Cenvat Credit : Fuel used for generation of electricity, a part of which is also supplied to another unit of same manufacturer, is eligible for credit as input; assessee is not required to have two separate power facilities for two different units
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[2014] 41 taxmann.com 173 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Customs & Central Excise, Noida, U.P
v.
Jindal Polyester*
PRAKASH KRISHNA AND MANOJ KUMAR GUPTA, JJ.
CENTRAL EXCISE APPEAL DEFECTIVE NO. 171 OF 2007†
JULY 29, 2013
Rule 2(k) of the Cenvat Credit Rules, 2004 [Corresponding to Rule 2(g) of the Cenvat Credit Rules, 2002 and rule 57A of the Central Excise Rules, 1944] read with section 2(e) of the Central Excise Act, 1944 - CENVAT Credit - Input - Assessee was availing Cenvat Credit of duty paid on Furnace Oil used as fuel in DG sets for generation of electricity - A part of electricity so generated was supplied to Jindal Polymer engaged in manufacture of Polymer Chips, which was main input of assessee - Assessee and Jindal Polymer were two units/factories of same company - Department denied proportionate credit on Furnace Oil used in generation of electricity consumed by Jindal Polymer - Tribunal held that in view of interest of efficiency and economy and in absence of any specific provision in Rules, credit was allowable - HELD : Tax law should be interpreted in conformity with normal commercial practice - Therefore, manner of 'use' should be accepted as to economical, efficient and convenient manner of 'use' because a contrary interpretation would lead to frustrating purpose of law in granting credit - Generation of electricity in one unit for use in all neighbouring units of a manufacturer is more efficient and economical than setting up generating facility at each and every factory - So long as factory and manufacturer are one, credit cannot be denied merely because of separate registration and/or different line of production - No statutory regulation or rule was produced to take a different view of matter - It is logical that if two units are being run at one place, producing two different items and electricity is supplied to both of them by a common generator, credit benefit shall be available in respect of both manufacturing units, unless statutorily provided otherwise - It is neither expedient nor desirable unless provided otherwise statutorily to have separate electricity generating sets for different manufacturing units - Since approach of Tribunal was pragmatic and in interest of efficiency and economy, same was correct and, accordingly, credit was allowed [Paras 13 to 18] [In favour of assessee]
Interpretation of Statutes : Tax law's interpretation in conformity with normal commercial practice
EDITOR'S NOTE
| ■ | This judgment poses the most practical and real-life solution to the problem in hand. | |
| ■ | A contrary view was held in Sintex Industries Ltd. v. CCE 2013 (287) ELT 261 (Guj.) that if assessee has two units separately registered, then, each such unit shall be regarded as a separate factory. Therefore, use of electricity in another factory cannot be regarded as 'captive use'. | |
| ■ | The view put forth, and reasons enshrined, in this judgment are most appealing. For the purpose of definition of capital goods and input under Rules 2(a) and 2(k), the word 'captive use' must be interpreted from the angle of the company/assessee or manufacturer as a whole and, therefore, a single generator purchased for more than one units of same company and fuel used therein for generation of electricity should be eligible for credit. |
CASE REVIEW
SRF Ltd. v. CCE 2005 (191) ELT 887 (Tri. - Chennai) (para 13) and Mahabir Jute Mills Ltd. v. CCE 2007 (220) ELT 121 (Tri. - Delhi) (para 14) approved.
CASES REFERRED TO
SRF Ltd. v. CCE 2005 (191) ELT 887 (Tri - Chennai) (para 13) and Mahabir Jute Mills Ltd. v. CCE 2007 (220) ELT 121 (Tri - Delhi) (para 14).
B.K. Singh Raghuvanshi for the Appellant. Manu Khare for the Respondent.
ORDER
Prakash Krishna, J. - The present appeal has been filed under section 35-G of Central Excise Act 1944 against the order of CESTAT, New Delhi in Appeal Nos.E/3020/2006, E/3021/2006, E/3022/2006 with E/S/2443 to 2445/2006 whereby the appeal filed by the manufacturer in respect of claim for Modvat Credit on Furnace Oil and other eligible goods used in generator of electricity has been allowed.
2. M/s Jindal Polyster came into existence as factory manufacturing Partially Oriented Yarn and M/s Jindal Polymer is manufacturing Polymer Chips.
3. M/s Jindal Polyster (a division of M/s Jindal Polfilm Ltd.) was availing Cenvat Credit of duty paid on Furnace Oil which was used as fuel in the DG sets for generation of electricity. A team of Central Excise Officers, Noida visited the factory premises of Jindal Polyster on 10.12.2004. It was found that there were two manufacturing units having their registered factory premises adjacent to each other.
4. One of such unit was registered under Central Excise in the name of M/s Jindal Polymer having different Central Excise Registration number. Jindal Polymer was engaged in the manufacture of Polyster Yarn and Poly Propylene Filament Yarn while the other unit was engaged in the manufacture Polymer Chips. The final product i.e Polymer Chips of Jindal Polymer is the main input of JP.
5. The Department raised a dispute and rejected the contention of the respondents with regard to electricity generated through generation in Unit No. 1. The Department took the view that the respondent was not entitled to Modvat credit on the Furnace Oil used in the generation of the electricity consumed in the second unit. On appeal, the Tribunal held that this is neither in the interest of efficiency and economy nor is it mandated by Modvat Rules that the second unit is not entitled to Modvat credit on input of furnace oil used in the generator set.
6. Being aggrieved, the Department has come out in the present appeal. In the memo of appeal, the following substantial question of law has been framed:
"Whether the Appellate Tribunal has correctly interpreted Rule 57AA of the Central Excise Rules, 1944/Rule 2(g) of the Cenvat Credit Rules, 2001/2002/Rules 2(k) of the Cenvat Credit Rules, 2004 in holding that Cenvat Credit is admissible on the portion of Furnace Oil/LDO used for generation of electricity supplied to other units?"
7. Heard Shri B.K. Singh Raghuvanshi, learned counsel for the appellant and Shri Bharatji Agrawal, learned Senior Advocate assisted by Shri Manu Khare, Advocate. The learned counsel for the appellant submits that in view of Rule 57-AA of the Central Excise Rules Modvat Credit is not admissible to the second unit.
8. Elaborating the argument, he submits that since the two units are producing different products, they should be treated as separately. In reply, the learned counsel for the respondents submits that the term factory has been defined in Section 2(e) of the Central Excise Act. The two units constitute one factory and therefore, both the units are entitled to claim Modvat.
9. Considered the respective submissions of the learned counsel for the parties and perused the record.
10. The learned counsel for the appellant has placed reliance upon Rule 57-AA particularly Clause(d) which is reproduced below:
"Rule 57AA. Definitions— For the purpose of this section —
| (a) to (c)** | ** | ** |
(d) 'Inputs' means all goods, except High Speed Diesel oil and Motor Spirit used in or in relation to the manufacturer of the final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils cleared along with the final products, goods used as paint, or as packing materials or as fuel or for generation of electricity uses for manufacture of final products or for any other purpose within the factory of production. "
11. The said clause (d) defines what 'input' means. It does not talk about unit or factory. The word 'factory' has been defined in section 2(e) which reads as follows:
'(e) "factory" means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.'
12. The learned counsel for the respondents referred number of cases of Tribunal in support of his contention that generation of electricity in one unit for use in all the neighbouring units of a manufacturer is more efficient and economical than setting up generating facility at each and every factory.
13. In SRF Ltd. v. CCE 2005 (191) ELT 887 (Tri.- Chennai), it has been held that it is well-settled that tax law should be interpreted in conformity with the normal commercial practice. Therefore, the manner of use should be accepted as to economical, efficient and convenient manner of use. A contrary interpretation would lead to frustrating the purpose of law in granting exemption/Modvat credit. Generation of electricity in one unit for use in all the neighbouring units of a manufacturer is more efficient and economical than setting up generating facility at each and every factory.
14. In Mahabir Jute Mills Ltd. v. CCE 2007(220) ELT 121 (Tri. - Delhi), it has been held that if separate registration is given for polyster yarn manufacturing facility located inside the jute factory, line of production different but factory and manufacturer one, Credit taken on input used in generator in jute factory cannot be denied to yarn unit etc.
15. The learned counsel produced various orders passed by the different Tribunals and they all do support the impugned order of the Tribunal. The learned counsel for the appellant could not refer any statutory regulation or rule to take a different view of the matter. It is logical that if two units are being run at one place, producing two different items and the electricity is supplied to both of them by a common generator, the Modvat facility shall be available to both the manufacturing units, unless statutorily provided otherwise.
16. It is neither expedient nor desirable unless provided otherwise statutorily to have separate electricity generating sets for different manufacturing units. The approach of the Tribunal is pragmatic and in the interest of efficiency and economy.
17. In the result, we find no error in the order of the Tribunal allowing Modvat Credit on Furnace Oil and other eligible inputs used in the generation of electricity.
18. The appeal lacks merits and the same is hereby dismissed. No order as to costs.
■■ †Arising out of Order of CESTAT in Appeal Nos. E/3020 to 3022 and E/S/2443 to 2445 of 2006.
Service Tax : If assessee claims that they had voluntarily paid service tax under section 73(3) of Finance Act, 1994, then they cannot ask for refund of said tax
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[2014] 43 taxmann.com 386 (Delhi)
HIGH COURT OF DELHI
R.R. Financial Consultants Ltd.
v.
Union of India*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
WRIT PETITION (C) NO. 990 OF 2013
SEPTEMBER 19, 2013
I. Section 73 of the Finance Act, 1994, read with article 226 of the Constitution of India, Section 11A of the Central Excise Act, 1944 and section 28 of the Customs Act, 1962 - Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded - Invocation of Extended Period of Limitation - Whether or not extended period of limitation has been rightly invoked has to be determined and decided by authorities under provision of Act - It is normally a mixed question of law and facts - Statute provides for appellate remedies in case of an adverse or wrong order - Hence, writ is not normally maintainable thereagainst [Para 3] [In favour of revenue]
II. Section 11B of the Central Excise Act, 1944, read with sections 73 and 83 of the Finance Act, 1994 and section 27 of the Customs Act, 1962 - Refund - General - If assessee claims that they had voluntarily paid service tax under section 73(3) of Finance Act, 1994, then they cannot ask for refund - Further, question of refund can only be decided, when issue of chargeability and assessability of tax is first determined and decided [Para 2] [In favour of revenue]
III. Section 73 of the Finance Act, 1994, read with section 11A of the Central Excise Act, 1944 and section 28 of the Customs Act, 1962 - Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded - Scope of show-cause notice - A show-cause notice must and should make prima facie allegations and facts have to be pointed out and confronted for answer - A show-cause notice must be lucid and clear and relevant facts have to be stated - It should not reveal that adjudicating authority has already formed an opinion and decided issue - Title of show-cause notice using words 'show cause-cum-demand notice' would not be decisive, if a reading of notice reveals that it is not a demand notice but a show-cause notice calling upon assessee to make submissions [Paras 6 to 10] [In favour of revenue]
IV. Section 73 of the Finance Act, 1994, read with section 11A of the Central Excise Act, 1944 and section 28 of the Customs Act, 1962 - Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded - Scope of show-cause Notice - Assessee argued that show-cause notice was titled 'show-cause-cum-demand notice' and was issued with pre-determined mind and was, therefore, invalid - HELD : Impugned show-cause notice had : (a) referred to some prima facie findings in favour of assessee opining that some amounts were not taxable, which showed objectivity and application of mind; (b) used expression 'it appears that' which is indicative of a prima facie opinion and not final determination; and (c) granted liberty to submit reply and/or supporting evidences and also whether assessee wanted to be heard in person - Further, in this case, notice was to be adjudicated by different adjudicating authority other than author thereof - Title of 'show-cause-cum-demand notice' was irrelevant, as reading of notice revealed that it is not a demand notice but a show-cause notice calling upon assessee to make submissions - Notice was valid [Paras 6 to 10] [In favour of revenue]
V. Article 226 of the Constitution of India - Writ petition - Alternative remedy - Writ petitions against show-cause notice especially in tax matters should not be entertained when alternative remedy under statute is available - This is so because it would lead to delay and create innumerable legal complications - Authorities including appellate authorities are persons who are specialists and can dispose of cases at earliest - Statute also provides for appeals so that a wrong order if passed can be corrected or rectified [Para 11] [In favour of revenue]
VI. Section 73 of the Finance Act, 1994, read with sections 11A and 11B of the Central Excise Act, 1944 and section 28 of the Customs Act, 1962 - Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded - Payment on own ascertainment - Assessee paid service tax voluntarily with interest - Department issued show-cause notice invoking extended period - Assessee challenged said notice in writ on ground that : (a) notice issued was bad in law in view of provisions of section 73(3), and, (b) even otherwise, tax itself was not leviable and, therefore, tax paid should be refunded - HELD : Assessee's stands were self-contradictory inasmuch as : (a) on one hand, it had voluntarily paid service tax and was challenging issuance of notice and claiming benefit of section 73(3), (b) on other hand, it was challenging levy of service tax and claiming refund of voluntary paid service tax - Since extended period was sought to be invoked by Department, applicability of section 73(3) was itself doubtful in view of provisions of section 73(4) - Further, issue of refund would arise only if issue of taxability is decided - All said questions were pending before adjudicating authority - Hence, writ was not maintainable [Paras 2 to 11] [In favour of revenue]
CASE REVIEW
Oryx Fisheries (P.) Ltd. v. Union of India 2011 (266) ELT 422 (SC) (paras 5, 6) CCE v. Brindavan Beverages (P.) Ltd. 2007 (213) ELT 487 (SC) (para 11) distinguished.
CASES REFERRED TO
Oryx Fisheries (P.) Ltd. v. Union of India 2011 (266) ELT 422 (SC) (para 4) and CCE v. Brindavan Beverages (P.) Ltd. 2007 (213) ELT 487 (SC) (para 4).
J.K. Mittal, Varun Prabhakar and Varun Gaba for the Petitioner. Rahul Kaushik for the Respondent.
ORDER
Sanjiv Khanna, J. - R.R. Financial Consultants Ltd. have filed the present writ petition with various prayers but the primary prayer is that the services being rendered by them do not fall in the category of 'business auxiliary service' and 'business support service' as defined and covered under the various provisions of Section 65 of Chapter V of the Finance Act, 1994. Another prayer made is that Rs.2,64,98,557/- paid by the petitioner, which is claimed to be illegally collected, should be refunded.
2. Interestingly, during the course of arguments, learned counsel for the petitioner submitted that once Rs.2,64,98,557/-, which includes interest of Rs.58,31,270/-, stands paid, then the show cause notice under Section 73(1) is bad in law as the petitioner herein has made self payment and therefore benefit of Section 73(3) of the Finance Act, 1994 is applicable. We need not examine the said issue but it does appear that the contention raised by the petitioner is self contradictory. If the petitioner claims that they had voluntarily paid service tax under Section 73(3), then they cannot ask for refund. Further, it is apparent that the question of refund can only be decided, when the issue of chargeability and assessability of tax is first determined and decided. The said questions and question of refund are pending consideration before the authorities.
3. As per Section 73(4) of the Finance Act, 1994 benefit of voluntary payment of tax under Section 73(3) is not available in cases of frauds, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of the Chapter V or the Rules made therein with the intent to evade payment of service tax. In the present case, the show cause notice which has been impugned, invokes proviso to Section 73(1) for the extended period. Proviso to Section 73(1) uses the same terminology as sub-section (4) to Section 73. Whether or not the said proviso has been rightly invoked has to be determined and decided by the authorities under the provision of the Act. The statute also provides for appellate remedies in case of an adverse or wrong order. It is normally a mixed question of law and facts.
4. Learned counsel for the petitioner has submitted that the authorities have already issued demand-cum-show cause notice dated 17th October, 2011. Our attention is drawn to the heading and paragraphs 10.1 and 10.4 of the show cause notice. He relies upon decisions of the Supreme Court in Oryx Fisheries (P.) Ltd. v. Union of India 2011 (266) ELT 422 (SC) and CCE v. Brindavan Beverages (P.) Ltd. 2007 (213) ELT 487 (SC).
5. In Oryx Fisheries (P.) Ltd. (supra) the following observations have been made:—
"28. It is no doubt true that at the stage of show cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. It is obvious that at that stage the authority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt. If that is done, as has been done in this instant case, the entire proceeding initiated by the show cause notice get vitiated by unfairness and bias and the subsequent proceeding become an idle ceremony.
** ** **
31. It is of course true that the show cause notice cannot be read hyper-technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show-cause notice the person who is subject to is must get an impression that he will get an effective opportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence."
6. In the light of the aforesaid observations, we have examined paragraphs 10.1 and 10.4 of the impugned show cause notice. Paragraph 10.1 of the show cause notice refers to prima facie findings in favour of the petitioner. The said paragraph deals with the reverse charge mechanism and the factum that the petitioner had claimed that R.R. Investors Capital Services Pvt. Ltd. had made certain payments of service tax. Accordingly, opinion formed states that brokerage amounting to Rs.1,07,51,563/- was not taxable in the hands and at the end of the petitioner. The aforesaid paragraph only shows objectivity and that authority had applied his mind. Reading of paragraph 10.4 does not disclose a pre determined mind or decision. A show cause notice must and should make prima facie allegations and facts have to be pointed out and confronted for answer. Paragraph 10.4 in the first line uses the words "it appears that" which is indicative of a prima facie opinion and not final determination. No doubt the cause title of the show cause notice uses the words "show cause cum demand notice" but a reading of the notice would reveal that it is not a demand notice but a show cause notice calling upon the petitioner to make submissions. Final determination on various aspects will be after hearing, if requested and considering the submissions of the petitioner.
7. In paragraph 16 of the notice it is recorded that notice was being issued in respect of the amounts mentioned in sub-paras (B) and (C) including Rs.2,64,98,557/- which has already been deposited by the petitioner but has to be appropriated. In paragraph 17 the petitioner has been asked to produce evidences in support of their defence and whether they want to be heard in person and liberty to submit their reply.
8. The Commissioner, Service Tax has been directed to adjudicate and decide the case at the earliest. Show cause notice is to be decided by a different authority, namely, Commissioner of Service Tax, New Delhi. Thus, show cause notice has not been issued by the authority who is to decide and pass the order in original.
9. It will be appropriate here to reproduce paragraph 10 of Brindavan Beverages (P.) Ltd. (supra):—
"There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the notice was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents, unless it is shown that they were parties to the arrangements, it any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted."
10. Aforesaid paragraph states that a show cause notice must be lucid and clear and relevant facts have to be stated. In these circumstances, we do not accept the contention of the petitioner that the show cause notice reveals that the adjudicating authority has already formed an opinion and decided the issue. The adjudicating authority is not the author of the show cause notice.
11. Writ petitions against show cause notice especially in tax matters should not be entertained when alternative remedy under the statute is available. Otherwise it leads to delay and creates innumerable legal complications. Authorities including appellate authorities are persons who are specialists and can dispose of the cases at the earliest. The statute also provides for appeals so that a wrong order if passed can be corrected or rectified. We record that in the case of Brindavan Beverages (P.) Ltd.(supra), the assessee therein had taken benefit of the adjudicating process including the appeals and thereafter the matter was taken to the Supreme Court.
12. In view of the aforesaid, it is held that this writ petition has no merit and has to be dismissed. Ordered accordingly. We clarify that we have not expressed any opinion on merits of the cases. The case will be decided by the adjudicating authority without being influenced by any of the observations made in this order. In case of an adverse order, the petitioner will be entitled to challenge the same in accordance with law. Petitioner may submit reply/additional reply and documents within 15 days from today. No costs.
VINEET
*In favour of revenue.
Regards,
Pawan Singla , LLB
M. No. 9825829075Section 194J – FAQs on TDS on Fees For Professional Or Technical Services
Posted In Income Tax | No Comments »
Q.1. Who is liable to deduct TDS u/s 194J?
A.1. Any person, other than in individual or a HUF, who is responsible for paying to a resident any sum by way of:-
- Fees for professional services,
- Fees for technical services,
- Any remuneration or fee or commission by whatever name called paid to a director, which is not in the nature of salary (w.e.f. 1.7.2012)
- Royalty,
- Any sum referred to in clause (va) of section 28 which relates to non-complete payment, or
- Shall deduct income tax on income comprised therein.
- However, an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or professional carried on by him exceed the monetary limits specified under clause (a) or clause(b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall also be liable to deduct income-tax under this section. [Proviso 2 to section 1 94J(1)].
Q.2. What is the point of deduction of TDS u/s 194J?
A.2. Tax is to be deducted either at the time of actual payment of such fees or its credit to the account of the payee whichever is earlier.
Q.3. At what rate tax to be deducted u/s 194J? A.3. 10% on such income.
Notes:
- No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
- The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee on or after 1-4-2010.
Q.4. Under what circumstances there is no need to deduct TDS u/s 194J?
A.4. There is no need to deduct TDS u/s 1 94J where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed‑
(i) Rs. 30,000 in the case of fees for professional services referred to above.
(ii) Rs. 30,000 in the case of fees for technical services referred to above.
(iii) Rs. 30,000 in the case of royalty referred to above.
(iv) Rs. 30,000 in the case of non-complete fee referred to above.
Q.5. What is the meaning of professional Services in reference to S. 194J?
A.5. Explanation (a) to Section194J provides that 'Professional Services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.
Q.6. What is the meaning of Expression "fees for technical services" in reference to section 1 94J?
A.6. Explanation (b) to Section1 94J provides that "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of subsection (1) of section 9, which provides "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
Q.7. What is the meaning of "Royalty" in reference to S. 194J?
A.7. Explanation (ba) to Section194J provides that "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9, which provides that "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for—
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;
(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and] (v).
To further clarify meaning of royalty explanation 4, 5 and 6 inserted to Explanation 2 to clause (vi) of sub-section (1) of section 9, vide Finance Act, 2012, which are as under:
"Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred.
Explanation 5.—For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—
(a) the possession or control of such right, property or information is with the payer;(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6.—For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fiber or by any other similar technology, whether or not such process is secret;"
Q.8. Whether provisions of S. 194J are applicable to Transaction charges paid by assessee-stock broker to Stock Exchange?
A.8. Transaction charges paid by assessee-stock broker to BSE in respect of transactions carried out through BOLT system constituted fees for technical services under section 194J read with Explanation 2 to section 9(1)(vii) and, hence, assessee was liable to deduct tax at source before crediting transaction charges to account of stock exchange. CIT v. Kotak Securities Ltd.* [2011] 15 taxmann.com 77 (Bom.)also refer DCIT v Angel Broking Ltd (20 10)35 SOT 457(Mum).
Q.9. Whether provisions of S. 194J are applicable to payments made for
rendering services in course of carrying on medical profession?
rendering services in course of carrying on medical profession?
A.9. Payment is made to a recipient for rendering services in course of carrying on medical profession or other professions as stipulated in section 194J, deduction of tax at source has to be made and it is immaterial whether recipient is an individual, firm or an artificial person. Vipul Medcorp TPA (P.) Ltd. v. Central Board of Direct Taxes [2011] 14 taxmann.com 13 (Delhi)
Q.10. Whether provisions of S. 194J are applicable to service provided by MTN L/BSN L for services of interconnect/port/access/toll?
A.1 0. The expression 'fees for technical services' as appearing in section 1 94J would have reference to only technical service rendered by a human; it would not include any service provided by machines or robots. Therefore service provided by MTNL/BSNL for services of interconnect/ port/access/toll would not fall within the purview of payments as provided for under section 1 94J, so as to be liable for tax deduction at source. CIT v. Bharti Cellular Ltd.[2008] 175 TAXMAN 573 (DELHI) However, the Apex Court remitted the matter to the Assessing Officer, directing him to examine the case with the help of a technical expert to study whether any human intervention is involved. [CIT v Bharti Cellular Ltd. & Hutchison Essar Telecome Ltd. (2011) 330 ITR 239 (SC)] see also HFCL Infotel Ltd. v. ITO [2006] 99 TTJ (Chd.) 440
Q.11.Whether tax deductible u/s 194J on payments made to person engaged in business of providing cellular mobile telephone facility?
A.1 1. Payments made to person engaged in business of providing cellular mobile telephone facility by subscribers, being firms and companies, are not covered by definition of 'fees for technical services' in section 194J, read with Explanation 2 to section 9(1)(vii) and as such no tax is required to be deducted at source on such payments by subscribers. Please refer Skycell Communications Ltd. v. Dy.CIT [2001] 119 TAXMAN 496 (MAD.)
Q.12.Whether tax deductible u/s 194J on payment made to a stockist appointed for sale on commission basis?
A.12. Section 194J is not applicable to a stockist appointed by drug manufacturer for sale of drugs on commission basis. Please refer Piramal Healthcare Ltd. v. ACIT(TDS) [2012] 21 taxmann.com 225 (Mum.)
Q.13. Whether TDS u/s 194J deductible on various services provided during the course of carrying of Medical profession?
A.13. Maintaining operation theatre and surgical equipments, RO system, CT scan machine, MRI machine, medical equipments and providing service of lift sterlisation and anti-termite treatment in a hospital, would amount to rendering technical and professional services. Please refer ITO (TDS) v. Accounts Officer, Govt. Medical College, Jammu*[2012] 22 taxmann.com 149 (Asr.)
Q.14. Whether the services rendered by news agencies to newspaper Company shall attract TDS u/s 194J?
A.14. Payments made by newspaper Company to news agencies is liable for deduction of tax at source under section 1 94J. Please refer ACIT v. Ushodaya Enterprises (P.) Ltd.* [2012] 23 taxmann.com 258 (Hyd.)
Q.15. Whether payments made to hospital for medical services provided by it shall attract TDS u/s 194J?
A.15. Where 'assessee-trust acted as a nodal agency for State of Andhra Pradesh to provide health care coverage to individuals, payments made to hospitals by assessee for medical services received by hospitals were liable to TDS u/s 194J'. Please refer Arogya Sri Health Care Trust v. ITO [2012] 20 taxmann.com 539 (Hyd.) (see also Medi Assist India TPA (P) Ltd. v DCIT (T DS) (2009) 184 Taxman 359 (Kar)
Q.16. Whether payment made directly to any actor on account of composite agreement entered into for financing film project shall attract TDS u/s 1 94J?
A.16. Contractors/sub-contractors payment to' and further having regard to fact that even if assessee had made payment directly to any actor or any person connected with film making then it was only out of composite agreement entered into for financing film project, it could not be concluded that payment made directly by assessee attracted provisions of section 1 94J, Please refer Entertainment One India Ltd. * v. ITO (TDS) [2010] 126 ITD 491 (MUM.)
Q.17. Whether non resident not having PE in India, making payments to CA, Lawyer, advocate or solicitor are required to deduct TDS u/s 194J?
A.17. Any fees paid through regular banking channel to any Resident – CA, Lawyer, advocate or solicitor by a Non Resident who do not have any agent of business connection or permanent establishment in India, may not be subject to the provisions of tax deduction at source u/s 194J. However Foreign Companies & and accounting firms are required to sent quarterly statement stating names and address of the person to whom the payments are made to the Deputy Secretary, Foreign tax Division, CBDT, Department of Revenue, Ministry of Finance, New Delhi. Please refer Circular No. 726, dated 18/10/1995.
Q.18. Whether TDS u/s 194J is also deductible on reimbursements?
A.18. TDS u/s 194C & 194J refer to any sum paid i.e including reimbursements – applicable only in cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses.Circular No. 715 dated 08/08/1995. Further Circular No. 720 dated 30/8/1995 provides that the provision of sec 194 C &194J is not applicable – where bills were raised separately by the consultants for reimbursements of actual expenses incurred by them. ITO vs. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ (Del.)53.
Q.19. Whether charges paid to International Airport Authority of India for navigational facilities, shall attract TDS u/s 194J?
A.19. Where assessee-airlines paid charges to International Airport Authority of India for navigational facilities, such payments attracted section 194J. Singapore Airlines Ltd. v. ITO [2006] 7 SOT 84 (Chennai)
Q.20. Where assessee, a non-resident company, set up a liaison office in India in and appointed consultants – whether tax deductible u/s 192 or 194J?
A.20. Where assessee, a non-resident company, set up a liaison office in India in and appointed six persons as consultants pursuant to agreements, as there was no employer-employee relationship between assesseecompany and consultants, case was governed by section 1 94J and not section 192. Please refer Dy CIT v. Coastal Power Co. [2006] 9 SOT 89 (Delhi)
Q.21. At what rate TDS deductible u/s 194J by an advertising agency making payments for professional services to a film artist?
A.21. Where an advertising agency makes payments for professional services to a film artist such as an actor, a Cameraman, a director etc, tax will be deducted at the rate of 5%. Please refer Circular No. 714, dated 03/08/1995.
Q.22. Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act? In case the services of the electrician are provided by a contractor, whether the provisions of section 194C or 194J would be applicable?
A.22. The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work. Accordingly, provisions of section 194C will apply in such cases. Please refer Circular No. 715, dated 08/08/1995.
Q23. Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act?
A.23. Routine, normal maintenance contracts which includes supply of spares will be covered under section 1 94C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source. Please refer Circular No. 715, dated 08/08/1995.
Q.24. Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses?
A.24. Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source. Please refer Circular No. 715, dated 08/08/1 995.
Q.25. Whether TDS u/s 194J deductible on payment made for purchase of course or study material?
A.25. NO, Please refer ACIT v Frontline Software Services (P) Ltd. (2009) 24 DTR 232 (Ind-Trib)
Q.26. Whether the provision of TDS u/s 194J applicable to payments made for facilities of bandwidth and internet?
A.26. Since bandwidth and net working operating facilities for VSNL/MTNL were standard facilities and were not in the nature of technical services with the meaning of section 194J the assessee would not be liable to deduct tax at source under section 1 94J. Please refer – Pacific Internet (India) (P) Ltd. v. ITO TDS Mumbai (2009) 27 SOT 523 (Mum)]
Extract of Section 194J of The Income Tax Act
TDS ON FEES FOR PROFESSIONAL OR TECHNICAL SERVICES
194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—
(a)fees for professional services, or
(b) fees for technical services, [or]
[(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or]
[(c) royalty, or
(d) any sum referred to in clause (va) of section 28,]
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein :
Provided that no deduction shall be made under this section—
(A)from any sums as aforesaid credited or paid before the 1st day of July, 1995; or
(B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed—
(i) [thirty thousand rupees], in the case of fees for professional services referred to in clause (a), or
(ii) [thirty thousand rupees], in the case of fees for technical services referred to in [clause (b), or]
(iii) [thirty thousand rupees], in the case of royalty referred to in clause (c), or
(iv) [thirty thousand rupees], in the case of sum referred to in clause (d) :]
[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :]
[Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.]
Explanation—Forthe purposes of this section,—
(a)"professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
[(ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;]
(c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.
Note in respect of Amendment brought u/s 194J vide Finance Act 2012 – Section 194J (1)(ba) – [Newly Inserted w.e.f. 1st July, 2012]
"any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or
Notes to clause:
The existing provisions in sub-section (1) of the aforesaid section 194J provide that a person, not being a individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services, fees for technical services royalty or sums referred to in clause (va) of section 28 shall deduct an amount equal to 10% of such sum as income tax. It is proposed to amend the aforesaid sub-section (1) to insert a new clause (ba) so as to provide that the person referred to in sub-section (1) of the aforesaid section who is responsible for paying to a director of a company any sum by way of any remuneration or fees or commission, by whatever name called (other than those on which tax is deductible under section 192), shall deduct an amount equal to 10% in accordance with the provisions of the aforesaid section.
Memorandum Enplaning Finance Bill 2012
Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including Managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary.
It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 1 0% of such remuneration.
Brief of Amendment
The amendment is proposed to provide for deduction of tax at source @ 10% by a company in respect of remuneration or fees or commission by whatever name called, paid to a director which is not in the nature of salary and it will be considered as fees for professional or technical services.
(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay 'Voice of CA' & Team)
FAQ on Miscellaneous issue in TDS U/s. 193, 194, 194A, 194B, 194BB, 194D, 194E, 194EE, 194G, 194LA, 194LB, 194LC
MISCELLANEOUS ISSUES
(SECTION 193, 194, 194A, 194B, 194BB, 194D, 194E, 194EE, 194G, 194LA, 194LB, 194LC)
Q.1. Whether assessee liable to deduct TDS u/s 193 on provision of interest in case payee is not identified.
Ans. Explanation to section 193 cannot be invoked in a case where person who is to receive interest cannot be identified at stage at which provision for 'interest accrued but not due' is made and therefore there was no obligation upon assessee to deduct tax at source, there could not be any question of levy of penalty and interest under section 201 upon assessee. Industrial Development Bank of India v. ITO [2007] 107 ITD 45 (ITAT- MUM.).
Q.2. Whether TDS u/s 193 deductible on Interest on own debentures?
Ans. No, please refer CIT V Nattarasankottai Electric Supply Corporation (1947) 15 ITR 495 (Mad).
Q.3. Whether TDS u/s 193 deductible on Interest on debentures issued by cooperative bank?
Ans. No. please refer CIT v. Lakshmi Vilas Bank Ltd. (1997) 228 ITR 697 (Mad).
Q.4. Whether TDS u/s 194 applicable to both types of dividends, i.e., normal dividend as well as deemed dividend?
Ans. Section 194 requires TDS only when payment is made to a shareholder. Payments to shareholders will cover both types of dividends, i.e., normal dividend as well as deemed dividend. Otherwise also, deemed dividend will be taxed in the hands of the shareholder and not in the hands of non-shareholder payee. Therefore, section 194 does not require TDS when payment is made to a non-shareholder. Please refer NZ Reality (P.) Ltd. v. ITO, [2009] 29 SOT 61 (ITAT- JP.)(URO).
Q.5. Whether TDS u/s 194 is deductible at the time of preparation of Warrant or at the time of dispatch of warrants?
Ans. When company declaring dividend is liable to deduct tax from dividends when warrants are sent out to shareholders and not on date on which dividends warrants are prepared. CIT v. Hindustan General Industries Ltd. 2000] 113 TAXMAN 506 (DELHI)
Q.6. Whether credit of TDS can be denied on the footing that TDS certificate does not show the actual date of payment of tax to Government treasury.
Ans. Assessing Officer could not deny credit of TDS from dividend on ground that TDS certificate filed in Form No. 19 did not show actual date of payment of tax to Government treasury and that it did not contain seal of company. M.M. PUBLICATIONS LTD. V. ACIT [1997] 92 TAXMAN 51 (ITAT-COCH.) (MAG.)
Q.7 Whether TDS u/s 194A deductible on interest on delayed payment of purchase bills?
Ans. Payment which has direct link and immediate nexus with trading liability will not fall within category of interest; while paying interest on delayed payment of purchase bills, no TDS obligation arises. Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. v. Dy. CIT [2012] 24 taxmann.com 52 (Hyd.)
Q.8. Whether TDS u/s 194A deductible on reimbursement of Interest?
Ans. Reimbursement of interest by subsidiary to parent company which, in turn, had repaid it to lender bank, did not involve any element of income and, thus, no TDS liability would arise under section 194A on reimbursement. Onward e-Services Ltd. v. ACIT* [2012] 22 taxmann. com 60 (ITA T-Mum .)
Q.9. Whether TDS u/s 194A deductible on delayed receipt of compensation on land acquisition?
Ans. Interest received as a payment for delayed receipt of compensation on land acquisition is a revenue receipt liable to TDS under section 1 94A. Rameshwar v. Ujjain Development Authority [2012] 23 taxmann.com 6 (MP)
Q.10. Whether TDS u/s 194A deductible on interest paid to RRRDA?
Ans. Where Rajasthan Rural Road Development agency (RRRDA) kept funds released by Ministry of Rural Development in a separate account opened with assessee-bank to be utilized for purpose of approved work under Pradhan Mantri Gram Sadak Yojna (PMGSY), interest paid by assessee to RRRDA would not be liable to tax deduction at source under section 1 94A. ITO v. Branch Manager, State Bank of Bikaner & Jaipur* [2012] 19 taxmann.com 221 (ITAT-JP.)
Q.11. Whether TDS u/s 194A deductible on interest neither credited nor paid during relevant period?
Ans. Where assessee has not credited interest in its books of account and such interest has not been paid in relevant year, mandate of section 194A cannot be attracted to further invoke disallowance under section 40(a)(ia). Pranik Shipping & Services Ltd. v. ACIT*[2012] 19 taxmann. com 107 (I TA T-Mum.)
Q.12. Whether credit of TDS and assessment of income permissible in two different years?
Ans. Credit of tax based on TDS certificates be allowed in respect of interest income in the year in which subject-matter of deduction of tax is assessed. CIT v. H. Krishna Vijoy Arora* [2012] 20 taxmann.com 655 (Ker.)
Q.13. Whether TDS u/s 194A deductible on interest credited but not paid due to loss?
Ans. Tax was to be deducted at source under section 194A where due to losses no interest was paid by assessee to its creditor but credit entry was made as if interest was paid to creditors. Solar Automobiles India (P.) Ltd. v. Dy.CIT (TDS), [2012] 17 taxmann.com 260 (Kar.).
Q14. Whether interest u/s 194A deductible on interest income of trust where beneficiaries are individuals?
Ans. No, Please refer ML family trust v State of Gujrat (1995) 213 ITR 152 (Guj), see also Food Corporation of India v ITO (2007) 18 SOT 289 (Del), ITO v Arihant Trust (1995) 214 ITR 306 (Mad).
Q.14. Who is responsible to deduct tax u/s 194B.
Ans. A person, who conducts any scheme in name of lottery or drawing by lot by giving a person a chance to win by participating in scheme, is responsible to deduct tax at source on value of goods given to winner. Hind Motors India Ltd.* v. ITO 2006] 9 SOT 556 (I TA T-CHD.)
Q.15.Whether provisions of S. 194B applicable where participants identified on the basis of their skill or knowledge?
Ans. In 'World Cup Football Forecast' or 'Lok Sabha Election Forecast' contests were held by assessee-company and no price was paid for participation, but only skill or knowledge was criterion and prize winners were selected by lot, said contests did not amount to lottery and, therefore, assessee was not liable to deduct tax at source before distribution of prize money of said contests as contemplated under section 1 94B. ITO v. Malayala Manorama Co. Ltd. [2005] 94 ITD 195 ( ITA T-COCHIN)
Q.16. Whether provisions of S. 194B applicable on amount of refund of prize money from unsold tickets of lotteries and unclaimed prizes?
Ans. Refund by Directorate of State Lotteries to organising agent of prize money from unsold tickets of lotteries and unclaimed prizes would not attract provisions of section 1 94B ACIT v. Director of State Lotteries . [2002] 123 TAXMAN 405 (GA U.) see also Commercial Corporation of India V ITO (1993) 201 ITR 348 (Bom).
Q.1 7. Whether provisions of S. 1 94B applicable on monthly prize scheme?
Ans. Assessee was carrying as a prized scheme, in which 250 members were enrolled – Members were required to subscribe Rs. 300 every month for a period of 52 months – Every month there was a lucky draw and once a subscriber was declared a winner in any such draw, he need not make any payment thereafter – All others, who were not successful in previous draw had to go on paying every month till completion of Scheme – After completion of scheme all subscribers who were not successful in monthly draws would get back their contributions without interest – Whether scheme in question could be treated as `lottery' scheme and assessee was liable to deduct tax at source under section 1 94B – Held, yes. Lakshmi Gnaneswara Enterprises & Financiers v. ITO [2000] 72 ITD 295 (ITAT-HYD.)see also CIT v Sanjiv Kumar (1980)123 ITR 187 (P&H).
Q.18. Whether deduction of floor limit of Rs. 2,500 is to be allowed from each winning from horse race?
Ans. Yes. Please refer Delhi Race Club (1940) Ltd. V. Dy.CIT [2007] 17 SOT 39 (Delhi)(URO)
Q.19. Whether tax u/s 194BB is deductible only from net income?
Ans. Tax is required to be deducted only from net income arising out of horse race to punter from any particular race after deducting investment made by him in purchasing all tickets relating to such horse race. Royal Calcutta Turf Club v. Dy. CIT [2001] 76 ITD 237 (ITA T-CAL.)
Q.20. Whether TDS u/s 194D is deductible on commission paid on reinsurance accepted by assessee?
Ans. No. Please refer General Insurance Corpn. of India v. Asstt. CIT [2009] 28 SOT 453 (Mum.), Tata AIG General Insurance Co. Ltd. * v. ITO [2011] 43 SOT 215 (ITAT- Mum)
Q.21. Whether TDS u/s 194E deductible on payments to non-resident sportsman or sports association for participation in match in India ?
Ans. Amount paid to foreign team for participation in match in India in any shape, either as prize money or as administrative expenses, is income deemed to have accrued in India and is taxable under section 11 5BBA and, thus, section 1 94E is attracted. INDCOM* v. CIT [2011] 11 taxmann.com 109 (Cal.)
22. Whether obligation to deduction under section 194E is not affected by DTAA ?
Ans. Obligation to deduction under section 194E is not affected by the DTAA, since such a deduction is not the final payment of tax nor can it be said to be an assessment of tax. The deduction has to be made and after it is done, the assessee concerned gets the credit of the same and once it is found later on, that income from which the deduction is made is not exigible to tax, then on application being made refund with interest is always allowed. Fundamental distinction between the deduction at source by the payer is one thing and obligation to pay tax is another thing. Advantage of the DTAA can be pleaded and taken by the real assessee on whose account the deduction is made and not by the payer. Therefore, irrespective of the existence of the DTAA, the obligation under section 194E has to be discharged once the income accrues under section 115BBA. Pilcom* v. CIT [2011] 198 Taxman 555 (Cal.)
Q. 23. Whether TDS u/s 194E deductible on guarantee fee paid by assessee to overseas cricket boards?
Ans. The guarantee fee paid by the assessee was to the cricket bodies of the countries with which India had entered into tax treaties. It is settled legal position that in view of the provisions of section 90(2), the provisions of the tax treaty prevail over that of the domestic law unless the domestic law is more beneficial to the assessee. Therefore, in case it was concluded that the payment in question was not taxable in terms of the provisions of the applicable tax treaty, there was no need to address to the scope of provisions of the domestic law. Unless it is of the income nature, there is no question of taxability thereof. ITO v. Board for Cricket Control in India [2007] 14 SOT 287 (ITA T-M UM.)
Q.24. Whether TDS u/s 194G is applicable where petitioner purchased lottery tickets at discount from State Government?
Ans. Section 194G envisages deduction of tax at source only if any commission, remuneration or prize is paid. Here in present case petitioner, who was authorized lottery ticket agent, purchased lottery tickets in bulk at a discount from State Government. Whether since tickets were given to agents on a discount and there was no payment of commission to agent at time of purchase of ticket, section became automatically inapplicable. M.S. Hameed v. Director of State Lotteries[2001] 114 TAXMAN 394 (KER.)
Q.25. Whether question of deducting tax at source arises at time of making payment and it has nothing to do with date of award of compensation?
Ans. Section 1 94LA was not on the statute book on the date of the award, i.e., 30-5-1995 and that the said section was inserted, subsequently, by the Finance Act, 2004 with effect from 1-10-2004. Compensation was paid on 28-4-2010 and on that day, section 1 94LA was on the statute book and, therefore, tax had to be deducted while making the payment of compensation. Leela Bhagwansing Advani v. Union of India*[2012] 21 taxmann.com 124 (Bom.)
Q.26. Whether TDS u/s 194 LA deducted on compensation paid for acquiring agriculture land?
Ans. "194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent, of such sum as income-tax thereon: There is no jurisdiction to make deduction from compensation for agricultural land. Risal Singh v. Union of India2010] 321 ITR 251 (PUNJ. & HAR.)
Q.27. Whether definition of 'agricultural land' contained in section 2(14)(iii) (a) & (b) cannot be borrowed to influence definition of 'agricultural land' contained in Explanation to section 194LA?
Ans. There are two definitions of the agricultural land in the Act. One is provided in section 2(14) and the other in section 194LA. The question now arises which definition is to be used for deciding the issue, whether land acquired by the LAO is agricultural land or not or what is acquired is part and parcel of or inclusive of agricultural land. For deciding the issue one has to see the purpose and object for which the two definitions have been enacted. Since in section 2(14)(iii)(a) & (b) definition of agricultural land is given in the context of deciding what should be the capital asset then this definition can be used only for that purpose. The definition in section 2(14)(iii ) is linked with section 45 where chargeability of capital gains is provided on transfer of capital asset. Therefore, the definition of agricultural land as capital asset in section 2(14), read with section 45, cannot be imported to influence the concept of agricultural land as specifically provided for in section 194LA.
The definition of immovable property given in section 1 94LA, and the definition of agricultural land given therein are specific to the activity of deduction of tax. Specific enactment for specific purpose should alone be invoked. Special Land Acquisition Officer * v. ITO[20 10] 42 SOT 9 (ITA T-AHD.)
Q.28. Whether interest on delayed payment of enhanced compensation in respect of acquisition of immovable property is revenue receipt eligible to tax u/s 4 and, therefore, is liable to TDS u/s 194A?
Ans. It has been concluded by the Supreme Court in various cases that interest on delayed payment on the acquisition of immovable property would be revenue receipt and would, thus, be exigible to tax.
Once interest is regarded as revenue receipt, then it would fall within the mischief of section 4, which is a charging section. Therefore, TDS under section 1 94A was to be paid by the petitioner in respect of the interest income on the delayed payment. Karnail Singh v. State of Haryana*[2010] 326 ITR 501(PUNJ. & HAR.)
Q.29.Whether claimant is not liable to pay income-tax or if he is entitled to pay tax at lower rates, he will have to obtain necessary tax deduction certificate from Land Acquisition Officer and claim such benefit before competent authority under Act?
Ans. It is a well settled position of law that whenever any authority deducts income-tax at source, he is bound to issue a tax deduction certificate to the claimant. So, the claimant is entitled to get a certificate of tax deducted at source or tax paid under sub-section (1A) of section 192 by the Land Acquisition Officer. Under rule 31(1) a certificate shall be issued within the time fixed under the rules and in the form prescribed. If the compensation and interest due under a decree is to be divided among a number of claimants, income-tax has to be deducted from the share found due to each claimant and separate tax deduction certificates issued to each of them. State of Kerala* v. Mariyamma[2006] 280 ITR 225 (KER.)
(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay 'Voice of CA' & Team)
All about HUF with Sole surviving Coparcener
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SOLE SURVIVING COPARCENER
A coparcener outliving all other coparcener is known as the sole surviving coparcener. He may be alone in the family or there may be other female member along with him in the family. The nature of property in the hands of such sole surviving coparcener is that of HUF property.
Sole Coparcener without any male or female member
- SINGLE person CANNOT constitute a family.
- If ONLY a widow was left in the family after the death of sole male coparcener. It was laid down by the court that the family was brought to an end.
- If it was not possible to add a male member by nature or by law. [Anant Bhikappa Patil Vs Shankar Rama chandra Patil AIR 1943 PC 196]
Other forms of Sole coparcener
- Temporary reduction to a single coparcener [Attorney General of Ceylon Vs A.R. ArunachalamChettiar&Ors. (1958) 34 ITR (ED) 42 (PC)]
CANNOT convert the property of undivided family to separate property of the sole coparcener.
- Sole coparcener with a female member can constitute HUF. [Gowli Buddanna Vs CIT (1966) 60 ITR 293 (SC)]
Effect of Subsequent marriage of sole surviving coparcener and not getting a son
In CIT v. Parshottamdas K. Panchal [2002] 257 ITR 0096 [Gujarat], it was held that:
An individual who receives ancestral property at a partition and who subsequently acquires family, but has no male issue, would hold that property only as the property of the family. Under the Hindu law the wife of the coparcener is certainly a member of the family. Whatever be the school of Hindu law by which a person is governed, the basic concept of a Hindu undivided family in the sense of who can be its members is just the same. Thus, in order to constitute a joint family, it is not always necessary that there must be two male members.
Cases where property before partition was HUF or self acquired property in father's hands, distinguishable from each other
1. Self acquired property In the hands of father. {Kalyanji Vithaldas & Ors. Vs CIT (1937) 5 ITR 90 (PC)}
- it's NOT a joint family property
2. HUF property in the hands of father. {Attorney General of Ceylon Vs A.R. Arunachalam Chettiar & Ors. (1958) 34 ITR (ED) 42 (PC)}
- it's a joint family Property
Powers of Sole coparcener
- Sole coparcener can dispose of the coparcenary property as it were his separate property, he can sell or mortgage it or gift of it. {CIT Vs Anil J. Chinai (1984) 148 ITR 3 (Bom)}
- Sole coparcener can settle property as he likes. {Anil Kumar B. Laskari Vs CIT (1983) 142 ITR 831 (Guj)}
- Sole Coparcener cannot make partition of property nor he grants share. {B.T. Ravindranath Punja Vs CIT (1989) 179 ITR 243 (Kar.)}
- Sole coparcener can make valid gift of immovable property. {CIT Vs Admiralty Flats Motel (1982) 133 ITR 895 (Mad)}
(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay 'Voice of CA' & TeamWho can be Karta of HUF his powers; Can Female / Minors / Junior Member can be Karta of HUF
KARTA OF HUF
The Karta is the manager of HUF and have wide powers by way of controlling the affairs of the HUF. The Karta enjoys his position in the HUF by operation of law without any agreement and consent of other members of HUF. He stands in a fiduciary relationship with other members, but he is not accountable to anyone.
Article 236 of the Mulla Hindu Law defines "Karta" as follows:
"Manager - Property belonging to a joint family is ordinarily managed by the father or other senior member for the time being of the family: The Manager of a joint family is called Karta."
The Karta is entrusted not only with the management of properties of the family but is also entrusted with the general welfare of the family. Karta is the head of the family and acts on the behalf of all members of the family but an agent of members of the family.
Who can be 'KARTA'?
1. The Karta is the senior most male coparcener of the HUF.
Even if the Karta becomes aged, infirm, ailing, or even a leper, he may continue to be Karta. Where the senior most member is not Karta, the next senior male member takes over as Karta. [Man vs. Gaini ILR (1918) 40 All 77].
2. A junior coparcener can be Karta
Only if the senior most member gives up his right, a junior coparcener can become Karta of the HUF, with the consent of all other members as held by Supreme Court in Narendra Kumar J. Modi Vs CIT (1976) 105 ITR 109 (SC).
3. There can be more than one KARTA of a HUF
Darshan Vs Prabhu ILR (1946) All 692
4. Only Coparcener can become Karta
The Supreme Court in CIT vs. Seth Govindram Sugar Mills [1965] 57 ITR 510 (SC) held that coparcenership is a necessary qualification for the managership of a joint Hindu family.
5. Minor as Karta
In absence of the father, the elder minor son could act as the Karta of the family. Therefore, a minor can be the managing member of a Hindu undivided family.[BudhiJena v. DhobaiNaik (AIR 1958 Orisss 7)]
POWERS OF KARTA
- Managing the affairs of HUF
- Control & become custodian of the finances
- Can borrow money for & on behalf of HUF
- Spend money for the family & not accountable for it.
- NOT liable to submit account to anybody.
- Can make partition of the family suo moto.
- Quantum of partition shall be with KARTA's liking.
- HUF cannot enter in to contracts, or form partnership firm, or represent except through Karta, however Karta may allow others to represent HUF.
- Can Gift away the movable properties of HUF for natural love & affection but within reasonable limit.
- May transfer immovable properties for pious purposes or for the benefit of the family.
BACKGROUND MATERIAL ON DIRECT TAXES
Position of Female in HUF
After amendment made by Hindu Succession (Amendment) Act, 2005, daughter can be coparcener of HUF like the sons of HUF. After her marriage she becomes member of her husband's HUF and continues to be a coparcener of her father's family. Being a coparcener, she can also seek partition of the dwelling house where the family resides and she can also dispose of her share in coparcenery property at her own will. If a Hindu dies, the coparcener property shall be allotted to the daughter as is allotted to sons. If a female coparcener dies before partition, then children of such coparcener would be eligible for allotment, assuming a partition had taken place immediately before her demise. A widow of a pre-deceased son even though remarried is now eligible for share in property as legal heir of the pre-deceased son of the family.
Female as Karta
Many courts had held that only a coparcener can become Karta of HUF. Since, a female was not considered as coparcener, she was not empowered to act as Karta prior to amendment in Hindu Succession Act. However, w.e.f. 6thSeptember, 2005, after amendments made by Hindu Succession (Amendment) Act, 2005 in respect of position of female member, the daughter of coparcener shall by birth become a coparcener in her own right in the same manner as the son.
Powers of Alienation
The power of alienation cannot be exercised except by Karta the joint family property can be alienated for the following three purposes only:
a. Legal necessity(Apatkale)
b. Benefit of estate of the family(Kutumbarthe)
c. Acts of Indispensable duty (Dharmamarthe)
The Karta can alienate the joint family property with the consent of the coparceners even if none of the above exceptional cases exist and if all the coparceners are adult, the alienation is binding on the entire joint family.
[Kandasami V. Somakanda ILR (1912) 35 Mad 177]
Legal Necessity–
The cases of legal necessity can be so numerous and varied.Some of the instances of a necessity may be outstanding revenue dues, ancestral debts, marriage expenses, discharge of outstanding decrees, personal necessities arising from poverty, sickness, incapacity for work, etc., legal expense in defending estate, litigation to protect estate, etc..
Property sold and mortgaged for an unlawful purposeand immoral purposes cannot be said to be legal necessity. As the property was alienated for the purpose of marriage of minor daughters, it cannot be called as lawful alienation. [DevKishan v. Ram Kishan AIR 2002 Raj 370]
a. Alienation Is Voidable
The alienation of property by Karta without any legal necessity/ benefit of estate/ discharge of indispensable duties is only voidable at the instance of any coparcenery and not void. [CIT v Gangadhar Sikaria Family Trust (1983) 142 ITR 677]
Where HUF is governed by Mitakshara School of Hindu law and property is alienated by Karta without legal necessity or benefit of minors, it is only voidable and not void, and therefore, any income derived from properties so transferred is not assessable in hands of HUF. [R.C. Malpanivs CIT [1995] 80 Taxman 546 (GA U.)]
b. Benefit of Estate–Itincludes anything which is done for the positive benefit of the joint family property.
c. Indispensable Duties - This term implies performance of those acts, which are religious, pious, or charitable.
(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay 'Voice of CA' & Team)
Auditor's responsibility under Companies Act, 2013 and detailed analysis of Section 139
CA Anshika Patni
Overview of various sections for Auditor's responsibility under Companies Act, 2013 and detailed analysis of Section 139.
Certain Sections of Companies Act, 1956 which are now not in existence as per Companies Act, 2013 are as follows:
Section 224A: Auditor not to be appointed except with the approval of the Company by Special resolution in certain cases.
Section 233A: Power of Central Govt. to direct Special Audit in certain cases
New Sections relating to Auditors:
| Section Name | Section No. as per New Companies Act,2013 | Section No. as per Old Companies Act, 1956 |
| Appointment of Auditor | 139 | 224 |
| Removal, resignation of Auditor and giving of special notice | 140 | 225 |
| Eligibility, Qualifications & Disqualifications of Auditors | 141 | 226 |
| Remuneration of Auditor | 142 | 224 |
| Powers and Duties of Auditor and AS | 143 | 227, 228 |
| Auditors not to render certain services. | 144 | New insertion |
| Auditor to sign Audit report | 145 | 229,230 |
| Auditor to attend General Meeting | 146 | 231 |
| Punishment for contravention | 147 | 232, 233 |
| Central Govt. to specify audit of items of cost in respect of certain Companies. | 148 | 233B |
Section 139 :
Overview of Section:
| Rules regarding Appointment of First Auditor: | |
| In case of Govt. Company | Incase of other than Govt. Company |
| Appointment of Auditor by BOD within 30 days of Registration of Company. In case of failure by BOD, members of The company will appoint within 90 days at an EGM who shall hold office till the conclusion of first AGM. |
Rules regarding Appointment of Other Auditor:
It includes rules regarding rotation, reappointment and filing of casual vacancy.
1. Appointment of Auditor:
a. In case of Govt. Company:
Auditor will be appointed by the C&AG within 180 days from the commencement of the Financial Year, who shall hold office till the conclusion of the AGM.
b. In case of other than Govt. Company:
- Every other company shall at the first AGM appoint an individual or a firm as an Auditor who shall hold office from the conclusion of that AGM till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting.
- Even if the auditor is appointed for 5 years, then also members of the Company should ratify such appointment at every AGM.
- The manner and procedure of the appointment of the Auditor is prescribed by CG.
- Before the appointment of the auditor the written consent of the auditor to such appointment and certificate showing compliance of Section 141 and other conditions as prescribed, should be obtained.
- Notice of Appointment of Auditor should be filled with the Registrar within 15 days of the meeting in which the auditor is appointed.
2. Some other Provisions regarding re appointment of Auditor:
a. A retiring auditor may be re- appointed at an AGM, if:
i. He is not disqualified for re-appointment
ii. He has not given the company a notice in writing of his unwillingness to be re appointed
iii. A special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be appointed.
3. Where at an AGM, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the Company.
4. Provisions for Listed and other prescribed Company:
If Mr. X is a common partner in firm XYZ and Firm VWX , then Firm VWX is also not eligible for appointment as auditor in Co. ABC Ltd. For that 5 years (i.e. from 2013-14 ).
Already existing Company shall comply with these provisions of listed company within three years from the date of commencement of this Act.
5. In case of Casual Vacancy:
Note: In case of resignation by auditor:Tax Implications: Political Party
CA Anshika Patni
AS REGARDS taxation of political parties, the income tax law prevalent in India has shown a kind and compassionate treatment. Section 13A of the Income-tax Act, 1961 confers tax-exemption to recognized political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources. In other words, only income under the head salaries and income from business or profession are chargeable to tax in the hands of political parties in India.
These political outfits can enjoy the above-said tax-exemption if they maintain proper books of accounts and other documents along with a record of contributions in respect of donations to the party in excess of Rs 20, 000. Further, the accounts of such political party are to be audited by a chartered accountant and the party must be registered with the Election Commission of India. However, it would be enough if such political party keeps and maintains such books of accounts and other documents as would enable the assessing officer to properly deduce the income therefrom. In other words, the party need not maintain all books and records as prescribed under section 44AA of the Income-tax Act.
Since the income of political parties are governed by the special provisions of section 13A of the Income tax Act, 1961, the provisions of Chapter IV-D of the Act which are applicable for normal profits and gains of normal profession can not be applied in the cases of political parties. Further, income of political parties from voluntary contributions cannot be said to be income from profession so as to attract section 44AA or 44AB or section 271B of the Income-tax Act. However, the political parties are required to maintain the accounts and getting them audited by a chartered accountant, as provided u/s 13A for claiming exemption.
Under section 45(i) of the Wealth tax Act, 1957 no tax would be levied in respect of the net wealth of any political party as defined in Explanation to section 13A of the Income –tax Act, 1961. Thus, political parties in India are destined to enjoy tax freedom not only from the so-called income tax law but also from its sister law, viz, the wealth-tax law.
Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year. If and when the total income of a political party exceeds the maximum amount, which is not chargeable to tax, the liability of the political party to file ROI voluntarily arises. For this purpose, total income has to be computed without giving effect to provisions of section 13A. In case of political parties, the returns are required to be signed by the 'Executive Officer' of the parties.
Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time.
Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year. If and when the total income of a political party exceeds the maximum amount, which is not chargeable to tax, the liability of the political party to file ROI voluntarily arises. For this purpose, total income has to be computed without giving effect to provisions of section 13A. In case of political parties, the returns are required to be signed by the 'Executive Officer' of the parties.
Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time.
Accordingly, the party treasurer must file a report of contributions received to the Election commission before the due date for furnishing the return of income under Section 139 of the Income tax Act. More importantly, section 13A has been amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer. Moreover, contributions over Rs.20,000 should be by crossed cheque or draft. However, the parties can receive any amount below this from any person without submitting the report from the party treasurer.
Section 80GGB is a new insertion in the Income-tax Act, 1961. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. Interestingly, there is no ceiling fixed on the amount of such contribution. Section 80GGC gives similar deduction for non-company taxpayers. Advertisements in souvenirs published by political parties would also be eligible for deduction. For this purpose, the term "political party" means a political party registered under section 29A of the Representation of the People Act, 1951.
NOTES:
1. Tax exemption of political party is governed by – Section 13A
1. Tax exemption of political party is governed by – Section 13A
2. Return of Income to be filed by Political Party – Section 139 (4B)
3. ITR -7 to be used for filing ROI
4. Deduction to the person giving Donation to Political Party:
Companies- Section 80GGB
Non-Companies – Section 80GGC
5. Political part to be registered u/s 29 of Representation of People act.
6. Books of Political Party should be audited in any case to get exemption.
7. Exemptions available u/s 13A:
• Income from H/P
• Income from Voluntary Contribution
• Income from CG
• Income from OS
• Income from Voluntary Contribution
• Income from CG
• Income from OS
8. Proper records should be maintained and a declaration is to be filed with Election Commission regarding receipt of Donation exceeding Rs. 20000 before the due date of furnishing the Income tax Return.
9. Contribution exceeding Rs. 20000 should be by crossed cheque or draft.
10. Exemption u/s 13A is now contingent to the filing of declaration to EC.
5 Ways People Use to Convert Black Money into White Money
Rohit Kapoor
The Article no ways encourage taxpayers to use any of the below methods. The Article is just to let people know about what others are doing to convert their Black Monet into white money currently in India. In addition to those mentioned below there are many other methods which people use to convert their black money into white money.
CASE 1: Go to a Jeweler. Give him the amount you want to convert into white as cash. he would give you a cheque back for the same amount less 4%. He would give you a purchase bill to show that you have sold silver utensils to him. On the amount of the cheque when you file your return you will have to pay no capital gain tax as Silver utensils are Personal effects and capital gain does not arise on sale of personal effects. There you go , the money is white now!!!
CASE 2: Conversion of Black Money to White Money with the application of Sec 51 of the Income tax act, 1961.
Mr. X : A Business man who wants to convert is black money to white.
Property: Cost of Acquisition: Rs. 10 Lacs.
Mr. Y: A Salaried person who wants to convert his white money to black may be because he has to make payment in black for the property purchased by him.
Mr. X enters into an agreement with Mr. Y for the sale of property for Rs. 150 lacs with a condition that advance money of Rs. 30 lacs shall be given by Mr. Y and balance shall be paid within 3 months else advance money shall be forfeited.
Modus Operandi: Mr. Y makes payment of Rs. 30 lacs to Mr. X by way of a cheque as the advance money and Mr. X in turns gives the black money to Mr. Y of the same amount. Now, Mr. Y intentionally fails to make balance payment within the due time and the amount is forfeited by Mr. X. In this manner black money of Mr. X is converted to white money.The money is white now!!!
CASE 3: Another popular way of converting black into white money is by getting a gift from a relative. For this modus operandi, the relative must possess white money. For example, you have some black money (say Rs. 10 lacs) which you want to convert into white. You can ask your relative to gift you Rs.10 lacs by way of cheque and you will in turn transfer your black money to him/her. Here 56(2)(vii) is not attracted as gift is received from a relative.
CASE 4:- Converting black to white by way of cheque
People also give the black money to a person (say a family member or a friend) and take a cheque from them. They show that as a loan receipt and thus they can temporarily convert their black money into white.
Then they again give them a check as a repayment of loan and receive cash which converts white to black again, but during the time the loan is outstanding, they convert their black into white, but people who do this are not aware that Section 68 on loans is applicable and you will have to prove the creditworthiness as well as the genuineness of transactions to the IT Department or else the loan receipt will be treated as income from undisclosed sources.
CASE 5: Another popular way of converting black into white money is showing income in cash like tuition income or any other professional fees.Just pay the tax at normal rate and your money is white now!!!!
Also people make investment where it is allowed to invest in cash and where the maturity is tax free for example buying an insurance policy where you are not required to show all your premiums and the maturity is tax free. For example your insurance premium is 25000/- per annum and you can pay 6000 in check (shown in books) and remaining in cash, people increasing the proportion of premium paid in cash increasing as and pay entire premium in white for last two years before maturity. No ITO is going to check premium of more then last two years and it is a small example. People are paying huge cash premiums everyday. In case of this small premium, the cost of investigation exceeds the benefit to the exchequer so the ITO will give a test check for at the max last two years.
DISCLAIMER
- I don't recommend readers to follow any of these steps. I just want them to be aware regarding these false practices.
- I encourage open discussion regarding this article but advices, opinions, suggestions which may land the opinion seekers into trouble later on are not encouraged.
- I trust that a tax planning should be done in such a way that it can stand the test of the legal battle of course subject to debates.
(Author Email – professionalsansaar2013@gmail.com)
Why adequate sleep is important
CA Rajesh Pabari
Summary from the TED talk of Mr. Russell Grant Foster, a British professor of neuroscience
What is adequate sleep?
Many scientists agrees that 8 hours is quite sufficient and varies from 6.5 hours to 8 hours from person to person. He also mentioned that teenagers needs 9 hours of sleep. Normally, an average person spends 36% of time sleeping. If you are 90 in age, 32 years will have been spent entirely asleep.
Why study of Sleep is Important?
We spend approx. 36% of our life sleeping, so naturally, it makes perfect sense to study what happens during sleep and how it really affects our life, i.e. the other 64% of our life when we actually perform our daily duties and work.
Why do we sleep?
There are dozens of different ideas about why we sleep. We are discussing only the three major concepts.
1. Restoration Process – During the hours when we are awake, we burn up energy, cell and much more. Many kinds of genes are observed to be turned on only during the sleep and those genes are associated with restoration and metabolic pathways. (Meaning of metabolic process: This includes processes for cell growth, reproduction, response to environment, survival mechanisms, sustenance, and maintenance of cell structure and integrity. It is made up of two categories: catabolism and anabolism.) So, scientifically proved that there are evidences of the concept of restoration.
2. Energy Conservation – As per the latest researches, it has been discovered that we save 135 calories while asleep. (On an average we require around 2200 to 2700 calories.) So, to conclude, only a little energy is saved because of sleep. And the concept doesn't stand true as expected.
3. Brain processing and memory consolidation: After experiments, a conclusion was arrived that if you deprive someone of sleep when that person is trying to learn new tasks, the ability to learn that task is weakened greatly. Memory consolidation means that whatever we have learned is properly organized in the brain during sleep. So sleep plays vital role in retention of learning and memory consolidation. (This means that while studying variety of subjects and variety of new things in CA curriculum, we desperately require adequate sleep, and for better retention of learning and better memory functioning, adequate sleep is of prime importance). It's not just about learning and memory. What's turned out to be really exciting is that our ability to come up with novel solutions to complex problems is hugely enhanced by a night of sleep. In fact, it's been estimated to give us a threefold advantage. (1) Sleeping at night enhances our creativity. (2) And the brain cells and neural connections that has been established during the day time is enhanced, linked and strengthened during the sleep. At the same time, the less important neural connections we had during the day time fades away, so that other parts can function optimally. The most important thing is that brain doesn't stop functioning while we are asleep. In fact, some areas of the brain are more active during the sleep state than the wake state.
Is sleepiness an illness?
No, He says feeling sleepiness during the day is not illness. It just says that your body clock is asking for sleep for some vital functions to happen in your body. If you don't allow, it will result in microsleeps (3-5 seconds sleep). That's not illness. Sleep is a natural process inevitable for the body. Unknowingly by treating sleep as our enemy, we are endangering ourselves in greater problems. This needs mention here because most of the people think of sleep and oversleep problems as illness that needs cure (of course, if you are unable to sleep, that is a big problem that needs cure).
Why people think of Sleep as Illness or waste of time?
Because, we think that we don't do any activities in that particular time of sleep. But actually speaking, sleep is incredible part of our biology.
What about current situations in the world?
Normally, a human being needs at least eight hours of sleep, while we take on an average 6 to 7 hours of sleep, which is not sufficient for human body and its vital functions. For teenagers, the scenario is worse, they require at least 9 hours of sleep for full brain performance, but most of the times teenagers sleeps even lesser than 6 hours most of the time. It's simply not enough.
What about Aged people?
It is a myth to assume that aged people requires lesser sleep. That's a complete myth. It's true that aged people cannot sleep at a stretch for longer period of time. For this reason, people start assuming that aged people require less sleep.
What are the results of taking lesser sleep than required?
The brain indulges itself into microsleeps, this involuntarily falling asleep and you have no control over it. It's not just embarrassing but can be deadly. It's been estimated that 31 percent of drivers will fall asleep while driving at least once in their life. In U.S., the statistics are pretty astonishing, 100,000 accidents each year on the freeway have been associated with tiredness, loss of vigilance, and falling asleep. Investigations behind Chernobyl blast and mishap of Challenger Space Shuttle show that they were caused by poor judgment as a result of extended shift work and loss of vigilance and tiredness. So when you're tired, and you lack sleep, you have poor memory, you have poor creativity, you have increased impulsiveness, and you have overall poor judgment.
Summary from the TED talk of Mr. Russell Grant Foster, a British professor of neuroscience, currently based at Brasenose College at the University of Oxford. He studies the sleep cycles of the brain. And he asks: What do we know about sleep? Not a lot, for something we do with one-third of our lives. In this talk, Foster shares three popular theories about why we sleep, busts some myths about how much sleep we need at different ages — and hints at some bold new uses of sleep as a predictor of mental health.
CA Rajesh Pabari: So, to conclude, we should take proper sleep because it is very important for vital functions of the Body and disease resistance mechanism, memory, creativity, learning process and many other such things which scientists still don't know. I think we should take it seriously and not deprive ourselves from proper sleep. (Approx 7 to 8 hours sleep is must, and for teenagers the requirement of sleep is slightly higher, its 8 to 9 hours)
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