Detaxification

There is a need to speed up the litigation procedure

2011-01-25T02:31:00.000-08:00

Tax law as M&A facilitator

Much has been written about the funding aspects of the iGATE-Patni deal. Here is a look at the transaction from a taxation perspective, as extracted from a recent email exchange between Business Line and Mr Sujit Sircar, CFO, iGATE ( http://bit.ly/F4TSujitSircar). Excerpts from the interview:

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'For various reasons, the Kelkar Committee has never been implemented in its fullest form and shape'

2010-01-07T02:19:00.000-08:00

Promise of a Code and a tax

As 2009 comes to a close, India Inc. and individual taxpayers alike would want to reflect on the overall thrust and direction and implementation of tax policy initiatives in India in this decade, begins Sudhir Kapadia, Tax Partner with Ernst & Young, India. “Tax policy, the lost decade?” he wonders, though, in the course of a recent email interaction with Business Line.

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Solar power is an almost infinite energy source

2009-11-20T01:04:00.000-08:00

Solar power needs funding focus

The ‘National Solar Mission’, expected to be released on November 14, 2009, is one of the eight missions identified in the Prime Minister’s National Action Plan on Climate Change (NAPCC). Quite naturally, therefore, expectations within the solar power community are high that the mission document will provide the impetus the industry seeks, says Santosh Kamath, a director in the advisory practice of KPMG.

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Expenditures rise to meet income

2009-08-19T03:18:00.000-07:00

How about a one-line code!

To all those who always felt incomplete only because of not knowing the income-tax law, the golden opportunity is soon to come, in the form of a fructified Direct Taxes Code, once the due process of Bill-turning-into-an-Act is over. The baseline has been drawn and we the novices and the tax experts are all on that, especially after Chiddu’s chiding of all the professionals who wanted to read the Code through the lens of the existing Income-Tax Act. Let’s get g oing, therefore.

F for ‘finance charges'

2009-08-19T03:16:00.000-07:00

The code, from A to Z

The best way to read anything is from A to Z. So, here is a quick guide to the new tax code.
First, A for ‘asset,’ and it means a business asset or an investment asset. What is business? It includes any trade, commerce or manufacture; any adventure, or concern of that nature; any profession; and any vocation.
Moving to C, let’s start with ‘child’, which, in relation to an individual, includes a stepchild and an adopted child of that individual. Relationship can be cultivated, you know; and ‘cultivation’ in the code includes any process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received by him fit to be taken to market.

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Small enterprises, especially the individually-owned, lack the resources to keep organised records of their economic activity

2009-07-24T01:56:00.000-07:00

Presumptive taxation should not be viewed as retrograde Detaxification

A Budget proposal that has attracted a lot of attention, interest and excitement among small businesses is the presumptive taxation scheme. The Finance Bill, 2009 seeks to extend the scheme to all businesses with gross receipts not exceeding Rs 40 lakh; at present, the presumptive scheme is applicable to three businesses — civil construction, retail trade and transporters. Presumptive income taxation is employed primarily in economies where ‘hard-to-tax’ taxpayers form the majority of the population and administrative resources are scarce, observes Mr T. G. Suresh, a Chennai-based chartered accountant, specialising in direct taxes.

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'Evasion has become an art, though not a desirable one'

2009-03-30T03:29:00.000-07:00

Top drivers of service tax

Born in 1994, and now aged 15, service tax is a healthy teenager, observes Mr S. Jaikumar, founder of Swamy Associates, Chennai. “With the developing of muscles (in the form of enforcement) I am sure it will grow stronger in the coming years,” he adds, during the course of a recent interaction with Business Line.

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'Cost reduction and optimisation of process are of prime importance to cope with today’s scenario'

2009-03-09T00:59:00.000-07:00

Developing R&D thru tax regimes

India does have a beneficial R&D (research and development) regime from a tax perspective, says Mr K. R. Sekar, Partner, Deloitte Haskins & Sells, Bangalore. He feels, however, that the R&D incentive regime can be made more robust and attractive by providing for higher super deduction, government grant for R&D, and extending the benefits to all industries.

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'The global economic meltdown has come with its own set of peculiarities'

2009-02-09T00:37:00.000-08:00

Challenge of recession to aggressive transfer pricing

Across the globe, there has been a substantial increase in transfer pricing (TP) audits and disputes, observes Mr Rohan K. Phatarphekar, Executive Director & National Head, Global Transfer Pricing Services, KPMG India. What are the factors contributing to the rise in TP audits? Mounting fiscal demands on governments, compelling need to conserve tax base, constant competitive pressures to structure the business operations efficiently, and an increased collaboration between revenue authorities, reasons Mr Phatarphekar, during a recent email interaction with Business Line.

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Can transfer of shares of the overseas company or a SPV to a buyer abroad be regarded as transfer of an asset located in India?

2008-12-15T03:21:00.000-08:00

An episode in Vodafone story

In the Vodafone case that was keenly watched for the past several months, almost since August of last year, the curtain is yet to fall, says Mr Pranav Sayta, Tax Partner and Tax Leader Transaction Tax, Ernst & Young. The ‘action’, if one may term it that, is set to move on to the Supreme Court of India, he adds, during the course of a recent email interaction with Business Line.

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'Weightage should be given to the commercial realities of today'

2008-12-08T03:04:00.000-08:00

Top transfer pricing issues the Budget should address

With global financial markets in turmoil, even as credit lines remain frozen, the major concern for the managements is the preserving of cash flow. To maintain profits or at least stay afloat companies in sectors such as real estate, aviation, information technology (including BPOs) have started downsizing their employee base, with the consequent negative impact on the economy.
"This is the appropriate time for the Government to introduce fiscal measures to withstand the global slowdown and give a boost to our economy," says Mr Vispi T. Patel, the head of direct tax practice at Economic Laws Practice (ELP), Mumbai.

The developed nations now look at India Inc. as good and favourable investors

2008-12-02T00:50:00.000-08:00

There's opportunity in every threat

An adverse outcome in the Vodafone case may hamper foreign investment flow into India and act as a barrier for investments into India, cautions Mr Magnus Johnsson, Global M&A Tax Head, PricewaterhouseCoopers. Companies would think twice before investing here as you don't want to pay tax (thereby reducing their effective returns) on selling the investments, he adds during a recent email interaction with Business Line.

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On the direct tax front, is there clarity for the EPC players?

2008-10-13T03:29:00.001-07:00

Averting double tax in EPC

Appropriate structuring of EPC (engineering, procurement and construction) contracts is essential to minimise both direct and indirect tax costs, says Mr Satish Aggarwal, Partner, Ernst & Young. He suggests that the establishment of one-to-one correlations between the individual activities and the considerations payable would help minimise the possibility of double taxation, something highly undesirable especially in the context of infrastructural pr ojects such as construction of dams, power plants, urban housing facilities and other areas of national importance.
For starters, the concept of EPC is quite common in the infrastructure, real estate and industrial construction sectors. “EPC contracts include all activities ranging from initial conceptualisation and design, providing or procuring the required goods and services from various sources, to construction, installation and commissioning of the project,” explains Mr Aggarwal, in the course of a recent email interaction with Business Line.

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Concessions — boon or bane?

2008-09-30T04:03:00.000-07:00

M. R. Rajaram

There are ongoing debates about tax concessions. Low tax rate with no concessions is simple and easy to operate, but is seldom adopted in practice. India has made some progress in this regard.
The merit of the tax concessions and how they should be viewed can be better understood through an analysis of one of the latest controversies relating to taxation of SEZs. As per the current regulations, SEZ developers and units are exempt from Min imum Alternate Tax (MAT). But now there are reports suggesting that MAT should be made applicable to them as well.

'The Finance Ministry is in favour of phasing out exemptions'

2008-09-22T02:56:00.000-07:00

Reduction in tax compliance burden, the most pressing need for corporates

Companies today consider compliances as a top priority item, says Mr Ajay Kumar, Executive Director, PricewaterhouseCoopers. "Companies feel that going forward there will be an all-round increase in the challenges they face today covering direct tax, international tax and indirect tax," he adds during a recent interaction with Business Line, over the email.

'At present, the dispute resolution mechanism in India moves slowly'

2008-09-15T02:14:00.000-07:00

Issues that tax companies

The new direct tax code that the Government is planning to introduce, to replace the current Income-tax Act, is expected to emphasise transparency and taxpayer-friendliness. Similarly, making suitable amendments in the indirect tax provisions would be a welcome step towards getting more clarity and achieving simplification and transparency. While such moves encourage not only tax compliance but also convey the right messages to the tax paying community, there is a need, in the interregnum, to look at a few current issues that worry corporates, says Mr Uday Ved, Head of tax and regulatory services, KPMG India.

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'Trademarks may be created either by publicity and advertisements or by continuous R&D'

2008-09-11T02:53:00.000-07:00

When the going gets tough for foreign taxpayers

Globalisation has brought in not just newer methods of conducting business but also controversies, in the taxation space. Of late, one has seen a spurt in the number of taxation-related decisions by various tribunals and courts.
An expert in the field of international taxation, Mr S. P. Singh, Senior Director with Deloitte Haskins & Sells, India, has been closely associated with the development of transfer pricing and international taxation in India.

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What would be the impact of the AAR ruling?

2008-07-21T03:03:00.000-07:00

A favourable ruling on referral fee

Sometimes having something permanent can be a drawback. The Authority for Advance Rulings (AAR) in a recent ruling held that where a non-resident company had referred a potential customer to its Indian group company and received referral fees, the fees received being business income, would be liable to tax in India - only if it has a permanent establishment (PE) in India.
This means the absence of a PE may work out in an entity's (in this case Cushman & Wakefield Pte - CWS) favour as it doesn't have a permanent shop in the country. Says Mr Girish Mistry, Executive Director, PricewaterhouseCoopers Pvt Ltd, "The AAR ruled that referral fee was not royalty or fees for technical services and was not taxable in India as business income since CWS did not have a PE in India. Under the tax treaty provisions a non-resident's business income would be taxable in India only when it has PE in India."

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'TDS is very tedious'

2008-07-14T01:45:00.000-07:00

When the taxman tethers TDS to a time machine

TDS or tax deducted at source has been a bone of contention between the taxpayers and the taxman for sometime now. Failure to comply with TDS provisions results in possible disallowance of expense in the hands of the payer (or entity), besides interest and penal consequences. Naturally, most people believe in the old saying - TDS is very tedious, comments Mr Arvind Singhal, a Delhi-based chartered accountant.

'Significant increases in revenues and profits have been witnessed in victims of MBOs'

2008-07-11T01:44:00.000-07:00

MBO: Management or `managed' buyouts?

"MBOs were traditionally considered high-risk transactions, but in India they have proven to be good for companies and are considered an attractive option by managements. Significant increases in revenues and profits have been witnessed in victims of MBOs - Phoenix Lamps, Nitrix, Intelenet to name a few in India," says Mr Rohit Kapur, Head-Corporate Finance, KPMG, India. Explaining to Business Line over the course of an email interaction, Mr Kapur feels MBOs are also becoming the preferred option for company managements.

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'With the right software that frees up resources, customers can focus on more strategic tasks.'

2008-06-30T03:34:00.000-07:00

Tax managers focus more on compliance than planning

Tax managers of corporates, who are supposed to look at strategic tax planning, are spending more of their time looking after the tactical issues of tax compliance. The taxman has perhaps made them behave differently?
One can look at the situation from two sides. Either, compliance standards have been set very high which require more resources, or corporates have been ignoring compliance issues. There is a third side too, the role of authorities enforcing compliance. What's the solution? "A customised tax compliance solution to organisations based in India," says Mr Bharat Parmar, Vice-President (Business Development), BMR Managed Services, New Delhi.

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'The price of ATF in India is based on International Import Parity prices.'

2008-06-23T01:52:00.001-07:00

Taxes causing `turbulence' for domestic airline companies

Your air-ticket on important routes such as Mumbai-New Delhi just got more expensive. First, fuel surcharges were raised and now base fares have been upped. Prices of ATF or Aviation Turbine Fuel are being blamed as the fuel currently accounts for more than half of every hundred rupees spent by domestic airline companies on operations.
While it's true that ATF prices in India have risen from an average of Rs 21 per litre in 2004, to an average of Rs 70 per litre today - crude prices and ATF prices have always had a high correlation and so, the price rise is not unnatural.

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'India has entered into double taxation avoidance agreements (DTAAs) with various countries.'

2008-06-16T03:02:00.000-07:00

Liaison collision in the tax office

Just Do It! That's what Nike was told if you were to interpret the recent ruling by the Bangalore Income-Tax Appellate Tribunal (ITAT). The Tribunal reasoned that the US-headquartered Nike Inc. was purchasing goods by using the services of its liaison office. So, the office was only rendering services for the `purpose' of exporting goods. Such an activity does not create any taxable presence because of an exclusion provide for in the Indian laws.

'The most important factor that influences both fuel prices and government revenues, is the level of consumption in the economy.'

2008-06-09T01:29:00.000-07:00

‘Taxes are the smallest factor influencing fuel prices’

Will the impact of the duty reductions on the retail price of petrol and diesel really bring in any change, apart from short-term price reduction? Not much, if you ask Mr Vivek Mishra. Vivek is a tax partner based in New Delhi and leads the indirect tax practice of Ernst & Young in India. “In our view, these types of questions are slightly misplaced for one key reason. In a scenario of rising crude oil prices, the taxes on pe trol and diesel are a small component of a much bigger phenomenon,” says the expert, who has worked with several leading companies assisting them make the transition into the VAT regime. Business Line caught up with him over the email to quiz on the tax angle affecting fuel prices. Here’s what he had to say…
Excerpts from the interview:

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'If the `right to play' is considered as an asset, the franchisee would be subject to capital gains tax liability.'

2008-06-02T01:08:00.000-07:00

Taxing times for IPL?

The taxman is again on the prowl and this time the target seems to be the multi-million dollar Indian Premier League (IPL).While the Punjab Government is reportedly giving a "re-look" at the free security and entertainment tax exemption granted to Punjab Cricket Association (PCA) for hosting IPL matches, the Eden Gardens is the only stadium where the IPL is paying entertainment tax. And the income-tax department is supposedly looking at the income and expenses relating to players, cheerleaders, coaches, and even the moolah spent on ads.
Looks like the IPL matches, which have become a symbol of the innovative sports world, have attracted a lot of curiosity from those in charge of the coffers! Mr Aseem Chawla, Partner (Tax Practice Group), Amarchand Mangaldas, New Delhi, says, "One of the significant tax challenges with regard to ascertainment of taxability of team owners is due to the inherent nature of tradability of players in this format of game. Much would depend on how the contracts between the IPL and the team owners are interpreted by the tax authorities."

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'Defining `the environment' is more problematic'

2008-05-25T02:47:00.000-07:00

Should we be taxed for using the environment?

Countries such as the Netherlands, Portugal, and Finland have brought in differentiations into their car registration taxes so as to encourage buyers to opt for the `cleanest' car models. Indeed, taking into account congestion, pollution, and the fact that such green tax revenues allow other taxes to be cut - it seems quite a feasible option for the governments across the world. With over 80 per cent people in the world still aspiring to own their cars, mostly in Asia, the next few decades will be challenging for both carmakers as well as the environment-keepers. The stewardship of the natural environment is the responsibility of everyone. But do we practise what we preach? Speaking on this central theme, Mr David F. Williams of KPMG's Tax Business School in the UK shares a few thoughts with Business Line.

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'The absence of a clear reference to a case of demerger in Section 49 is now a common concern for companies'

2008-04-28T03:35:00.000-07:00

Is `demerger' route completely tax neutral?

Pharma companies have recently embarked on hiving off R&D arms. In other sectors too, such as real estate, power and infrastructure, demerger has led to creation of two companies from a larger but single entity. But does the value or wealth creation (depends on which side you are) come at a price? "The question which has always been a concern for companies undergoing demergers is whether the process of demerger can be said to be completely tax neutral," says Mr Anil Talreja, Senior Manager M&A Tax, Deloitte Haskins & Sells. While joining up two companies (via the amalgamation route) enjoys tax benefits, the case of demerger does not find a specific reference in Section 49 of the Income-tax Act, 1961, he told Business Line in a Q&A session done over e-mail.
Excerpts from the interview:

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Shares of a non-resident company, which have been transferred, as per the facts of the case, could in no way be said to be situated in India.

2008-03-10T02:21:00.001-07:00

Is the ‘assessee in default’ amendment aimed at Vodafone?

Does Vodafone have something to worry about in the latest Finance Bill? Seems so, according to tax experts, who cite the proposed amendment to Section 201 of the Income-Tax Act, 1961 about ‘assessee in default’.
Significantly, the planned tax change is to be retrospective, travelling backwards by more than five years.

The hallmarks of good governance

2008-03-04T02:05:00.000-08:00

Ancient wisdom for the Budget season

He is ‘the light of kings’ who has bounty, justice, care and grace, reads Kural 390 of Thiruvalluvar, as translated by Suddhananda Bharati, in a chapter titled ‘the grandeur of monarchy’. The Finance Minister, P. Chidambaram, adapted the couplet to read, ‘Generous grants, compassion, righteous rule and succour to the downtrodden are the hallmarks of good governance,’ towards the end of his Budget Speech.

'For most TDS provisions, there is no requirement for the payer to be a resident'

2008-03-04T02:02:00.000-08:00

Can TDS provisions be made less tedious?

You can blame it on the abbreviation, but TDS (tax deduction at source) rhymes with tedious, as if in empathy with the plight of tax students and practitioners.
To add to the dreariness of the exercise involved in the levy, there is a perception that the TDS rates are too high, and that the Government is bent on keeping the rates at a particular level, since the collection impacts the cash flow.
“No, not all the rates are high,” says Mr Ketan Dalal, Executive Director, PricewaterhouseCoopers. “For example, the rates on salaries mirror the normal tax rate and others, such as on interest or several cross-border payments, seem to be appropriate.”

The need to simplify Indian tax laws

2008-03-04T01:58:00.000-08:00

Budget preoccupations of professionals

In the run-up to Budget 2008, Business Line has been interacting with many accounting and tax professionals to know their views on what proposals are needed. Here are a few snatches. Individual taxation.
“It is that time of the year when everyone waits with bated breath to check out the benefits that may be dished out by the Finance Minister in his Budget,” says S. Rajesh, Tax Director, Global Tax Advisory Services, Ernst & Young (E&Y). Not many tax benefits have been given to the individual taxpayers in the past few years despite the buoyancy in the economy and increase in direct tax collections, he adds.

'The current policy is cautious in opening up retail'

2008-02-11T00:58:00.000-08:00

Retail boom in the indirect tax web

While retailers are concerned about the high cost of real-estate, the recent levy of service tax on ‘renting of immovable property” is likely to be an added cost to the companies in the absence of any taxable output service offered by them, says Mr Varanasi Suresh, a Gurgaon-based expert in indirect taxes. It is noteworthy that there is no tax credit set-off available between service tax and VAT (value-added tax), he adds, during an e-mail exchange with Business Line, on the key challenges for retail and the associated indirect tax costs.

Nations cannot ignore common minimum rights of people even across the border

2008-01-28T01:48:00.000-08:00

International taxation has become complex

Complex tax laws pose problems both in interpretation and implementation. Which is why tax legislation and treaties should be simple and understandable to the common man and those in trade, reasoned Chief Justice Swatanter Kumar of the Bombay High Court when speaking at the International Tax Conference, organised by IFA (International Fiscal Association) India and the OECD (Organisation for Economic Cooperation and Development), in Mumbai on Wednesday.

`The four components of tax'

2008-01-21T02:28:00.000-08:00

When ESOPs had to sweat it out

A sweat equity case had to sweat it out at the apex court recently. It was about the ESOP (employees stock option) scheme of Infosys, the Bangalore-based information technology giant.
As you may know, the current law is clear. The benefit arising under an ESOP is taxable as fringe benefit tax (FBT) on the date on which the options vest with the employee; and FBT is payable by the employer at the time of allotment or transfer of shares to the employee. Further, the employer has been given an option to recover the FBT from the employee.

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To know how others have addressed a particular tax issue is the key to develop a better solution

2008-01-17T00:36:00.000-08:00

The number of tax havens has tripled over the last three decades Detaxification

Offshore tax evasion increases the burden on honest taxpayers and undermines the fairness and the integrity of tax systems, says Mr Jacques Sasseville who heads the Tax Treaty Unit, Centre for Tax Policy and Administration, at the OECD (Organisation for Economic Co-operation and Development). Such evasion constrains the freedom of governments to design tax systems that reflect their own values, he rues.

“It was in this context that OECD member-countries launched two initiatives,” he recounts, in the course of a recent e-mail interaction with Business Line. The first was an initiative on tax havens launched in 1996; and the second was the work that led in 2000 to a new international standard on access to bank information for tax authorities.

In any financial product, the biggest devil is uncertainty

2008-01-08T02:00:00.000-08:00

Draft REIT regulations lack tax guidance

Hot in the Indian investment scenario is something `real': REIT. Pronounced to rhyme with `sweet,' the acronym, as you may know, stands for real estate investment trust.

Sweet, perhaps, could be the fruits of the long wait investors closer home have had to endure for the arrival of REITs. For, the new kid on the investment block, which is still in the works, is expected to `boost and help stabilise capital access, and reduce capital costs,' apart from helping the real estate sector `by creating conditions for building integrated property businesses,' as the market regulator SEBI (the Securities and Exchange Board of India) has stated in the recently issued draft REIT regulations.

Reducing tax revenues

2007-12-23T02:02:00.000-08:00

Do tax cuts impact government spending?

Earlier this month, the Finance Ministry hinted at the possibility of actually bringing down personal income-tax. As we all know, income-tax forms an important revenue source for governments of most countries.

So, does this proposed `tax cut' on personal income mean that the government will have less money to spend? Advocates of conservative economic orthodoxy would say that the government can ill afford to cut taxes when it already has its hands full with a variety of schemes, such as the National Rural Health Mission, the Sarva Shiksha Abhiyan, and so on.

The world over, the most popular argument against tax cuts, is that decreases in taxes would reduce future government spending. But a husband-and-wife team of economists at the University of California and Berkeley holds a different view.

The (impending) Direct Tax Code is intended to simplify the tax laws insofar as income-tax is concerned

2007-12-17T01:12:00.000-08:00

We need to mature in tax law admin

Tax laws in many countries tend to be complex, but with India beginning to occupy an increasingly important place on the world stage, the benchmark for comparison has to be changed, says Mr Ketan Dalal , Executive Director, PricewaterhouseCoopers (PwC), Mumbai.

“India will increasingly be compared, not against other developing countries, as in the past, but with the dominant and mature economies,” he adds, during an exclusive interaction with Business Line, over the phone and e-mail, shortly after the release of PwC’s ‘2007 Tax Risks in India survey’.

The entertainment tax

2007-12-10T02:35:00.000-08:00

Taxman on the catwalk trail

Fashion show ‘judges’ are usually envied for some of the best seats they occupy. But this is the story of a fashion show that put the judges in an unenviable situation: they had to decide whether the show was entertainment or education.

The show in question was organised in July 2000 by Amit Kumar, the appellant, at St. Andrews Inter College in Gorakhpur in Uttar Pradesh, for the selection of ‘Mr Gorakhpur’ and ‘Miss Gorakhpur’.

Apparently, the show had been held without the permission of the District Magistrate. An enquiry was held, and it was found that entertainment tax had not been paid for performing the fashion show. Accordingly a show-cause notice was issued to Kumar under Section 12 of the Uttar Pradesh Entertainment and Betting Tax Act, 1979.

'It is the function of the Institute to regulate the profession of CAs'

2007-12-04T01:54:00.000-08:00

Is ICAI’s accounting standard on deferred taxation ultra vires?

Whether Accounting Standard 22 (AS-22) entitled ‘Accounting for taxes on income’ insofar as it relates to deferred taxation is inconsistent with and ultra vires the provisions of the Companies Act, 1956, the Income-tax Act, 1961 and the Constitution of India?

This was the question before the apex court in the J. K. Industries Ltd case.

Justices S. H. Kapadia and B. Sudershan Reddy of the Supreme Court were of the view that the notification of the Standard was neither ultra vires nor inconsistent with the provisions of the Companies Act, including Schedule VI. “Deferred tax is nothing but accrual of tax due to divergence between accounting profit and tax profit,” they explained.

`To speak so indirectly I am loath: I would say the truth'

2007-11-26T01:03:00.000-08:00

By indirections find out directions

It is enacted in the laws of Venice, Portia informs Shylock in The Merchant of Venice, that if it be proved against an alien that by direct or indirect attempts he seeks the life of any citizen, “the party ‘gainst the which he doth contrive shall seize one half his goods; the other half comes to the privy coffer of the state; and the offender’s life lies in the mercy of the duke only, ‘gainst all other voice.”

While one may wonder if taxes too aren’t similarly seizing in nature, this story is about how the taxman made direct attempts to fight, right at the apex court, on an ‘indirect’ issue.
Hero Exports, Ludhiana, had filed its returns computing export profits, net of expenses both direct and indirect. The taxman took the view that the profits were overstated, owing to a lower amount of indirect expenses.

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E-governance would be used as the strong arm of the regulator to catch tax offenders

2007-11-20T01:42:00.000-08:00

Is tech-driven compliance lending fizz to taxes?

How do you reconcile these numbers: Economic engine growing at 10 per cent and direct tax kitty swelling at 40 per cent? “Clearly the result of increased compliance,” says Mr Manasvi Srivastava , Vice-President Operations in BMR Managed Services, New Delhi.

“Since the growth numbers of taxes are so out of sync with growth in economy and the extra collection is indicative of increased compliance, the question of estimating the residual non-compliance assumes importance,” he adds, in the course of a recent e-mail interaction with Business Line.

A package containing a pre-packed commodity

2007-11-12T02:40:00.000-08:00

Is refrigerator a `packaged commodity'?

Whirlpool, a manufacturer of refrigerators, was recently caught in a whirlpool of interpretations when fighting against the Excise Department. Getting thawed in the process, at the apex court, was the definition of `packaged commodity' under the SWM (Standards of Weights and Measures) Act, 1976.

The company was not so much against the valuation as per Section 4A of the Central Excise Act, 1944 as it was aggrieved by the demand that MRP (maximum retail price) be printed on the package of the refrigerator manufactured by it, according to Notification No. 9 of 2000.

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Taxability of an FII’s income

2007-11-05T03:03:00.000-08:00

What happens when sub-accounts convert to FII status

Conversion of a sub-account to FII (foreign institutional investor) could potentially trigger tax consequences, which may well be significant, cautions Mr Vipul R. Jhaveri, Partner, Deloitte Haskins & Sells, Mumbai.
“Unless FIIs get to evaluate the same, they may expose themselves to a tax burden that they may neither have anticipated nor bargained for,” he adds, during an e-mail interaction with Business Line.
As per the market regulator’s draft proposal on participatory notes (PNs), FII sub-accounts will not be allowed to issue PNs; and an 18-month-period has been stipulated for winding up derivatives positions taken through the PN route.
“From the income-tax perspective, it would be very important to see the conversion process that SEBI (Securities and Exchange Board of India) prescribes and, in particular, whether it will involve a ‘transfer’ of securities under the Income-Tax Act, 1961 (the Act),” explains Mr Jhaveri.

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The seller and buyer

2007-10-23T00:44:00.001-07:00

Why cricket match is like a celebrity marriage

"Coverage of marriage rites between celebrity couple Arun Nair and Elizabeth Hurley are reported to be exclusively sold to Hello magazine and similarly there are rumours of sale of `marriage function' of leading movie actor Abhishek Bachhan with Aishwarya Rai to a particular channel for broadcasting. Will such sale of performance rights coverage convert the seller into an advertising agency?"

That was the question posed by the Mumbai Tribunal recently when deciding the BCCI (Board of Control for Cricket in India) case. "The answer is emphatic `No'," said the Tribunal, ruling that sale of television rights would not be an advertisement service. By the same token, the sale of telecast rights of cricket matches conducted by BCCI does not become service relatable to advertisement, observed the Tribunal.

The sole selling agent promotes the sale of the lottery tickets

2007-10-15T03:28:00.000-07:00

Will the lottery agent fall into service tax net?

A bumper draw of sorts is currently on, with more than Rs 2,000 crore as the sum at stake. And, the amount seems to be only a teaser of what can be bigger jackpots that the taxman is gunning for, from the lottery industry.

“The lottery industry has been contributing significantly to the exchequer of the governments, particularly the States running the lottery,” observe Mr D. Arvind and Mr J. V. Niranjan, Chennai-based indirect tax experts associated, as partner and senior manager, respectively, with BSR & Co, a firm of chartered accountants.

“State governments have been angling for a slice of the pie by seeking to levy sales tax on the sale of lottery tickets happening within their State,” they add, in a recent e-mail interaction with Business Line.

Certain portion of nuclear power plant cannot be shutdown even for a second

2007-10-09T02:50:00.001-07:00

When taxman was unclear about nuclear power

When the air was thick with nuke talk, Dr Manmohan Singh had to assuage the fears of the anxious by saying, “I can assure you we are a responsible nuclear power.” What may not be equally reassuring is the frightening fact that taxmen are getting into nuclear stuff, as came to light in Nuclear Power Corporation of India Ltd vs Commissioner of Customs, a case before the Mumbai Tribunal.

At the core of the dispute were DG (diesel generator) sets imported by the Corporation. Customs officials denied the benefit of exemption for the sets, saying that these were not integral and functional part of the atomic power plant. These were not eligible for nil rate of duty, they said, but liable to be assessed as goods required for captive power plant of 5 MW or more, as power generated by DG sets was for captive use in the atomic power project.

Reception apparatus for television’

2007-10-01T02:56:00.000-07:00

Signal decoders in the tax code

This week the apex court had to decode a case about signal decoders, when deciding Commissioner of Customs, New Delhi vs C-Net Communication (I) Pvt Ltd.

The dispute was whether these gadgets, used by cable operator for distributing satellite signals collected by dish antenna, came under Entry 8528 or Entry 8529 of the Customs Tariff Act. Entry 8528 reads, “Reception apparatus for television, whe ther or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus; video monitors and video projectors.” And 8529 is about “parts suitable for use solely or principally with the apparatus of headings 8525 to 8528.”

A complaint of plagiarism

2007-09-26T03:06:00.000-07:00

Law on `borrowed words'

In a recent taxation case, the apex court had to also consider a complaint of plagiarism. The issue was about a land deal - with the assessee saying that the sale consideration was Rs 4.10 lakh, as in the documents, and the taxman arguing that the amount was Rs 34.85 lakh, as found in some loose papers captured during a raid operation.

The High Court had relied heavily on the order of the Commissioner of Income Tax (Appeals) and that of the Income Tax Appellate Tribunal (ITAT), and held that no substantial questions of law had been raised. Accordingly, it dismissed the appeal. Which, therefore, resulted in the Department bringing up the case before the Supreme Court.

Liability to deduct tax applies to non-residents as well as residents.

2007-09-16T01:55:00.000-07:00

Vodafone: A case of taxman lifting ‘the corporate veil’ Detaxification

The ongoing Vodafone-taxman tussle raises may key questions, says Dr Suresh Surana, a Mumbai-based chartered accountant and founder of RSM-Astute Group.

“The first question is whether a non-resident seller is liable to tax in India on sale of shares of the foreign investment company,” lists Mr Surana, in an email interaction with Business Line. “Next, is a non-resident purchaser liable for deduction of tax on purchase of shares of the foreign investment company while making payment to the non-resident seller?”

And the third question, as the taxman would like to know, is “whether the Indian company can be treated as ‘agent’ of the non-resident purchaser and held liable for deduction of tax?”

Excerpts from the interview:

Imported laptops

2007-09-09T01:10:00.000-07:00

On HP laptops with preloaded OS software

Laptops of Hewlett Packard (HP) were the focus of an apex court decision delivered on August 30. HP India Sales (P) Ltd had imported notebooks (laptops) with HDD (hard disc drives) preloaded with OS (operating system) software such as Windows XP, XP Home and so on. These computers were also accompanied by separate CDs (compact discs) containing the same software, for use in the event of HDD failure.

The question before the court was whether the OS software, which controls the working of the computer and which is preloaded in the laptop, is classifiable as a separate entity under tariff heading 85.24 at `nil' rate of duty, or as an integral part of the laptop under 84.71 at the appropriate rate of duty, for Customs purposes.

Industrial undertaking must be involved in manufacture or production

2007-09-02T01:02:00.000-07:00

Guarding the chicken from a hungry taxman

In King Henry VI, York speaks of ‘an empty eagle set to guard the chicken from a hungry kite’, and Queen Margaret laments, in response, “So the poor chicken should be sure of death.” No different, you’d agree, from what assessees normally dread in the hands of the taxman. Worse then should be a situation when the taxman goes after chicken. And that is what happened in the Bee Pee Poultries case, which cam e up before the Punjab and Haryana High Court not long ago.
The question was whether the ITAT (Income-Tax Appellate Tribunal) was right in law in holding that poultry farming was an industrial undertaking producing articles and things entitling the assessee to claim deduction under Section 80-I of the Income-Tax Act, 1961.

Mechanism of determining the valuation of the goods under various circumstances

2007-08-29T04:59:00.000-07:00

Ice-cream, accountants, cats and dogs

What do ice-creams, telephone instruments, KitKat chocolate, electric filament lamp, and bottled mineral water have in common? These were the subject matter of a bunch of 15 appeals that the apex court disposed of a few days ago, when deciding the Jayanti Food Processing case. The appeals were about the interpretation of Sections 4 and 4A of the Central Excise Act (CEA), 1944 and the provisions of the Standards of Weights & Measures (SWM) Act, 1976, as also the Standards of Weights & Measures (Packaged Commodities) Rules, 1977.

Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail

2007-08-29T04:55:00.001-07:00

Palm oil for soap which ended up in ghee and shackles Detaxification

The personal liberty of an individual, though precious, is of little value if the larger interest of the people and the nation are at stake, the Delhi High Court ruled in the Lalit Goel vs Commissioner of Central Excise, Delhi case.
Goel, who had been accused of diverting non-edible grade crude palm oil meant for manufacture of washing soap to vanaspati ghee manufacturers, had appealed for bail, which the court rejected, stating the accused needed to be “put in shackles” for playing with the health of the public at large for selfish interests.

Every single case will need to be remanded probably more than once

2007-08-29T04:51:00.000-07:00

Aztec Software ruling will increase cost of compliance

The recent decision by a Special Bench of a Tax Tribunal, that avoidance of tax is not a condition precedent for invoking transfer pricing and ‘arm’s length price’ (ALP) computation provisions of the Income-Tax Act, has come as a landmark verdict providing a shot in the arm for the Revenue and is likely to increase the cost of compliance for companies, according to legal and accounting experts who spoke to Business Line.
Stating that this is the very first transfer pricing dispute that has gone to a Special Bench, Mr Porus F. Kaka, a Mumbai-based advocate, said that the decision cannot be challenged before any other Division Bench of the Tribunal.

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Prices of imported alcoholic products could possibly undergo changes

2007-08-29T04:46:00.000-07:00

A heady cocktail of views about tax getting lighter on liquor

The Government’s recent decision to remove additional Customs duty on imported liquor, wine and spirits has led to a heady cocktail of views and opinions in the public domain on the impact of the move. According to some quarters, it is too early to assess the impact of these changes on the duty regime on alcoholic products.
The move came in response to the long-standing complaint of the European Community and the US that such additional duties are discriminatory in nature and hence not in accordance with the WTO Agreement.

The "halcyon days" of a one-way upward movement in the value of the rupee are gone

2007-08-29T04:43:00.000-07:00

`Appreciating' exporters' predicament of depreciating margins

The rupee is showing no signs of weakening and expectedly exporters, who are a worried lot, have lobbied with the Commerce and Industry Minister, Mr Kamal Nath, seeking Governmental intervention. And the Minister's recent announcement, promising them an increase in drawback and DEPB rates as a measure to mitigate the appreciating currency's impact on exports, has come as no surprise, according to senior executives from the Big Four audit firms.
Speaking to Business Line on the Commerce Ministry's latest move, they said that while the move may come as immediate relief to the exporting community, its efficacy over the long term remains uncertain.

The principal objective of Customs bonding is to monitor duty-free purchases

2007-08-29T04:40:00.000-07:00

`Tax holiday provisions have not been free from controversies'

Tax incentives have emerged as a key issue in the Government's move to fuel growth by allowing the creation of special industrial zones such as software technology parks (STPs) and entities such as export-oriented units (EOUs).
Sections 10A and 10B of the Income-Tax Act, 1961 occupy an important place in the scheme of tax incentives.
They go a long way in influencing the decision-makers as far as setting up of these zones is concerned, and provisions relating to tax holiday have not been free from controversies, according to Mr Chythanya K. K., a chartered accountant and advocate, and Partner, Raghuraman & Chythanya, a Bangalore-based legal firm.

In the land of Indian movies, Hindi is at the top

2007-08-29T04:38:00.000-07:00

Entertainment may not wholly depend on language

On language, there have been many fights. One such was waged at the apex court between Aashirwad Films and the Union of India. The bone of contention was a notification issued by the Andhra Pradesh Government levying entertainment tax based on the language of the movie. Tax rate for Telugu films was fixed at 10 per cent, while for non-Telugu films, the rate was 24 per cent.
Aashirwad Films, a Hyderabad-based distributor of Hindi films, was aggrieved at the higher tax for the non-Telugu films. The company's representations before the State government to withdraw the `discriminatory tax' were in vain.

Most component suppliers are cautious about investing in India

2007-08-29T04:36:00.000-07:00

In India, taxes add 20-25% to the cost of computers

Dell's new manufacturing facility in Chennai, billed `the most comprehensive presence in the world outside the US', is expected to be operational by July with a capacity of 4 lakh units per annum. With that in place, it may become less necessary for Dell to source from its manufacturing facilities in China and Malaysia for sales in India.
Last month, the company's founder, Mr Michael Dell, was in New Delhi. He felt the tax structure in India is not encouraging for computer manufacturers, and said: "India is losing investments because of its tariff structure."

An `assessee' - a person, who is liable to pay tax under the Act

2007-08-29T04:33:00.000-07:00

Two words that cause a tax glitch in SEZ

SEZ is a `fact of life', says the Prime Minister, Dr Manmohan Singh. Protests against the special economic zone (SEZ) concept have similarly become a fact of life, given the competing demands for the use of land. For instance, doubts are in the air about Posco's proposed steel plant at Jagatsinghpur in Orissa, because the proposed site is said to be fertile land. Land acquisition notification issued for DLF's SEZ project in Amritsar is allegedly running into rough weather. And confusion hovers around the Reliance SEZ in Panvel.

Service tax payments need not necessarily be restricted to the service provider or the service recipient

2007-08-29T04:31:00.000-07:00

A direct look at some indirect issues

Now that most of us have returned to our usual sleep cycles after what happened to our cricket team, it may be useful to dust up the Budget and go over to the indirect tax professionals once again, with an experienced expert at hand. Such as Mr S. Thirumalai, National Director - Indirect taxes of Deloitte Haskins & Sells, in India. Thiru, as he is known in CA circles, has over three decades of professional experience in indirect taxes and general management. He has worked with a large MNC in India including a stint at its headquarters in the UK, before he joined Deloitte's Hyderabad office as Partner in April 2001.

Indian enterprises are contributing significantly to the global economy

2007-08-29T04:28:00.000-07:00

When foreign targets blip on your deal radar

Raj Kapoor's Sangam of the early 1960s got filmmakers thinking of heading Westwards, rather than stick to Ooty, Kashmir, Mahabaleshwar, Lonavala, Mussoorie, and so on. Thus recounts Komal Nahta in an article Shooting Indian films abroad, posted on http://sify.com. "Among the other old films which brought plenty of foreign locales alive on the silver screen were Pachhi's International Crook, Shakti Samanta's An Evening In Paris and Great Gambler, Manoj Kumar's Purab Aur Pachhim, Brij Sadanah's Night In London, the Sameer-Simi starrer Pasand Apni Apni and the Rajesh Khanna starrer, Aashiq Hoon Baharon Ka. Much later, in the mid-1990s, Rishi Kapoor debuted into direction with Aa Ab Laut Chalen which was shot about 70 per cent abroad."

Settlement Commission is like a confession in a church

2007-08-29T04:26:00.000-07:00

Unsettling confusion in a settled confession

In All's Well That Ends Well, Bertram tells Helena, "Prepared I was not for such a business; therefore am I found so much unsettled... " Tax watchers appear to be similarly unsettled about what has befallen the Settlement Commission. "All's not well," they say, unprepared for the amendments proposed by the Finance Bill, 2007.
Chapter XIX-A of the Income-Tax Act, 1961 is about Settlement Commission. This came into being with effect from April 1, 1976, to enable quick settlement of cases and early collection of tax dues. "Not to provide a rescue shelter for big tax-dodgers, who indulge in criminal activities," clarified the apex court in the Bhattachargee case.

Assessees would have to approach the AOs based on individual merits of each case

2007-08-29T04:10:00.000-07:00

Needed, accountability for adventurous tax demands

With March-end only weeks away, corporates have not only a fisc to wrap up but also a risk to face: the challenge of huge income-tax demands raised by the assessing authorities. "This has got further complicated by the fact that the appellate authorities have not been able to dispose of the earlier years' appeals within the timeframe due to clear paucity of senior people in the Revenue," says Mr K. R. Girish, Partner, Tax & Regulatory Services, BSR & Co, Bangalore. Here are his answers to a few questions from Business Line, on the tearful tale of tall demands.

New initiatives will see greater focus on tackling water scarcity

2007-08-29T04:05:00.000-07:00

A Budget boost for infrastructure financial products

Most tax professionals doze off during Part A of the Budget Speech. Are they missing out something? Quite possibly, because this portion of the Finance Minister's annual presentation speaks of many initiatives on the infrastructure front. And the much-used word `infrastructure' encompasses whole industry verticals such as transportation and energy, water supply and waste management, education and health. To know about how this year's Budget has impacted infrastructure, Business Line interacted with Mr Manav Bansal, Associate Director at PricewaterhouseCoopers Private Ltd, Chennai. A chartered accountant by qualification, he advises on corporate tax, expatriate tax, withholding tax and regulatory matters on inbound and outbound investments. Mr Bansal's experience spans well over a decade and covers a wide spectrum of industries and services.

Reforms should be based on a proper diagnosis of the problem

2007-08-29T03:59:00.000-07:00

Budget benchmarking from a macroeconomic perspective

Normally, post-Budget meetings are endurance tests. It is not easy, you'd agree, to sit through series of presentations for over three to four hours. At the end of the exercise, you may be excused if the only words of recall are a cocktail comprising tax, sections, rules and clauses, apart from the ubiquitous `amendment' and `proposal'. Thankfully, to help participants switchback to reality and leave the hall with some hope, there is invariably a lunch or dinner.
It was a refreshing change, therefore, to sit through a lecture of Dr D. K. Srivastava, Director of the Madras School of Economics, on the big picture at a recent meeting organised jointly by the MCCI (Madras Chamber of Commerce and Industry) and KPMG.

The amount of revenue raised is determined to a large extent by tax bases and tax rates

2007-08-29T03:45:00.000-07:00

After 15 minutes or so to agriculture...

Kural 1036 it was that we heard this time from the Finance Minister: "Uzhavinar kai madangin illai vizhaivathoom vittame enbarkum nilai." Meaning, "If ploughmen keep their hands folded even sages claiming renunciation cannot find salvation," as he paraphrases in paragraph 65 of the Budget Speech.
There is little to read between the lines of this 2000-year-old couplet, as a clue to what Chiddu has in mind. For, politicians are no sages, nor do they claim renunciation; also, rarely do they keep their hands folded. The context is tenuous, you'd agree; but in a 13,000-word presentation one can excuse the reference to the couplet, as a respite to the Minister after he had devoted `15 minutes or so to agriculture'.

Labour reforms will need to be implemented

2007-08-29T03:41:00.000-07:00

India is sometimes called the `build-forget-rebuild' economy

If an individual in a country must live within his means, so should the government, says Dr Sunil Rongala, Group Economist, Murugappa Group, Chennai.
"If an individual cannot sustain his lifestyle through debt forever, why should the government be given the right to do that?" he asks, in a recent interaction with Business Line. "There should be a continued effort on the part of the Finance Ministry to reduce the fiscal deficit as per the guidelines laid down by the FRBM (Fiscal Responsibility and Budget Management) Act," insists Dr Rongala.

A simple law does not necessarily mean a shorter piece of legislation

2007-08-29T03:39:00.000-07:00

Current system of auditing tax returns is very subjective

Merck agreeing to a $2.3-billion settlement of a tax dispute with the IRS (the US Internal Revenue Service) is top news for the week, in the realm of tax rows. Closer home, the taxman seems to be gunning for sums that make the Merck settlement seem tiny.
One learns from press reports that the Tax Department has raised a demand of Rs 60,000 crore on completion of assessments for the returns filed for the financial year ended March 31, 2004. Set against the total corporate tax budget for 2006-07 of Rs 1,20,000 crore, the latest development has raised many an eyebrow.

Inter-company transactions across borders are growing rapidly and are becoming much more complex

2007-08-29T03:35:00.000-07:00

Transfer pricing regulations should be sensitive to business dynamics

On January 31, Google reported its fourth quarter (Q4) and fiscal year 2006 results. Revenues for the December 31, 2006 quarter (Q4) were $3.21 billion, an increase of 67 per cent compared to the 2005 Q4 and an increase of 19 per cent compared to Q3 of 2006. "Google's partner sites generated revenues, through AdSense programs, of $1.20 billion, or 37 per cent of total revenues, in the fourth quarter of 2006," informs http://investor.google.com.

Payments by the Indian counterparts were nothing but reimbursement of expenses

2007-08-29T03:32:00.000-07:00

Hospitality treaty

A Luxembourg-based company recently approached the Authority for Advance Rulings (AAR), seeking clarity on the taxability of payments received by it from Indian hotels towards marketing and promotion. To know more about the case, which may be of interest to those in the hospitality industry, Business Line interacted with Mr Rajesh Patil, Manager, Deloitte Haskins & Sells, Mumbai. Here are his answers to a few questions.

The meaning to be assigned to a term must flow from the context

2007-08-29T03:30:00.000-07:00

On the trail of the missing `Indian concern'

Ever since an airline adopted `Indian' as its new name, there is enough confusion among the billion-plus people about the new claimant for their appellation. Be that as it may, what should concern professionals is the cloud that surrounds `Indian concern' in Section 115A of the Income-Tax Act, 1961.
This provision, in the tax law, is about tax on dividends, royalty and technical service fees in the case of foreign companies. It speaks of, among other things, interest received from `an Indian concern', which was the focus of a recent case before the Mumbai Tribunal. Business Line engages in a dialogue with Mr Manoj D. Purohit, Manager, Deloitte Haskins & Sells, Mumbai, about the case...

If the law is administered fairly and strictly, the objectives of exemptions can be achieved

2007-08-29T03:26:00.000-07:00

It is always a noble idea to simplify tax laws

On January 8, the Prime Minister, Dr Manmohan Singh, while addressing the annual general meeting of FICCI (Federation of Indian Chambers of Commerce and Industry), stressed that our tax regime should be liberal, but equitable. He said, "We will now move towards a common GST (Goods and Services Tax) and better harmonisation of VAT (Value-Added Tax) rates as well. In the long run, our tax regime should not have too many exemptions which make tax administration an unnecessarily complex exercise vulnerable to misuse." To decode the cryptic message of the PM, Business Line contacted Mr Sudhir Kapadia, Head of Tax Practice of BSR & Co., Mumbai. Here are his answers to a few questions.

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The apex court responds to the changing scenario in regard to technological development.

2007-08-29T03:22:00.000-07:00

Balancing old laws and new technology

How did year 2006 pan out for indirect tax in terms of Supreme Court decisions? "A tale of two roads," says Mr D. Arvind, Director in the Indirect Tax Department of Deloitte Haskins & Sells, Mumbai. "One widely travelled, much seen, much heard about and made easy for the weary traveller. The other road is the rough terrain, not so much travelled and not so widely seen and much more exciting to say the least." Though over a period of decades, the apex court has given judgments on various issues, unfortunately the Department has not accepted some of them in their principle, frets Mr Arvind. "Parliamentary changes have given a fresh breath of life for many cases which should have been treated as finally closed. The cases start their journey all over again from the adjudicating authority and finally end up before the apex court."

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It is immaterial if a third party also benefits thereby

2007-08-29T03:19:00.000-07:00

No businessman can be compelled to maximise his profit

Quite unusually, it was commercial expediency that scored over taxman's nitpicking in a recent verdict of the apex court: S.A. Builders Ltd vs Commissioner of Income Tax (Appeals), Chandigarh.
The company had transferred, out of its cash credit account, `a huge amount of Rs 82 lakh to its subsidiary company SAB Credits Ltd'. And the taxman disallowed interest paid to the extent of Rs 5.7 lakh, saying it was proportionate to the amount diverted out of borrowed funds to sister concern without charging any interest. SA appealed before the Commissioner, who directed the AO (Assessing Officer) to calculate disallowance of interest only relating to the sum of Rs 18 lakh, which had `a clear nexus with the borrowed funds', while `the balance amount had been paid out of the receipts from other parties to whom no interest had been paid.'

'I love you when you bow in your mosque, kneel in your temple, pray in your church'

2006-08-07T23:19:00.000-07:00

Let mercy be your mosque, faith your prayer-mat

A report that is `37 minutes' old in Mail & Guardian Online, South Africa, speaks of, " `One of the worst days' in Lebanon." Distressingly, there are `1,618 related stories'. Such as this one on Reuters AlertNet, UK, `19 minutes ago': "Christian Aid warns of `underground disaster' in Lebanon."
In these circumstances, it is highly remote that anybody would remember Khalil Gibran (1883-1931) of Lebanon, who had said, "An eye for an eye, and the whole world would be blind." To Gibran, work was love made visible. "If you cannot work with love but only with distaste, it is better that you should leave your work and sit at the gate of the temple and take alms of those who work with joy," he would admonish.
Relevant to the case on hand is another quote of his: "I love you when you bow in your mosque, kneel in your temple, pray in your church. For you and I are sons of one religion, and it is the spirit." And, in Vikrama Shama Shetty vs State of Maharashtra, what one saw was the government's determination to ensure the sanctity of a place of worship, even while implementing a tax law.

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There's no smoke without a fire, nor a case without a grievance

2006-07-23T23:03:00.000-07:00

A little fire is quickly trodden out
Whether in sea or fire, in earth or air... A line from Hamlet that is quite apt for the taxman's reach. Just the way it happened in the Agnice Fire Protection case that came up recently before the Chennai Tribunal.
Agnice used to receive enquiries from clients for erection and commissioning of fire-fighting system. Orders that came to the company for fire-fighting system were in two parts — "(a) for design engineering and supply of equipment and (b) for erection and commissioning of the same."
The company would prepare a detailed engineering drawing for fire-fighting system, procure equipment as mentioned in the work order, erect the system at the client's site, test and commission the same, and also train the client's personnel in handling the system.
There's no smoke without a fire, nor a case without a grievance. Agnice was aggrieved when the taxman demanded of it Rs 25,756 as tax on 'services rendered as engineering consultant'. The company appealed before the Commissioner. He ruled that Agnice was "by no standards a 'consulting engineer'". Undaunted by the setback, the taxman approached the Tribunal.

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'If music be the food of love, play on'

2006-07-23T22:57:00.000-07:00

At times, music too has to face the music
What is Samisen, or shamisen? It is a Japanese fretless plucked string instrument with three strings, originally used by street singers and geishas, explains Encarta. "The Britannica Encyclopaedia describes the same as instrument with long-necked fretless Japanese lute with three strings, a small square body with cat skin front and back and a curved-back peg-box with side pegs," is a snatch from the text of the Tribunal's order dated March 1.
"Sometimes referred to as the 'Japanese guitar,' its construction and appearance more closely resemble the banjo with its sound retaining its own unique resonance and special traditions," educates www.arts.iup.edu. It speaks of 'Tsugaru shamisen', which conveys well 'the heart and soul of the Japanese'. Tsugaru is a region in the northern part of Japan, informs http://tikuyu-shamisen.com. "Because of the heavy snowfall and painful long winter, Tsugaru people were in need of music as an emotional relief to struggle with severe life there," it adds, even as you can hear the strums on the site.
Samisen was derived from the similar Chinese san-hsien, the Ryukyu Islands version of which reached Japan in the 16th century, informs www.britannica.com. "It is widely played in folk and art music as an accompaniment to lyric and narrative song and in the orchestra of bunraku (puppet) and kabuki dramas."
A soft rendition of samisen should give you a taste of 'wabi and sabi' theme of the Japanese, because that is how 'feelings and passion can be expressed in peaceful tranquillity and stillness,' as www.arts.iup.edu enlightens. Much 'like softest music to attending ears,' as says Romeo.
But, music, at times, may have to face a different music, especially when there are Jessicas of The Merchant of Venice around saying, "I am never merry when I hear sweet music." The taxman was no different. For, in Walter's case, the Department officials confiscated the logs of wood, on the ground that they were 'prohibited goods'. They slapped a penalty of Rs 5 lakh on the firm and Rs 2 lakh on the managing partner. "When such strings jar, what hope of harmony?" you may fret, as Shakespeare writes in King Henry VI. Read on.

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A computer system would not have pipelines

2006-07-09T23:39:00.000-07:00

Detaxfication

Every complex control system has data processing

The story begins with a purchase order that Hindustan Petroleum Corporation Ltd (HPCL), Gummalladoddi, placed with ABB, New Delhi. The order was "for design, supply, erection and commissioning of the complete Terminal Automation System (TAS) for Vijayawada and Rajahmundry Terminals".
From the text of the Tribunal's order, one learns that ABB, a Norwegian company, was awarded a 'turnkey contract' for erection and installation, design and commissioning of TAS for HPCL's Visakha-Vijayawada Pipeline Project.

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Children ask better questions than adults: 'May I have a cookie?'

2006-07-03T03:35:00.000-07:00

A tough cookie for the taxman
Rewind to April 11, 2001, when a few excise officers visited Cookie Man's sale outlet in Spencer Plaza, Chennai. They found that the shop was selling 'cookies' in plastic pouches/containers on which the brand name 'Cookie Man' and the connected logo were printed.

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A travel into the TV

2006-07-03T03:30:00.000-07:00

Colour televisions that caught the taxman's eye
But the taxman had another grievance: whether the price of woofer was includible. To his dismay, though, the Commissioner had found that woofer was not a part of TV, and that the same was cleared and sold separately.
To wrap, here is a quote of Muhammad Iqbal that should cause the taxman to ponder: "Ends and purposes, whether they exist as conscious or subconscious tendencies, form the warp and woof of our conscious experience."

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In the course of catering...

2006-06-16T23:54:00.000-07:00

Sandwiched between law and commonsense
The Department argued, "The supplies of sandwiches by Compass are closely associated with the fact of the catering services, which Compass contracted to provide at the BBC Television Centre to meet the needs of employees and visitors there." As example, the taxman referred to catering service at a wedding reception, which is "usually supplied by the caterer to the bride's father, but the items of food are supplied by the caterer to the wedding guests at the reception 'in the course of catering.'"

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Service at the catering table

2006-06-12T00:18:00.000-07:00

Monopoly menu that put the taxman in a mandap soup
CKP Mandal is a charitable trust registered under the Bombay Public Trust Act. It owns a building with halls that are given on hire for official, social and business functions. CKP entered into a contract with Saideep Caterers and Decorators, giving the latter exclusive rights for rendering catering and decoration services to hirers using the halls. For this, Saideep paid CKP Rs 9,80,000 during 1997-2000, and Rs 8,35,000 in 2001-2002.
In 2001, the Superintendent of Service Tax issued notice to CKP asking for service tax on the sums received from Saideep. CKP paid the demanded amount, and then claimed refund. However, the Assistant Commissioner of Central Excise rejected the refund claim. Aggrieved by the order, CKP took the issue before the Commissioner (Appeals), who set aside the order passed by the Assistant Commissioner.
Unrelenting, the Department approached the Tribunal, which in turn set aside the Commissioner's order. Beaten again, CKP brought the case before the Bombay High Court, where Justices R.M. Lodha and J.P. Devadhar heard the case.

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'Don Quixote charged at Rocinante's fullest gallop and fell upon the first mill that stood in front of him'

2006-06-02T21:42:00.000-07:00

Windmills gone with the wind!
"While a visit to Mandvi did not materialise, the assessee's representative by his letter dated August 21,1998 stated that windmills at Mandvi might have been damaged due to supernatural forces."

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'Motion capture animation files' are normally referred to as software in the industry

2006-05-26T23:17:00.000-07:00

Animation creates illusion of life
Animation can explain whatever the mind of man can conceive, says Walt Disney. "This facility makes it the most versatile and explicit means of communication yet devised for quick mass appreciation." Except, perhaps, by the taxman. For, when Pentamedia claimed exemption from payment of customs duty under a notification that gave tax benefit to IT software, the assessing authority denied the benefit of the notification.
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Will STT become Sensex Trading Tax?

2006-05-19T22:21:00.000-07:00

Is the FM keen on joining the Sensex party?
Friday is all red. And tickers tell the story: 'Sensex sinks 452 points,' 'No respite from falling market,' 'The beginning of the end or just a blip?', 'Sensex crash course', and so on. All this, despite the Finance Minister jamming the brakes on Thursday, and terming the crisis a 'manufactured' one based on 'uninformed reporting'. ...
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The man in the wilderness asked me how many strawberries grew in the sea...

2006-05-12T21:35:00.000-07:00

...I answered him as I thought good, as many as red herrings grew in the wood. (Nursery rhyme)
As many red herrings as grow in the wood

Forget the lottery, bet on yourself!

2006-05-05T22:53:00.000-07:00

Lottery draw without a chance to win is meaningless

Repellent vs Insecticide

2006-04-28T21:33:00.000-07:00

A mosquito may sting a stately horse and make him wince

Narrow domestic walls

2006-04-21T22:30:00.000-07:00

A world broken up into fragments

What is consulting?

2006-04-15T00:48:00.000-07:00

A case of 'cerebral' damage in cellular world!

"Advice and consultation of a saint sitting under a banyan tree may mainly involve thought processes and discourses with no physical activity on the part of the saint towards assisting the recipient in the implementation of advice and, therefore, be purely a cerebral function, but that would be altogether different from the advice and consultancy of a qualified professional consultant engineer who has to render professional advice and consultancy to his client in respect of material objects that may require technical assistance for making such advice meaningful and effective."

Seizure in seizures

2006-04-07T20:57:00.000-07:00

In King Lear, Cornwall tells Edmund, "You shall be ours: Natures of such deep trust we shall much need; you we first seize on." And Edmund replies, "I shall serve you, sir, truly, however else."
Alas, such a happy mood doesn't prevail when the taxman seizes goods or property of the hapless. One such instance came up before the Calcutta High Court recently: Ferring Pharmaceuticals Private Ltd vs Assistant Commissioner of Commercial Tax Officer.
More here.

Earthquake relief

2006-04-07T06:48:00.000-07:00

Would contribution made to a trust for rehabilitation of earthquake victims be regarded as an allowable deduction under Section 37(1) of the Income-tax Act, 1961? This is a question that is featured in one of the capsules of Consolidated Commercial Digest Vol 13 Part 7, from Company Law Institute of India (http://www.cliofindia.com/). An interesting question that came up before the Kerala High Court, in this case, was whether deduction under Sections 37(1) and 80G are mutually exclusive. What happened in the end? 80G won the day!
(The image is a fallen bridge, post quake, in Kobe, Japan. Well documented here...)

What is royalty?

2006-04-07T06:36:00.000-07:00

“Our people quarrel with obedience, swearing allegiance and the love of soul to stranger blood, to foreign royalty,” says King John. Elsewhere in the same play of the Bard, you’d read, “And then all this thou seest is but a clod and module of confounded royalty.”
Royalty was the word that had confounded the Department in the J.K. Industries case, before CESTAT, New Delhi. This has been reported in Volume 4, Part 6 of Service Tax Journal from Mashbra (www.mashbra.com).
The question was whether payment made by the company to its foreign collaborator was royalty for service or for transfer of technology. Justice R.K. Abichandnani, President, and Dr T.V. Sairam, Member (Technical), of the tribunal heard the case, and the text of the ruling discusses elaborately the meaning of ‘royalty’.
Concise Oxford Dictionary was cited for the definition of royalty:

In the context of patent, as a sum paid to a patentee for the use of a patent or to an author for each copy of a book sold or for each public performance of a work.
And in the case of mining activities, payment made by a producer of minerals, oil or natural gas to the owner of the site or of the mineral for the right over it.

Royalty evidently refers to “the payments in the context of intellectual properties such as trade mark, copy right, know-how, and so on,” said the tribunal. “Royalty, therefore, in our view cannot be equated with payments made in activities such trading of the goods and services. Thus ‘royalty’ is more in the nature of a fee rendered for sharing one’s expertise or know-how for mutual benefits.”
Finally, the tribunal observed, “We are of the view that the Commissioner (appeals) has rightly come to the conclusion that the demand of service tax on the present respondents with reference to their royalty payments made to their foreign collaborators Messrs Continental cannot be sustained. In view of the above, the appeal filed by the Revenue deserves to be dismissed.”
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Welcome

2006-04-04T07:39:00.000-07:00

Welcome to Detaxification blog!