bythe AO, the TDS deducted by my clients on 31st March 2009, in myreturn of income for the A Y 2010-11. TDS works on the matchingconcept: you get to claim an amount of TDS only in the year in whichyou submit for taxation the income upon which tax has been deductedat source.In Pradeep Kumar Dhir v. Asstt. CIT [2007] 107 ITD 118 (Chd.) (TM),the assessee, a commission agent received commission from variousprincipals and TDS was made by the payers on accrual basis as soonas they booked the commission expense. The commission agent since hefollowed cash system of accounting accounted for the income onlyafter he'd actually received it. The Tribunal held that the TDSclaim was admissible as and when the assessee offered for assessmentthe income subjected to TDS.The decision of the Mumbai Bench in the case of Toyo Engg. IndiaLtd. v. Joint CIT [2006] 5 SOT 616 (Mum.) is also an instructiveone. In this case also, it became difficult to establish a nexusbetween income and TDS, the assessee being engaged in providingtechnical services and recognizing his income only on the completionof a project. The Tribunal laid down the following rules:[The income or loss is the cumulative result of the working carriedon by the assessee and measured for each assessment year. Therecould be no immediate or direct nexus between the income chargeableto tax and the tax deducted out of the payments made.Tax deduction is basically a machinery provision for collecting taxon the potential income of the assessee. But there is no conclusivepresumption that tax is invariably deducted out of income. That iswhy the expression is `tax deducted at source' instead of `taxdeducted from income'It is not possible to correlate the amount of TDS with a specificamount of income earned by the assessee in a particular assessmentyear. When section 199 says that credit shall be given for the TDSon the production of TDS certificate for the assessment year forwhich such income is assessable, it is implied that the nexusbetween the TDS and the income would remain rather notional orconceptual only]Based on the above discussion, I think we should have any problem inclaiming TDS deducted by a company on 31st March 2009 even if weaccount for that income in the A Y 2010-11.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=zD1uXsMdXKf_Nx1yyDnOihMzeSubeBb7NIE3D0-IdMyFJNXWT43cb--8aE2d2RpP-yOsT0Np_0z9G26DHucoFGidND2d05T4TIQ, pardeep gupta wrote:>> Dear Sanjeev Ji> I have joined the group very recently, and i have gone through urreply on various queries which are extremely helpful and logical.After reading ur views I m really a big fan of urs. I will be highlyobliged if u please help me in clarifying a issue related to TDS onAudit fee.> > As u know in every balancesheet a provision for audit fee is beingcreated on say as on 31st March of previous year. while we (CA) areissuing the fee bill in the year we conduct our audit and chargeservice tax (if applicable). Now if the company deducts TDS onprovision of audit fee (as is required by Sec. 194 J), how can we(CA) can claim benefit of that Tax deducted by the compnay duringprevious year while we would be able to show the same only duringnext financial year when we actually conduct the audit and raisedfee bill. now if the company does not deduct tax on provision madein books , we are liable to qualify our report. and if the companydeducts 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>

Unabsorbed Dep--C/fwd in event of Change in shareholding pattern

Hi Ravi,

Here're point-wise replies to your queries:1) Yes, of course. Land being a non-depreciable and therefore a long-term capital asset will entail LTCG. The building being adepreciable asset will entail STCG. The WDV of Rs 40 lacs you'vementioned is obviously the depreciated value of building. The saleconsideration of Rs 1.25 crore must have been segregated into landand building by the buyer. The buyer too needs to determine thefigure of building separately in order to be able to claimdepreciation on it. Bifurcate the Sale consideration of Rs 1.25crore into the price for land and the price for building. Thencalculate the STCG and LTCG on the sale of building and landrespectively.You can't set off the brought forward business loss against yourincome under the head Capital gains by virtue of the provisions ofSection 72(1). However the unabsorbed depreciation can be utilizedto knock some portion of your capital gains figure off. We are ableto carry forward Depreciation if not fully absorbed in a particularyear till eternity. This is possible because in reality there's nosuch thing as "Brought forward depreciation". Depreciation nothaving been written off fully in a year owing to insufficiency ofprofits merges with the depreciation of the following year and soon. Depreciation never gets old or dies; it keeps reincarnatingitself.2) Regarding the eligibility to claim carry forward of unabsorbeddepreciation consequent to the change in the shareholding pattern ofthe company, no, you aren't correct. The word "loss" mentioned inSection 79 doesn't include unabsorbed depreciation. When wesay "loss" in the context of the taxation law, we mean the businessloss sans depreciation. Here's a case law:[The word `loss' mentioned in section 79 does notinclude `unabsorbed depreciation' or `unabsorbed developmentrebate'. Accordingly, the bar imposed under the main part of section79 is not attracted as far as `carry forward and set-off ofunabsorbed depreciation' or `unabsorbed development rebate' isconcerned - CIT v. Kalpaka Enterprises (P.) Ltd. [1986] 24 Taxman167/157 ITR 658 (Ker.).]The new management stands to lose the benefit of brought forwardbusiness losses only.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=EiEkCAsBsw4Z69JEfuSizXAPb_P1OIohqb3qCp_c6LhDFvu-aTUQzdJaj8US9vzvc6SP_1mX2zyKOozO-DMautpwHtE-9-MD5tGa, selvaganapathyravichandran wrote:>> Dear Sanjeev,>> Warm Greetings to you,>> We need your advise on the following matter.> 1.One of our client a Pvt Ltd co, sold land & Building for 1.25Crores and Depreciated value of the Asset (Block ) is Rs. 40 Lakhs.> How to determine the capital gain, whether- Land & Building is tobe separately calculated. If so the gain arising from the sale ofassets can be set off against the C/f losses of about 90 lakhs(Business Loss & Depreciation Loss).>> 2, Suppose the shares of the company is sold to other partyentirely ,is the new management is allowed to get the benefit of C/fdepreciation Loss , since my view is that the new management cannotclaim C/f loss.>> We shall be highly thankful if you could clarify the above mattersat the earliest.>> Regards> Ravi

TDS on Fee to University in the UK

Hi Anoop,

Does the University or the foreign institution the student isenrolled with have a permanent establishment or a liaison office orthe like in India? If not, then prima facie this is a case where theincome of that university won't be deemed to accrue or arise inIndia in terms of Section 9. Section 195 gets called in only afterwe're sure of an item of income of a non-resident being taxable inIndia.The bank is right in insisting on the certificate of the CA in termsof the RBI Circular No. 3 (A.P.) DIR Series 2007-08/100 dated 19thJuly 2007. The format of this certificate is prescribed in the CBDTcircular No 10/2002, dated 9-10-2002. You can issue this certificatestating that the payment being remitted isn't taxable in India. Ofcourse before doing that you'd have to make sure, in terms of theDTAA India has with the UK that the income of the Britishinstitution isn't liable to tax in India.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=hCxbDwA3S_Rbip1Sn8SEPJ3wesq7ZnYw69hqDrMwCUwvSYDXhdboyPqlUY6rVhNbBuAH0kupEbI2XLlPMxpLFo3FDpEPcGifOGQU, Anoop Bhatia wrote:>> Respected Members>> I have faced one query and seeking your valuable opinion on thesame.>> A student pursuing professional degree from abroad is required topay 500> pound as fees to the foreign institution by way of DD. When thestudent> approached to the bank for dd, banker asked him to provide a CAletter> certifying that TDS has been applied on such fees being paid fromIndia.>> Prima facie the above situation appears to be covered by theprovisions of> Section 195 of the Income Tax Act, 1961 but how we can ensure thatTDS> compliance is required or not ? How we can expect a student toensure> deducting TDS on the fees paid by him to a foreign institution. Todo so he> needs to have PAN as well as TAN no. because without which TDS cannot be> ensured. Is there some practical way to tackle this situation. orthere> exists some CBDT clarification/circular on this issue.>> Kindly enlighten.>> Thanks & regards>> Anoop Bhatia> Jaipur>

Trust for benefit of Minor 2

Hi Madhu,

Yes of course, why not? In the Deepak Family Trust case that Iquoted, a trust was said to be eligible to claim deduction u/s 80Lon account of being assessable in the capacity of an individual. 80Lcertainly has closer affinity with 80C than section 54. Once therevenue is ready to assess a trust as an Individual, how can it denyit the deduction u/s 80C? But I am not sure who will be the personsupon whose life we can take out an insurance policy and claim thepremium paid as deduction u/s 80C. Would it be the trusteesthemselves or the beneficiaries?Regarding fresh infusion of funds into the trust kitty, I don'tthink there should be any problem. As long as the child is minor,there can be no adverse tax consequences. If there wasn't a taxliability upon the initial introduction of funds into the corpus, notax event arises on a second helping as well. The income the trustearns keeps getting added to the trust's corpus. So the trust'scorpus isn't static anyway. The tax consequence would be only on thetrust itself—on the income it earns on the investment of those funds.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=OlyijGXmIvjJERQM0UBw3JHAFB4BBmdTzcZ4QiMcv7bUZPKXWJw3cFQU5UADvWqnr8PhRbBp91Hsw_nOuQg-DUuXmtkypZt9wg, madhu tapuriah wrote:>> Res Sanjeev ji> good discussion in lucid manner.> Now i have to query on the matter>> when we say that We have had cases where the courts have ruledthat trusts, being>> individuals, are eligible to claim exemption from capital gains bymaking investments u/s 54, etc. CAN THE SAME RATIO BE APPLIED ANDTHUS CAN THE TRUST CAN CLAIM BENEFIT U/S 80C ???>> Second query is that once the family beneficiary trust is createdwhether the settler in the, say 3rd or 4th or subsequent years,againset aside any sum of money in the same trust as corpus withoutattracting any tax liability ??>> Regards> Professionally Yours> CA Madhu Soodan Tapuriah

Trust for benefit of Minor

Hi Pravin and Anoop,

The trust is an Individual for the purposes of assessment under theIncome tax law. It is an established law now that "individual" asdefined in the tax law isn't restricted to human beings alone. Atrustee is a representative assessee of the trust in terms ofSection 160 of the Act. The trust being an artificial entity, therehas to be a definite person upon whom the liability to discharge thetax obligations of the trust can be affixed. What status does arepresentative assessee have? Since the trust has a number oftrustees, the revenue often argues in favour of treating them asAOP. But the courts have had a different take on this each time thismatter came up before them.In CIT v. Deepak Family Trust (No. 1) [1995] 211 ITR 575/[1994] 72Taxman 406 (Guj), the Gujarat HC said:[It is now well-settled that the word `individual' does notnecessarily and invariably always refer to a single natural person.A group of individuals may as well come in for treatment as anindividual under the tax laws if the context so requires. Theword `association' means `to join in any purpose' or `to join inaction'. Therefore, `association of persons' as used in section 2(31)(v) of the Income-tax Act, 1961, means an association in which twoor more persons join in a common purpose or common action. Theassociation must be one, the object of which is to produce income,profits or gains. In the case of a discretionary trust, neither thetrustees nor the beneficiaries can be considered as having cometogether with the common purpose of earning income. Thebeneficiaries have not set up the trust. The trustees derive theirauthority under the terms of the trust deed. They are merely inreceipt of income. The mere fact that the beneficiaries or thetrustees, being representative assessees, are more than one, cannotlead to the conclusion that they constitute an association ofpersons. The trustees of a discretionary trust have to be assessedin the status of `individual' and consequently, deduction undersection 80L of the Act, is allowable to them."]We have had cases where the courts have ruled that trusts, beingindividuals, are eligible to claim exemption from capital gains bymaking investments u/s 54, etc.And I don't think the fastening of liability to make TDS u/s 194C ona trust by means of a separate entry under clause (h) in sub-section1 (if trusts are individuals, wouldn't they be covered by clause (k)anyway?) takes away from our argument that trusts ARE individuals.It is just that a trust is a special kind of individual. All thesame, a trust would be entitled to be taxed on slab basis just likean individual assessee.And Anoop, please note that the M R Doshi judgement would hold goodonly so long as the amount of income keeps getting accumulated tillthe minor kid turns 18. In the event the trustees distribute theincome even whilst the child is still a minor, the trust would bejust a smoke screen and a façade. We can outsmart the revenue bycreating a trust as a Special Purpose Vehicle to hold the incometill the minor beneficiary becomes major. If the trustees aren'tgoing to wait till the beneficiary turns major and startdistributing the income right away, they'd simply be hoodwinking thelaw and making a mockery of Section 64(1A).Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=ZIbpXjQBulN4NjUCUo98eLgUMeA8dcJ_whUVrvVy9KcT9sLWTNS5Zu46keBxdMEYG_euFk8eFqM8ZfML3Gr-G2nrHVz0sHvBgQ, pravin saraswat wrote:>>>> Dear Sir,>> Please further supplement your reply with the tax rates applicableto> such trust and if it is going to be taxed in the highest slab, then> the quantum of tax benefit to be derived in the both situations> ie. Clubbed Income Vis-a-vis Private Trust Income.>> With high regards>> PRAVIN SARASWAT>> 9829063908>> To: banoop@...: ICAI_CIRC_MEERUT_CA@...: sanjeevbedi2001@...: Tue,3 Feb 2009 08:49:06 -0800Subject: {amresh's-CA's} Re: Query onPrivate Trust>>>>>>>>> Hi Anoop,>> This is quite a settled issue. I had answered a similar queryabout a year back. You may go through Message No 22767. The incomeof the trust set up for the benefit of the minor can never be taxedin the hands of the parent. The trust is an assessee in its ownright. Setting up a trust for the benefit of the minor is therecommended way to bypass the provisions of Section 64(1A).>> We have the judgement of CIT Vs M R Doshi [1995] 211 ITR 1 (SC) toconfirm the above view.>> And the fact that the grandfather has floated the trust wouldn'tmake a difference—the income of the trust will be always taxable inthe trust's hands, and never in the trustee's hands. In any case,even if the grandfather directly transfers a source of income to hisgrandchild, there can be no clubbing. Section 64(1A) doesn't applyto transactions between grandparents and grandchildren.>> Thanks,>> CA Sanjeev Bedi--- On Fri, 1/30/09, Anoop Bhatia wrote:> From: Anoop Bhatia Subject: Query on PrivateTrustTo: "Sanjeev Bedi" Date: Friday, January30, 2009, 11:32 AMRespected Sanjeev ji>> I wanted to know the treatment of taxation of income of a trustwhich is> created by a father for benfit of minor son. Does the income insuch cases> revert to the hand of parent or it will remain seperately taxablein the> hands of private trust only. The question assumes significane inthe wake> of usage of private as a tax planning tool, becuase if a parentdirectly> trasfers some source of income to the minor the income will revertfor> taxation in the hands of parent only (assuming that such parenthas higher> income to the other). So here in place of transferring the sourceto minor,> if it is transferred to a private trust would still clubbingprovisions of> section 64(1A) prevail.>> In above case if the trust is created by Grand Father for thebenefit 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 abovebecomes> taxable in the hands of parent and not in the hands of trust thenwhat is> the sense of creation such trust. Your valuable opinion on boththe 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 answeringthis query> you may mark a copy to gruop for the benefit of all.>> Warm regards>> Anoop Bhatia> Jaipur>>>>>>>>

FBT and disallowance u/s 40A(9)

Hi Mr Devarajan,

Why do you need to pay FBT on contribution to a staff welfare fundat all? Since such an expense gets disallowed u/s 40A(9), the matteris settled there. The government can't both disallow an amount andexpect us to pay FBT on it as well. The idea behind FBT was to curbthe practice of perquisites enjoyed collectively by employees goinguntaxed in their hands owing to it being practically impossible toattribute an appropriate quantum of those benefits to the individualemployees. While the employer got to knock such expenses off hisincome. The government felt—-not entirely unjustifiably—-it wasgetting swindled out of its legitimate share of revenue—-since oneperson's expense is another person's income, if the former savestax, the latter ought to pay tax to even the scales. Since itwouldn't have been practical to attribute a collective expense likelabour welfare to individual employees and make them pay tax on it,the government made the employer cough up a fringe benefit tax at acertain percentage of the expenses incurred on the workforce.Since in your case we have a specific provision for the disallowanceof contribution to any unrecognized fund, the amount will bedisallowed and there would be no question of paying up the FBT onit.May be if you want to camouflage the nature of this expense in orderto claim it under the head labour welfare, then you'd have to paythe FBT on it.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Devarajan.V." wrote:>> Any contribution to staff benefit fund other than PF, Gratuityetc.> will not be allowed as business expenditure u/s 40A(9). In suchcase,> whether this should be taken under employee welfare for thepurpose of> calculating FBT?>> CA Devarajan.V>

TDS on freight paid on seller's behalf

Hi Mr Sharvari,

I disagree with you. I didn't quite get what you meant by "the onuspasses on to the assessee". Section 194C opens with the words "anyperson RESPONSIBLE for paying any sum". Who in this case—payment tothe transporter made by the buyer on the seller's behalf and debitedto the latter's account—was the one responsible for paying freightto the transporter? The supplier of goods, it seems. Normally it'sthe customer who shells out the freight as the custom of "To-pay" GRis in vogue at most places. But in this case, the goods seem to havebeen supplied on an FOR basis; but the supplier didn't pay up thetransporter when the truck left the destination. Transporters areoften paid only part of the freight when they set sail. The customerupon proper delivery of the goods settles the freight bill anddebits the seller's account, as mutually agreed upon.In such a case, since the customer merely acts as the agent of theseller, it's the seller who'd be responsible for making the TDS.What the customer should do is withhold the tax payment out of thefreight payable and transfer the entry to the supplier. The supplierwould deposit the TDS and comply with the law.As long as it isn't a "To-pay" GR, I don't think the customer can becalled upon to deduct TDS. Section 40a, which disallows the expensefor non-deduction of TDS, targets the assessee who books the expenseand not the one who pays it on someone else's behalf and debits totheir account. Since there's no question of disallowance of thefreight amount in the customer's hands and it's the seller whose taxauditor would report this non-deduction of TDS on the amount offreight claimed as expense, it's logical to conclude that thecustomer can not be made liable for the consequences that ensue uponnon-deduction of TDS.And Mr Jain, disallowance would be applicable only for expenses onwhich TDS was DEDUCTIBLE. If an erroneously-deducted TDS isdeposited late, I don't think there can be any disallowance, basedon the language deployed in section 40a(ia). But once deducted,you're holding the tax amount in a fiduciary capacity as the trusteeof the government. So in case you don't turn it over to thegovernment within time or don't file the TDS return, issue TDScertificate, etc you'd be liable to the penal consequences.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, sharvari.murkute@...wrote:>> Dear Mr Jain>> Yes TDS needs to be deducted because the onus passes on to theassessee.> When the supplier reimburses the amount, it is assumed that allthe> applicable laws has been adhered to.>> I think the 40(a) disallowance should not apply as first of allthe> aforesaid courier expense has not been claimed as an expense inthe first> place for it to be disallowed.>> Dear All>> I have joined this group very recently and i must say that thediscussion> is quite lively>>>>>>>> "R D JAIN" > Sent by: ICAI_CIRC_MEERUT_CA@yahoogroups.com> Oct 03 2008 05:05 PM> Please respond to> ICAI_CIRC_MEERUT_CA@yahoogroups.com>>> To> ICAI_CIRC_MEERUT_CA@yahoogroups.com> cc>> Subject> {amresh's-CA's} TDS on expenses>>>>>> Dear All,>> If an assessee pays tansport Charges on behalf of supplier anddebit> it to suppliers a/c. in books, whether TDS need to be duductedU/s.> 194C on such paymnets.> Also if TDS is not applicable and the same has been duducted butpaid> paid late to the Govt.(in june 08), whether 40a disallowance is> attracted.>> Thanks> R D Jain>

Is interest u/s 234 B/C applicable?

Hi Ramji,

Advance tax Funda is simple. The governing section of advance tax—Section 208—says in EVERY case where the tax liability is upwards ofRs 4999, you've got to fill out ITNS 280. Of course you can takecredit to the extent the others have filled out ITNS 281 to depositthe TDS made on income credited into your account.No matter how many firms the assessee was partner in and how manybusinesses he was drawing income from closed down during the year,if the tax payable by him on the income earned during the yearexceeds Rs 5000, he's got to have paid that tax during the course ofthe financial year itself. Advance tax provisions are based on thepay-as-you-earn scheme—the government needs money; you can't keepthem waiting till you've finalized your accounts and ascertainedyour exact income. Section 234B and 234C seek to penalize assesseeswho've shied away from paying as they earned.We are unnecessarily obfuscating the issue by introducing theconcept of "old" and "new" businesses here. The assessee hasremained the same throughout the year, hasn't he?! He was always inthe know of what was going on—the firm dissolving, the turnoverpeaking towards the fag-end of the year. Only the partnership firmcan take credit for the advance tax paid in Sept and Dec 2007. Hissituation is understandable--he wouldn't have deposited the advancetax in Sept and Dec 2007 if he had had a prognosis that the firmwould breathe its last post 15 Dec 2007. But then doesn't thatdissolved firm stand to claim a refund along with interest u/s 244Aon account of the excess advance tax paid during the year? Iunderstand your client may not have had anything to do with thatfirm any more and it'd be little comfort for him to know about this.What about the ITR of the firm? Was a refund claim lodged? Wouldyour client be entitled to a share in it when it is finallyreceived?The other argument of your client about the turnover having soaredtowards the end of the year isn't sustainable for a nanosecond. Icopy-paste below the proviso to Section 211(1):[Provided that any amount paid by way of advance tax on or beforethe 31st day of March shall also be treated as advance tax paidduring the financial year ending on that day for all the purposes ofthis Act.]So even if the turnover shot thorough the roof in the last fortnightof the year, he had till the evening of 31st March 2008 to haveknown about it. The previous instalments can't be a day later than15 Sept/Dec. Since the year is drawing to a close when the due datefor depositing the last instalment of advance tax approaches, thegovernment has very wisely granted a grace period of 15 days indepositing the last instalment of advance tax. Tax deposited till31st March will be deemed to have been deposited on or before 15thMarch itself. This is aimed at giving the assessees a chance to havea more accurate measure of their income so that the advance tax isthe closest approximation of the final assessed tax, and theassessees are spared the hardships of Section 234B and C. Theproviso to Section 234C too recognizing the windfall nature of thecapital gains and lottery winnings allows the assessee time till31st March of the year to deposit advance tax.So the sudden rise in turnover argument to save 234B/C interest goesout the window.The CBDT does have the powers u/s 119(2)(a) to waive interest u/s234A/B/C. To be sure the CBDT has come out withcirculars/notifications (Notif. F. No. 400/234/95-IT(B), dated 23-5-1996 and Circular No 783, dated November 18, 1999) laying down thecircumstances that warrant the waiver of penal interest underadvance tax provisions. But the CBDT empowers the ChiefCommissioners to waive interest in cases like where the books havebeen seized in a search operation and the assessee isn't in aposition to prepare his accounts; receipts hitherto thought to beexempt have become taxable consequent to a SC judgement or anamendment in the law, etc.Based on the facts narrated by you, your client doesn't have asnowball's chance in hell to get the interest u/s 234B and C waived.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Ramji" wrote:>> I have an unusual issue.>> An individual client of mine, has started a new business from Dec> 2007. He was earlier a partner in a firm and the firm dissolved ason> Dec 2007. He continues to do the same business in his individualname> and has got all the required registrations.>> Now when we were computing his income for filing, he fell short ofthe> tax payment and had to make a large self assessment payment ofincome tax.>> The question is>> Will interest u/s 234 be applicable?>> My arguement to him is that it is his business to estimate hisincome> and pay the advance taxes accordingly. So he is liable for interest> u/s 234.>> His arguement is he was not aware that the firm would split andhence> had paid advance taxes for Sep and Dec on the old basis. However,the> turnover has also peaked in the end of March 2008 and so he wasalso> not aware that this turnover would come, when he paid his advancetax> in March 2008. He says that due to this, he is not liable tointerest> and is willing to now fight it out with the IT department?>> What are the views of my friends in this forum? Is 234 interest> applicable? If so, why? If not, also give reasons, to buttress my> client's case.>> Ramji>

More on Interest u/s 234C

More on Interest u/s 234C
Tuesday, October 7, 2008

Hi Mr Devarajan,

You are right. I shouldn't have worded it the way I did. It came out sounding like I believed there could be a respite from Section 234C interest if the assessee deposited the advance tax by 31st March. The assessee stands to gain in terms of saving of penal interest under Sections 234A and B only if he deposits tax till the last day of the year. Ramji, I have come across a Rajasthan HC judgement that ruled that interest u/s 234C won't be attracted if the assessee hasn't at all deposited any advance tax during the year. Although this judgement won't come to your client's rescue since he did deposit some advance tax during the year. Just for the sake of sharing, I am discussing it below.Section 234B talks of "defaults" in payment of advance tax; section 234C talks of "deferment" of advance tax. The legislature clearly seems to have looked at the two terms differently in the sense that you can't have deferred your responsibility to deposit advance tax if you had defaulted in it. In other words, both these contraventions can't be made simultaneously. Default occurs when you fail to do something that you should've done. You fail to deposit advance tax or the amount deposited by you isn't adequate (90 per cent), then you're liable to penal interest. But "deferment" it seems presupposes the presence of some amount of advance tax instalment being there in the first place. When we have got no instalments of advance tax to begin with, where's the question of shortfall? Section 234C does say like "where the assessee who is liable to pay advance tax HAS FAILED TO PAY SUCH TAX, or […….] and then it goes on to state how in the absence of prescribed percentage of advance tax instalments being deposited on the 15th of Sept, Dec and March, the assessee would be liable to the penal interest. So the text of Section 234C doesn't seem to lend itself open to the interpretation that this section won't be applicable in a situation where the assessee has deposited Zero advance tax. But if we omit the words following the coordinating conjunction "Or", and connect the text appearing after the word "then" in there, this is how it reads:[Where the assessee who is liable to pay advance tax under section 208 has failed to pay such tax, then […] the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income;]Arithmetically speaking it is still possible to argue that Zero also constitutes an amount; and we can calculate the shortfall by reducing zero from 30/60/100 per cent of the tax and charge interest thereon. But linguistically speaking, I think the department is on a sticky wicket in insisting on charging interest u/s 234C where the asseesee hasn't deposited a single penny of advance tax during the year. If I attempted a high jump of 10 feet but managed only 6 feet, then you can say I "fell short" by 4 feet. But if I didn't even try the jump, can you say that I "fell short" by 10 feet?!! In the absence of any available figure of advance tax, we've got nothing to measure the figures of 30/60/100 per cent against. So I don't think advancing (no pun!) the argument that Section 234C isn't applicable in a case where the advance tax is Zero is totally unsustainable— it does hold water, may be a few droplets.The Rajasthan HC judgement that said interest u/s 234C wasn't called for in the event of there being no advance tax before 31st March is CIT v. Smt. Premlata Jalani [2003] 264 ITR 744.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Devarajan.V" wrote:>> Dear Sanjeevji,> > You have mentioned that, "Since the year is drawing to a close when the due> date > for depositing the last instalment of advance tax approaches, the > Government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. "> > This portion is not clear to me. Where is this deeming provision for 234C?> In fact the Department is collecting 1% interest for one month for the> shortfall arrived at after the remittance of 15th March. Deeming provision> may only help for interest U/S 234A and B. Please clarify.> > CA Devarajan.V> >> Hi Ramji,> > Advance tax Funda is simple. The governing section of advance tax—> Section 208—says in EVERY case where the tax liability is upwards of > Rs 4999, you've got to fill out ITNS 280. Of course you can take > credit to the extent the others have filled out ITNS 281 to deposit > the TDS made on income credited into your account. > > No matter how many firms the assessee was partner in and how many > businesses he was drawing income from closed down during the year, > if the tax payable by him on the income earned during the year > exceeds Rs 5000, he's got to have paid that tax during the course of > the financial year itself. Advance tax provisions are based on the > pay-as-you-earn scheme—the government needs money; you can't keep > them waiting till you've finalized your accounts and ascertained > your exact income. Section 234B and 234C seek to penalize assessees > who've shied away from paying as they earned. > > We are unnecessarily obfuscating the issue by introducing the > concept of "old" and "new" businesses here. The assessee has > remained the same throughout the year, hasn't he?! He was always in > the know of what was going on—the firm dissolving, the turnover > peaking towards the fag-end of the year. Only the partnership firm > can take credit for the advance tax paid in Sept and Dec 2007. His > situation is understandable- -he wouldn't have deposited the advance > tax in Sept and Dec 2007 if he had had a prognosis that the firm > would breathe its last post 15 Dec 2007. But then doesn't that > dissolved firm stand to claim a refund along with interest u/s 244A > on account of the excess advance tax paid during the year? I > understand your client may not have had anything to do with that > firm any more and it'd be little comfort for him to know about this. > What about the ITR of the firm? Was a refund claim lodged? Would > your client be entitled to a share in it when it is finally > received? > > The other argument of your client about the turnover having soared > towards the end of the year isn't sustainable for a nanosecond. I > copy-paste below the proviso to Section 211(1):> > [Provided that any amount paid by way of advance tax on or before > the 31st day of March shall also be treated as advance tax paid > during the financial year ending on that day for all the purposes of > this Act.]> > So even if the turnover shot thorough the roof in the last fortnight > of the year, he had till the evening of 31st March 2008 to have > known about it. The previous instalments can't be a day later than > 15 Sept/Dec. Since the year is drawing to a close when the due date > for depositing the last instalment of advance tax approaches, the > government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. This is aimed at giving the assessees a chance to have > a more accurate measure of their income so that the advance tax is > the closest approximation of the final assessed tax, and the > assessees are spared the hardships of Section 234B and C. The > proviso to Section 234C too recognizing the windfall nature of the > capital gains and lottery winnings allows the assessee time till > 31st March of the year to deposit advance tax. > > So the sudden rise in turnover argument to save 234B/C interest goes > out the window.> > The CBDT does have the powers u/s 119(2)(a) to waive interest u/s > 234A/B/C. To be sure the CBDT has come out with > circulars/notificat ions (Notif. F. No. 400/234/95-IT( B), dated 23-5-> 1996 and Circular No 783, dated November 18, 1999) laying down the > circumstances that warrant the waiver of penal interest under > advance tax provisions. But the CBDT empowers the Chief > Commissioners to waive interest in cases like where the books have > been seized in a search operation and the assessee isn't in a > position to prepare his accounts; receipts hitherto thought to be > exempt have become taxable consequent to a SC judgement or an > amendment in the law, etc. > > Based on the facts narrated by you, your client doesn't have a > snowball's chance in hell to get the interest u/s 234B and C waived.> > Thanks,> > CA Sanjeev Bedi> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Ramji" > wrote:> >> > I have an unusual issue.> > > > An individual client of mine, has started a new business from Dec> > 2007. He was earlier a partner in a firm and the firm dissolved as > on> > Dec 2007. He continues to do the same business in his individual > name> > and has got all the required registrations.> > > > Now when we were computing his income for filing, he fell short of > the> > tax payment and had to make a large self assessment payment of > income tax.> > > > The question is> > > > Will interest u/s 234 be applicable?> > > > My arguement to him is that it is his business to estimate his > income> > and pay the advance taxes accordingly. So he is liable for interest> > u/s 234.> > > > His arguement is he was not aware that the firm would split and > hence> > had paid advance taxes for Sep and Dec on the old basis. However, > the> > turnover has also peaked in the end of March 2008 and so he was > also> > not aware that this turnover would come, when he paid his advance > tax> > in March 2008. He says that due to this, he is not liable to > interest> > and is willing to now fight it out with the IT department?> > > > What are the views of my friends in this forum? Is 234 interest> > applicable? If so, why? If not, also give reasons, to buttress my> > client's case.> > > > Ramji> >

Claiming STT rebate against MAT

Hi Mr Gala,

I don't see any reason why STT can't be claimed against MAT profits. Section 88E lays down the pre-requisite that to be eligible to claim rebate on account of Securities Transaction Tax, the assessee must have income under the head "Profits and gains of business and profession". Now Chapter XII-B of the Act, which contains Section 115JB that levies MAT, is titled "Special provisions relating to certain companies". Section 115JB requires companies to shell out a minimum of 10 per cent of their book profits towards income tax. If the tax by regular computation doesn't work out to that amount, an amount equal to 10% of the book profits of the company acts as the company's surrogate Total Income. This method bypasses the normal method of computation of total income whereby we determine the income under each head and then aggregate them to arrive at the figure of total income. Just because Section 115JB creates a fictional total income, it shouldn't mean we lose the right to examine the individual components of that income. Section 115JB doesn't lay down any new definition of the term "total income". It merely provides for an alternative method of finding out the total income in certain situations. So going by the usual definition of total income, we can still argue that the total income even if it is determined in an ad hoc fashion u/s 115JB continues to have its components—like the business income, house property income, capital gains and so on. Since the company had had business profits, it would be eligible to claim STT rebate u/s 88E irrespective of the fact that it's had to arrive at its total income in the manner it was required to under Section 115JB. I think you can assign weights based on the composition of your regular total income to the total income computed u/s 115JB to determine the percentage share of the business income from securities transactions therein. But then where's the need to do it? You already have the average rate of tax in MAT—10 per cent. Just apply this rate to the income from the STT transactionsThanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "galavilas" wrote:>> Hello,> Can anybody advice me if We can claim STT rebate against tax payable> under section 115JB(MAT).An early reply will be highly appreciated.> > Vilas M. Gala

Receipt of Share Application money in Cash and Section 269SS

Hi SanJosh, Deepakji and everyone,

Here's my take on this:Section 269SS came to grace the statute book on 30th June 1984. To get under the skin of a provision we must first understand what was the mischief that was sought to be curbed by the introduction of that provision. So let's see how CBDT Circular No 387 dated 6th July 1984 tried to explain the rationale behind the insertion of Section 269SS:[Unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 269SS in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.]The present-day threshold of loan/deposit, crossing which you may fall foul of Section 269SS, stands at Rs 20000 of course. So that was the mischief: Unscrupulous assessees explaining away excess cash found in their possession as loans/ deposits accepted from relatives/friends. As there was no way to trace the movement of cash, the authorities could only allege some hanky-panky on the part of the assessee; they could never prove it. So it was thought how about making it mandatory to accept loans/deposits of Rs 20k or more by way of account payee cheques/bank drafts only. The bank statement will constitute a reliable evidence of the loans actually having come to appear in the assessee's books by bona fide entries only and not having been arranged posthumously after a situation where an assessee having to explain the cash in his possession had arisen. I don't have any quarrel with Section 269SS as such, although I am vehemently opposed to its reciprocal Section 40A(3), which debars payments exceeding Rs 20k (Mind you Section 40A(3) applies to payments of Rs 20001 and above, but Section 269SS applies to receipts of more than Rs 19999. I know at least one case where an assessee landed in huge trouble for not having made this distinction! ). So section 269SS I think is a perfectly legitimate provision meant to protect the interests of the revenue. I feel to decide how far and wide the meaning of the word "deposit" as envisaged in Section 269SS would cast its net, we should do an honest introspection without being prejudiced in the assessee's favour. Considering the huge scope of tax evasion in the absence of Section 269SS being there on the Act, I would rather be tilted towards the revenue's side on this one. If we contend that share application money isn't covered u/s 269SS on account of it neither being a deposit nor being a loan, couldn't this open the floodgates especially for private companies—which we know are nothing but glorified family enterprises—to just brush away unaccounted cash as the amount received towards application money for allotment of shares and then go on to allot shares (to shareholders and their relatives)? But wait a minute! There's another legislation known as the Companies Act, 1956. If we look at the provisions of that Act, it seems there are ample safeguards to make sure the directors of even private companies can not use the media of share application money as a peg to hang their ill-gotten wealth on. Section 69(4) of the Cos Act requires all application monies received from potential shareholders to be kept deposited in a scheduled bank and to remain there till the time the shares are allotted. There's a requirement under the Cos Act to put a kind of lock on the share application money till the entire amount payable on application of shares is received. So there doesn't seem to be any way an assessee-company found in possession of unaccounted for cash could get off the hook by asserting that the excess cash was on account of share application money it had received towards allotment of shares it was planning. The share application money would be lying stashed away in a scheduled bank and not in the company's cash till. Also, here is an extract from section 69(4) of the Cos Act:[…..and the sum payable on application for the amount so stated has been paid to and received by the company, whether in CASH or by a cheque or other instrument which has been paid.]So as far as the Cos Act is concerned, there certainly is no bar on the company accepting share application money in cash initially.The Jharkhand HC in Bhalotia Engg (P) Ltd's case doesn't at all seem to have given thought to these points. All it bothered about in its entire judgement was whether share application money partook of the character of a Deposit. I too believe share application money to be purely deposit until the shares get allotted, but that isn't the end of the matter. To decide whether section 269SS gets attracted or not in this case, one needs to look much further. If whether or not an amount of Rs 20K or more constitutes deposit was all it took to impose penalty u/s 271D, all those accepting cash advances towards sale of buildings, machineries, etc and later returning those consequent to a transaction not having come through would be held guilty of contravening Section 269SS. So in my view the Jharkhand HC didn't take the totality of the circumstances surrounding a transaction involving share application money into view in delivering this judgement. A penalty u/s 271D wasn't called for, in my arrogant opinion. A Caveat: Receipt of share application money in cash had better be avoided. Accept only crossed cheques and the like. Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Sanjeev Josh" wrote:>> > Dear Deepak Ji,> > Thanks a ton for pointing out the disturbing decision in case of> Bhalotia Eng. Works handed out by the Hon'ble JHARKHAND High Court.> > I have no hesitation in admitting that this decision had not been> noticed by me. I would love to go into the depth of the issue now.> > Thank you for pointing it out. That's the beauty of this group! Thanks> Amresh Ji for being there!> > Tax is a ocean. The expert a little individual on a paddle boat! The> distance he travels depends on the strength of his/her leg muscles! The> depth to which he/she could dive depends upon the capacity and the> ability of the lungs to hold air. The correct direction he/she travles> depends on the little compass he/she has with him/her in the form of> books, case-laws etc AND the friends like you who guide him/her as a> NORTH STAR!> > Thanks Deepak for twinkeling like the NORTH STAR! making me a poet !>> > Deepak I have a request: You attached an attachment to your message. I> have not been able to access it. Could you please send it to me at my> email worldsbestca@ ... ?> > I would love to investigate the Hon'ble JHARKHAND High Court.> > I would love to see how how the principle of "Purposive interpretation"> have been applied by the said Hon'ble High Court.> > s far as my knowledge goes "Purposive interpretation" rule is to some> extent an extension of the literal rule and under it the words of a> statute will as far as possible be construed according to their> ordinary, plain, and natural meaning, unless this leads to an absurd> result. It is used by the courts where a statutory provision is capable> of more than one literal meaning and leads the judge to select the one> which avoids absurdity, or where a study of the statute as a whole> reveals that the conclusion reached by applying the literal rule is> contrary to the intention of Parliament.> > Thanks again.> > Sanjeev Josh FCA IRS> >> > Dear Friends> > With due respect to everybody I wd like to point out a disturbing> decision in case of Bhalotia Eng. Works handed out by the JHARKHAND HC.> which is disturbing & has been commented upon as wrong one by many> experts, but still the discussion on the same is worth noting. Pl find> enclosed herewith in a separate file the material I have on the subject.> The same has previously been published in various magazines of TAXMAN.> > Â> > CA DEEPAK GADGIL> > SOLAPUR, MAHARASHTRA> >> > --- On Mon, 22/9/08, Sanjeev Josh worldsbestca@ wrote:> >> >> > Dear Sandeep,> > I would tend to cast my vote with you!> > Your answer is more likely than not the correct one.> > Cross the fingers!> > Sanjeev Josh FCA> >> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "sandeep agrawal"> wrote:> > >> > > Dear Sir,> > >> > > Share Application money is neither Loan nor deposit so in my view> 269ss not> > > applicble in this case.> > >> > >> > > Regrads> > >> > > Sandeep Agrawal> > >> > >> > > On 9/20/08, manish saraogi man_saraogi@ ... wrote:> > > >> > > > Section 269SS covers acceptance of both loans as well as deposits> and> > > > if the aggregate amount is in excess of Rs. 20000/-, then there is> a> > > > voilation.> > > >> > > > Acceptance of Share application in cash will fall within the> purview of> > > > Section 269 SS.