| Chidambaram may stick to Pranab's line on DTC |
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New Delhi, 30 June Finance Minister P Chidambaram might have modified some of Pranab Mukherjee's decisions but he could toe his predecessor's line on the Direct Taxes Code ( DTC) Bill. This means taxpayers might continue to enjoy exemption on maturity of their investments and industry could pay Minimum Alternate Tax ( MAT) on book profits, instead of gross assets. Some of Mukherjee's prominent decisions reviewed by Chidambaram earlier include provisions related to the General Anti- Avoidance Rules ( GAAR), tax demand on Vodafone, fiscal deficit target for 201213, negotiations with states on the Goods & Services Tax, and norms for selection of public sector bank chiefs. The DTC Bill, to be tabled in the monsoon session of Parliament, is understood to be closer to the version put up by Mukherjee before Parliament's standing committee on finance, headed by Yashwant Sinha, in 2010 — that is, a watered down version of the original proposal prepared by Chidambaram during his previous stint finance minister, in 2009. Officials say Chidambaram is closely working with his advisor, Parthasarathy Shome ( the architect of the 2009 version), on the revised Bill. This is likely to give an impetus to growth and investment by the corporate sector but might not have much for individual taxpayers because of the limited fiscal space available with the government. "The original version of the Bill will need substantive changes. The mandate to the government now is limited to taking a call on standing committee recommendations. We will go with the DTC Bill of 2010, with some modification in line with the panel's suggestions," said a finance ministry official who did not wish to be named. The ministry might not accept the parliamentary panel's recommendation of raising the yearly income tax exemption limit to ₹ 3 lakh from ₹ 2 lakh at present. Its worry is that raising this limit will not only lead to loss of revenue ( in giving tax benefit to people in all slabs) but also take many people out of its scrutiny and erode the tax base, now already low at 34 million. If the slab is increased to ₹ 3 lakh, 87 per cent of taxpayers will escape annual net. Instead, the government might consider giving relief to taxpayers in the lower tax bracket — like it did in Budget 2013- 14. A tax credit of ₹ 2,000 was provided to every person with up to ₹ 5 lakh the income, benefitting 18 million taxpayers. This meant a hit of ₹ 3,600 crore to the exchequer. But, if the exemption limit is increased to ₹ 3 lakh, the loss will be ₹ 30,000 crore. Turn to Page 4 > Draft- I Draft- II Recommendations of (Prepared by ( Prepared by Standing Committee ( headed PChidambaram) Pranab Mukherjee) by Yashwant Sinha) Personal > ₹ 1.6- 10 lakh > ₹ 2- 5 lakh > ₹ 3- 10 lakh I- T slabs > ₹ 10- 25 lakh > ₹ 5- 10 lakh > ₹ 10- 20 lakh >25 lakh & above > ₹ 10 lakh & above > ₹ 20 & above Corporation tax 25% 30% 30% MAT Savings Capital gains tax SEZs On gross assets Exempt- Exempt- Tax Distinction between short- term and longterm assets eliminated; STT abolished Profit- linked deductions for SEZ developers protected forunexpired period, but not forunits On book profits Exempt- Exempt- Exempt Distinction retained but deductions allowed for some long- term assets; STT retained To grandfather tax holiday for existing SEZ units, as well as developers On book profits Exempt- Exempt- Exempt Remove the distinction; abolish STT Recommend suitable grandfathering provisions for asmooth transition MANY FACES OF DTC BILL Idea is to hasten the process; Bill to be tabled in Parliament's monsoon session |
| Tax relief for R& D centres as FinMin relaxes norms |
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New Delhi, 30 June The government on Sunday brought some tax relief to development centres engaged in contract research and development (R& D) services with insignificant risk by relaxing norms for identifying these. As captive centres of multinational companies perform minimal functions for the parent and share a low risk, these would be subjected to a less stringent way of computing taxable income. The Central Board of Direct Taxes ( CBDT) revised its circular no 3 of March to classify R& D centres set up by foreign companies in three broad categories based on functions, assets and risk assumed by the centre established in India. These include centres which are entrepreneurial in nature; centres which are based on cost- sharing arrangements; and centres which undertake contract R& D. For determining the arm's length price, taxpayers often insist that they are contract R& D service providers with insignificant risk, while assessing officers treat them as full or significant risk- bearing entities and make transfer pricing adjustments accordingly. The CBDT has now laid down six parameters for identifying such insignificant risk centres, against five conditions in the earlier circular. Profit split method, where a part of profit of the parent is taken into account for computing tax of the captive unit, would not be applicable to these centres. Earlier, it was difficult for the R& D centres to meet all the five conditions so that they were not subjected to the profit split method. The government said that " the use of the phrase ' cumulatively complied with' was perhaps too restrictive." It has also defined phrases such as ' economically significant functions' and ' low or no tax jurisdiction' to make the definition clear. "Rescinding these circulars to a large extent removes uncertainty and apprehension in the minds of top decision makers in foreign companies looking to create a 'win- win' environment by outsourcing even more contract R& D and other forms of IT- enabled services to India," said Hitesh Gajaria, Partner, KPMG. He said rigidly defining contract R& D centres who work in a risk free environment as only those satisfying ' cumulatively' all the conditions specified in the erstwhile circular was too restrictive and one wondered whether any centre would ever be able to qualify as such. On Saturday, the tax department had killed one of its recent circulars on taxation of development centres and clarified that profit- split method would not be the only method of computing tax liability. With over 57 per cent rise in transfer pricing demand notices by the government last year making companies jittery, the income tax department is issuing 'guidance' to assessing officers to help them frame orders based on international best practices. Of about 3,200 cases taken up for transfer pricing auditing in 2012- 13, an adjustment of ₹ 70,000 crore was made in 1,600 cases. In 2011- 12, an adjustment of ₹ 44,531 crore was made in 1,343 cases. |
| >LEGAL DIGEST |
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"It is unfortunate that despite repeated judicial pronouncements, the executive authorities entrusted with the task of acquiring private land for any public purposes have time and again exhibited total lack of seriousness in the performance of their duties under the Land Acquisition Act," the Supreme Court stated in the case, Women's Education Trust vs State of Haryana. All the principles laid down by the court were broken. The court therefore reiterated the cardinal principles to be followed: The landowners should be given achance to raise objections, to prove that there was no public purpose involved, alternative land was available, the collector should give reasons for the acquisition and why it is imperative despite the objections, and his report shall be examined by the state government for its objectivity. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Refund order set aside The Supreme Court has set aside the judgment of the Delhi High Court which had directed Engineering Export Promotion Council to refund the money deposited by one of the merchant exporters who was accused of economic offences. His brothers, partners in the firm, also deposited amounts but as they were acquitted, their money was refunded by the council. But this person was not acquitted. He requested the high court to order refund of the deposit money like other partners, and the high court allowed it. The council appealed to the Supreme Court, which said that the situation was different in the case of the accused person who was not acquitted. His plea that others were refunded the deposit would not apply to an accused person and the high court confused the cases of the two sets of persons. There was no principle of parity here. It could not have used its discretionary power to order refund, what the council, which is a channelising agency under the Ministry of Commerce, did was an " absolutely administrative action." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 25- year- old labour dispute ends The Supreme Court quashed the judgment of the Rajasthan High Court and the industrial tribunal which had directed the state road transport corporation to reinstate an employee who had indulged in corruption, came in drunken state for work and used abusive language, in the three months he was in employment. The employee had raised technical objections invoking the industrial law and the tribunal ruled that he was illegally dismissed. The Supreme Court stated that "there was no question of his being in service even for one continuous year, since he had obviously not completed 240 days of service. During this short span of service there were various allegations against him. The corporation could have discontinued him from service as it is, since he was a daily wager." Thus 25 years of litigation ended with the upholding of the dismissal. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SSIs lose to Bharat Petroleum The Bombay High Court has dismissed a batch of petitions invoking the Arbitration and Conciliation Act to terminate the mandate of an arbitrator and refer disputes between the parties to the Micro and Small Scale Enterprises Facilitation Council constituted under the provisions of the Micro, Small Medium Enterprises Development Act, 2006, ( MSME Act). The disputes were between several small scale units in Haryana, which make LPG cylinders and supply to Bharat Petroleum Corporation Ltd. Their disputes were referred to an arbitrator in 2003 which dragged on with adjournments and change of arbitrators. Later, the MSME Act was passed. The firms, which continued to participate in the arbitration proceedings, wanted the council to decide their disputes. Rejecting the plea, the high court stated that the provisions of the Act would not apply with retrospective effect to past transactions and the new provisions can have no applicability to the facts of this case. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Bank not bound to pay premium The National Consumer Commission has ruled that a bank which provides loan for a motor vehicle is not legally bound to pay insurance premium though it might do so as a matter of practice. It is the duty of the owner of the vehicle. In this case, some farmers in Haryana took loans for buying tractors. Canara Bank granted the loan and also undertook to insure the vehicle and debit the premium from the account of the insured persons. The insurance policy of New India Assurance Co Ltd was thus renewed from time to time. But on the year the public sector bank delayed the payment, for no apparent reason, an accident took place. Therefore, under a settlement the tractor owners had to pay the accident claim as the insurance was not valid at the time of the accident. Then they moved the consumer forum alleging deficiency on the part of the bank. The district forum as well as the Haryana state consumer commission ordered the bank to pay compensation. On appeal to the national commission, it reversed the orders and stated that according to the hypothecation document, it was the duty of the borrower to take insurance cover. MJ ANTONY |
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Company Secretary, Chennai
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