Monday, June 2, 2014

[aaykarbhavan] Judgment and Information [7 Attachments]




IT : Section 14A would have no application in respect of income not being taxable on account of deduction under section 80-P(2)(d)
■■■
[2014] 45 taxmann.com 152 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax, Ahmedabad IV
v.
Banaskantha Dist. Co. Op. Milk Producers' Union Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO.271 OF 2014†
MARCH  31, 2014 
Section 14A, read with section 80P, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Deduction under section 80P) - Assessment year 2005-06 - Assessee claimed deduction under section 80P(2)(d) on account of interest receipt and dividend received - It also debited interest expense which was disallowed by Assessing Officer on ground that expense which had been incurred in relation to income which did not form part of total income could not be allowed - Delhi High Court in case of CIT v. Kribhco [2012] 349 ITR 618/209 Taxman 252/23 taxmann.com 312 held that section 14A would have no applicability in relation to deductions to be made while computing total income under chapter IV - Whether, therefore, no disallowance could be made under section 14A in respect of income on which deduction was allowed under section 80-P - Held, yes [In favour of assessee] [Paras 7, 8 & 9]
FACTS
 
■  The assessee was a co-operative society engaged in the business of procuring, processing, manufacturing and supply of milk and milk products and claimed deduction under section 80-IB.
■  It claimed deduction of certain amount under section 80P(2)(d) on account of interest receipt and dividend received.
■  It debited interest of Rs. 7,64,45,713. The Assessing Officer disallowed the claim of expense under section 14A to the tune of Rs. 18,21,203 related to interest and dividend income. On the ground that sub-clause (3) of section 14A provides that expense which had been incurred in relation to the income which did not form part of total income could not be allowed.
■  Both the Commissioner (Appeals) and the Tribunal deleted the disallowance and held that provisions of section 14A could not be applied to the provisions of chapter VIA where the deductions were to be made in computing the total income and the same could not be compared with the exempted income, which did not form part of the total income as provided in Chapter III.
■  On appeal by the Revenue to the High Court:
HELD
 
■  Question to be addressed is as to whether section14A would apply to provision of Chapter VIA. Provision of section 14A when examined, it operates in respect of the income not forming part of the total income. It could be noted that provisions of Chapter VIA(sections 80A to 80U) refer to deductions to be made in computing the total income. Such deductions, in no manner, can be compared with the exempted income, which does not form part of the total income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any reference of deduction to be made in computing the total income as per provision of Chapter IVA in section 14A. Undoubtedly, as provided under Chapter VIA while computing the total income of the assessee from his gross total income in accordance with and subject to the provision of this chapter, the deductions specified are permissible. As a resultant effect, the taxable income of the assessee would surely get reduced and yet there is marked difference between the exempted income and the deduction provided under Chapter VIA. The investment in shares made by the assessee which earned him the dividend was from his own income. Moreover, from the very provision of section 14A, the same would have no application in respect of the income not being taxable on account of deduction under section 80P(2)(d). Both the authorities have rightly held that there is no application of section 14A as far as the deduction under section 80A to 80U under Chapter VIA are concerned. [Para 7]
■  The Delhi High Court in the case of CIT v. Kribhco [2012] 349 ITR 618/209 Taxman 252/23 taxmann.com 312 decided identical question of law by elaborately discussing the law on the subject whereby it has held that section 14A would have no applicability in relation to deductions to be made while computing total income under Chapter IV. The Delhi High Court observed that Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced. [Para 8]
■  The ratio laid down in the said decision of Delhi High Court is to followed and there is no reason to interfere with the findings/conclusions rendered by both the Revenue authorities, namely, Commissioner (Appeals) and the Tribunal who answer the question in favour of assessee and against the Revenue tax Appeal is according disposed of. [Para 9]
CASE REVIEW
 
CASES REFERRED TO
 
Asstt. CIT v. Tamil Nadu Silk Producers Federation Ltd. [2007] 105 ITD 623 (Chennai) (para 4) andCIT v. Kribhco [2012] 349 ITR 618/209 Taxman 252/23 taxmann.com 312 (Delhi) (para 8).
Varun K. Patel for the Appellant.
ORDER
 
Ms. Sonia Gokani, J. - Revenue has preferred this appeal aggrieved by the order of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated 30.8.2013 raising following substantial questions of law for our consideration:—
"(i)  Whether in facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of CIT(A) deleting the addition of Rs.87,39,536/- made by the assessing officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules?
(ii)  Whether, in the facts and circumstances of the case, the learned ITAT has erred in law in holding to the effect that the provisions of section 14A does not apply to income for which deduction under Chapter VI-A (section 80A to 80U) of the Income Tax Act is available?
(iii)  Whether the words 'income which does not form part of total income under this Act' used in section 14A of the Income Tax Act, 1961 include the income which is not chargeable to tax pursuant to provisions of Chapter VIA (section 80A to 80U) of the Income Tax Act?"
2. We have heard learned counsel Mr. Varun Patel for the Revenue and with his assistance scrutinized the material on record. Questions proposed though are three in numbers, essentially lead to a single issue as to whether provision of section 14A read with Rule 8D of the I.T. Act and Rules would be applicable to income, not chargeable to tax by virtue of provisions of Chapter VIA (sections 80A to 80U) of the Act? Brief facts necessary for adjudication are as follows:
3. For the assessment year 2005-06, the assessee filed the return of income. The assessee is a cooperative society engaged in the business of procuring, processing and manufacturing milk and milk products and supply of the same and claimed deduction under section 80IB. In the scrutiny assessment, it was noticed by the assessing officer that the assessee claimed deduction of Rs.2,28,90,110/- under section 80P(2) (d) of the Act on account of interest receipt. The assessee had also claimed deduction under section 80P(2) (d) of Rs.82,44,575/- on account of dividend received. The assessee had debited interest of Rs.7,64,45,713/-. The assessing officer disallowed the claim of expenses under section 14A of the Act to the tune of Rs.18,21,203/- on the ground that sub-clause (3) of section 14A provides that expense which has been incurred in relation to the income which does not form part of total income cannot be allowed.
3.1 Aggrieved by the order of the assessing officer, assessee carried the matter before CIT(Appeals). CIT(Appeals) deleted the addition of Rs.18.21 lakhs (rounded off) made by the assessing officer under section 14A read with rule 8D of the Income Tax Rules,1962 giving detailed reasonings.
4. This was carried in appeal before the Tribunal by the dissatisfied Revenue. The Tribunal placed reliance on the decision of ITAT Chennai Bench Asstt. CIT v. Tamil Nadu Silk Producers Federation Ltd. [2007] 105 ITD 623, wherein it has been held that provisions of section 14A cannot be applied to the provisions of Chapter VIA where the deductions are to be made in computing the total income and the same cannot be compared with the exempted income, which does not form part of the total income as provided in Chapter III. The Tribunal also took into account that the provisions of section 14A when introduced retrospectively for the purpose of computing the total income under chapter IV and no deduction could be allowed in respect of the expenditure incurred by the assessee in relation to such exempted income, provisions of section Chapter VI-A does not speak about deduction to be made as per provisions of section 6A even though as a result of such deduction taxable income is reduced wholly or partially.
5. Having noted such decisions and discussion of CIT(Appeals), the Tribunal held thus:—
"4. With this brief background, we have heard both the sides. Our attention has been drawn on the balance sheet of the assessee drawn as on 31st of March 2008, wherein it was found that the paid up share capital was to the tune of Rs. 37,05,88000/-. Our attention has also been drawn that the assessee had reserves another funds of Rs.20,43,06,246/- as against that the investment in shares, NSC, KVP were at Rs . 8,17,57,010. On the basis of these figures, the vehement contention is that the assessee had sufficient own funds and, therefore, there was no reason to invoke the provisions of Section 14A of the IT Act. The other plank of argument before us is that the assessee has not claimed that any part of income was totally exempt from the Income Tax. But the fact was that the profit as per P & L A/c was Rs.7,80,29,871/- against which the assessee has claimed deduction u/s 80IB and u/s.80P(2) (d) of the IT Act. The total assessable income was computed at Rs.4,00,68,881/-. The assessee has, therefore, argued before us that the provisions of Section 14A cannot be applied to the provisions of Chapter-VIA, i.e., in respect of deductions u/s.80A to Section 80U of the IT Act. The argument of the assessee is that the deduction under the said Chapter is to be made out of the computation of the total income. Those deductions are not like exempted income. So the argument in relation to income which does not form part of the total income, i.e. as income exempt under the Act. In this regard, a decision of ITAT Chennai Bench pronounced in the case of Tamil Nadu Silk Producers Federation Ltd.(supra) has been cited. Respectfully following this decision as also considering the totality of the facts and circumstances of the case, we are of the considered opinion that learned CIT(A) has rightly held that the provisions of Section 14A have wrongly been invoked in this case. In the result, we hereby affirmed the finding of learned CIT(A) and dismiss this ground of the Revenue." (Emphasis supplied)
6. Section 14A of the Act reads as under:—
"14A. Expenditure incurred in relation to income not includible in total income.— (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.
(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.
(3) The provisions of sub-section(2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:
Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001."
7. Question to be addressed is as to whether section 14A would apply to provision of Chapter VIA. Provision of section 14A when examined, it operates in respect of the income not forming part of the total income. It could be noted that provisions of Chapter VIA (sections 80A to 80U) refer to deductions to be made in computing the total income. Such deductions, in no manner, can be compared with the exempted income, which does not form part of the total income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any reference of deduction to be made in computing the total income as per provision of Chapter IVA in section 14A. Undoubtedly, as provided under Chapter VIA while computing the total income of the assessee from his gross total income in accordance with and subject to the provision of this chapter, the deductions specified are permissible. As a resultant effect, the taxable income of the assessee would surely get reduced and yet there is marked difference between the exempted income and the deduction provided under Chapter VIA. We notice that the investment in shares made by the assessee which earned him the dividend was from his own income. Moreover, from the very provision of section 14A, the same would have no application in respect of the income not being taxable on account of deduction under section 80P(2)(d). Both the authorities have rightly held that there is no application of section 14A as far as the deduction under sections 80A to 80U under Chapter VIA of the Act are concerned.
8. We notice that the Delhi High Court in the case of CIT v. Kribhco [2012] 349 ITR 618/209 Taxman 252/23 taxmann.com 312 decided identical question of law by elaborately discussing the law on the subject whereby it has held that section 14A would have no applicability in relation to deductions to be made while computing total income under Chapter IV. In the words of the Delhi High Court it was observed as under:—
'31. While dealing with the detailed arguments raised by the Revenue, the Division Bench of this Court observed that broadly speaking the figure of total income is arrived at, as per the Act, in four stages. Firstly, the income of the resident assessee is computed by including all incomes, profits and gains arising in India or outside. Similarly income of resident but not ordinary resident or nonresident, are computed in accordance with Section 5 Chapter II, which forms the basis of Charge. Secondly, Chapter III with the heading "Incomes not included in the total income", comprises of Sections 10 to 13 and these incomes are not included in total income but some exemptions are only partial and not total. Thirdly, even in case of income, profit and gains included for arriving at the total income, the entire income is not liable to tax. Deductions as stipulated in Chapter IV can apply, e.g. Sections 34, 35A and 35B etc. Even in Chapter VI, deductions for set off or carry forward of loss is allowed. Fourthly and lastly, certain deductions were permissible under Chapter VII and Chapter VIII and which had been substantial or partly replaced and were placed under Chapter VI-A. These were deductions which were reduced from the income computed in accordance with the earlier provisions/Chapters of the Act. These deductions were made in the computation of total income and, therefore, definition of "gross total income", which was/is arrived at without reference to the deduction allowable under Chapter VI-A, was introduced. The deductions available under Chapter VI-A were either wholly or partly reduced from the "gross total income". The contention of the Revenue that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in CIT v. Dalmia Cement (Bharat) Ltd. [1980] 126 ITR 736 (Delhi), for the following additional reasons:—
(1)  The word "part" used in the Rule was to describe income fulfilling the description i.e. the category or class of the income. In other words it should indicate an identifiable section, category or class of income rather than mere portion or amount of such income. The question raised should be "whether this income was included" and not "whether any deduction was allowed". The use of the word "part" contemplates a type of income which by its very nature does not form part of the total income. The word "includible" supports that reference to the general nature and class of income rather than factual inclusion.
(2)  It is not the actual quantification of the income which matters but whether or not income was excluded from the total income. It is the class of income rather than the amount which would determine whether or not the said class of income forms part of the total income. Incomes of the categories referred to in Chapter VI-A were to be taken into account as a part of total income and they do form part of the gross total income which was the first step in the process. Accordingly, even after the deduction allowable under Chapter VI-A, they form a part of the total income and do not get excluded merely because deduction is allowed.
(3)  The Legislature had enacted sections 80C to 80U in Chapter VI-A, as a measure of relief from taxable liability. It incorporates and allows deductions. The income from these "sources" was included in the income, but subjected to deduction. Qualification would vary from section to section. Further in some cases the deduction was full and in some cases it was partial but this was not material and it did not mean that if an amount was deducted it did not form part of the total income.
32. Thus, the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid.
33. It can be urged (though it was not specifically argued by the Revenue) that in case of complete or entire deduction of the gross amount, Section 14A will be applicable, and Section 14A will not apply in case only the net amount (as stipulated in several Sections in Chapter VIA of the Act) is allowable as a deduction. There will be a fallacy in this argument. Even were partial or net amount is to be allowed as a deduction, the figure can be minus or in a loss. Logically, as a squiter, it will follow that in case the assessee has a negative/minus figure as per the computation made any of the provisions of Chapter VIA, the expenditure incurred cannot allowable under Section 37 of the Act, in view of Section 14A. The said position cannot be accepted. Income will include negative income or a loss. The corollary is that the entire income is included under the provisions of the Act by firstly including the entire receipts or incomes as stipulated in the charging section but after excluding the income stipulated in Chapter III. Thereafter, total income is computed under the Act by applying provisions of Chapter IV, V and VI. From this income, deductions are permitted and allowed in terms of Chapter VIA. Deductions do not mean that deduction allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression "income which does not form part of the total income" refers to the nature, character or type of income and not the quantum.
34. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words "do not form part of the total income under this Act" is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced.
35. It is clear from the aforesaid reasoning that the decisions in the case of Distributors (Baroda) Private Limited and Cambay Electric Supply Industrial Co. Ltd. (supra) have proceeded on the specific language of the said Sections, whereas in the other decisions Stumpp Schuele and Somappa Private Limited and South Indian Bank (supra) and those of the High Courts mentioned above have gone on the general principle relating to deductions allowed and whether a deduction once allowed has the effect that the income on which deduction ceases to be part of the total income. It has been uniformly and consistently held that in the absence of express language to the contrary, deduction if allowed does not mean that the said income ceases to be part of the total income.
36. In view of the aforesaid position, we answer the questions of law mentioned above in affirmative, i.e., against the appellant-Revenue and in favour of the respondent-assessee. In the facts of the present case, there will be no order as to costs.'
9. We choose to follow ratio laid down in the said decision of Delhi High Court and see any reason to interfere with the findings/conclusions rendered by both the Revenue authorities, namely, CIT(Appeals) and the Tribunal and answer the question in favour of assessee and against the Revenue. Tax Appeal is accordingly disposed of.
SONAM
*In favour of assessee.
†Arising out of order of Tribunal dated 30-8-2013.

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Regards,

Pawan Singla , LLB
M. No. 9825829075
Service Tax
Web hosting service received by appellant from foreign service provider is used by appellant for marketing of his products - prima facie same has to be treated as Support Service of business or commerce and cannot be classified as Information Technology Service - Pre-deposit ordered: CESTAT
THE appellant have entered into agreements with various Telecom service Providers, such as, Bharti Airtel Ltd. etc. for supplying the content including user generated contents which enable the mobile phone subscribers receive advertisements, ring tones, general information like cricket scores etc. by the way of SMS. The Department was of the view that this service provided by the appellant to various telecom service providers during the period from 01/5/06 to 31/05/07 is "business support service". The demand raised is of Rs.53,02,577/-.
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SEBI commences Foreign Portfolio Investor (FPI) Regime

COMMENCEMENT OF FOREIGN PORTFOLIO INVESTOR REGIME

With a view to rationalize / harmonize different routes for foreign portfolio investments, SEBI had decided to create an unified and simplified regulatory framework. In order to adopt a consultative approach, SEBI had constituted a "Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments" comprising of various stakeholders.
After extensive deliberations and consultations by the Committee, it was decided to create a new investor class called "Foreign Portfolio Investor" (FPI) by merging the existing three investor classes viz. FIIs, Sub Accounts and Qualified Foreign Investors.  It was envisaged that dispensing with the mandatorily requirement of direct registration with SEBI and adopting risk based KYC approach in FPI regime would smoothen the entry process and onboarding experience of FPIs which desire to invest in the Indian securities market.
Subsequently, SEBI (FPI) Regulations, 2014 were notified on January 07, 2014 followed by certain other enabling notifications by Ministry of Finance and RBI. In order to ensure the seamless transition from FII regime to FPI regime, it was decided to commence the FPI regime with effect from June 1, 2014 so that the requisites systems and procedures are in place before migration to the new FPI regime.
SEBI approved Designated Depository Participants have already commenced granting registration to FPIs under the new framework. The migration to the FPI regime has thus been effected in a smooth manner.
PR No. 53/2014 – Mumbai, June 02, 2014

TDS on Salary and Rebate U/s 87A

CA Neil Ganatra
Any person responsible for paying income chargeable in the hands of recipient as 'Salaries' shall make TDS u/s 192 of the Income Tax Act, 1961. The article discusses some basic aspects of the provisions of the said section. The basic conditions that attract compliance of Sec. 192 are;
-          The relation between payer and payee must be that of an employer and an employee
-          The payment is in the nature of 'salary'
Who is the person responsible?
Let's first evaluate the definition person as per Act. It includes following:
-          Individual
-          Firm
-          Company
-          HUF
-          AOP, BOI (whether it has profit motive or not)
-          Any other artificial judicial person
-          Local Authority
The person responsible to pay salary to the employees is the person responsible to make TDS u/s 192. However, this doesn't mean that a person of accounts / finance department paying salary to employees on behalf of the company is a responsible person. If a person of such department is paying salary on behalf of the company, person responsible to make TDS is the company itself and principal officers' thereof. [British Airways v. CIT (1991) 54 Taxman 470 (cal.)]
However, in case of employees of Central or State Govt. respective distributing officer is the person responsible for making TDS.
When to make TDS?
Most of the sections dealing with TDS provisions require the payer to make TDS at the time of credit or payment, whichever is earlier. However, Sec. 192 is one of such section, which requires making TDS at the time of payment of salary. This means one need not to make TDS at the time of passing entry in the books of accounts, TDS is to be made only when salary is actually paid.
Eg. A firm XYZ enterprise passes a journal entry at the end of every month for salary to employees, for that month, in the books of accounts. However, actual payment is made to the employees in the first week of the next month except for the month of March where salary is paid at the month end. Suppose, Entry of salaries for the month of April, 2014 is passed on 30.04.2014 however actual payment is made on 05.05.2014. In this case TDS is required to be made on 05.05.2014 and not on 30.04.2014.
What amount is to be considered for TDS?
TDS is to be made by the employer from the amount paid to the employee as salary. The term salary includes various allowances and perquisites. Some allowances and perquisites given by the employer to employees are exempt, either fully or partly, subject to some conditions laid by the provisions of the Act.
Further, if any employee who was previously employed with another employer during the FY and has given declaration of salary received from previous employer and TDS on that, it also has to be considered by the current employer.
In addition to this if any employee has also given declaration regarding his any other income viz. Income from house property or interest income then that is also required to be taken care of by the employer.
Is it possible to increase or decrease TDS amount during the year?
Employer while making TDS, has to consider many things like salary structure, allowances given and its taxability, perquisites and its taxability, declarations given by the employee for other incomes and investments for claiming deductions under chapter VI-A. It may happen that during the financial year, employees receives any unstructured benefit from the employer due to any scheme or award given by the employer or some employees who were not eligible to get exemption for some allowances earlier may become eligible later (eg. HRA) or employee may not be able to give proof for the investment declared or vice versa. In all such cases, it may happen that employer has to increase or decrease the amount of the tax that is monthly deducted from employee's salary. It may also happen that TDS was not made from an employee's salary for whole year as his income was below taxable limit considering his investment declaration. However, in the last month he couldn't give the proofs for that and TDS is required to be made in that month for whole year.
The question may arise is what if adjustment is required to be made later to reduce or increase TDS amount? Is the employer liable to pay interest under section 201? In case while making payment of salary, TDS was made short and later employer paid the difference amount, can he recover that amount from employee? Here is the answer;
Section 192(1) of the Act contemplates deduction of tax at the time of payment while section 201 (1A) deals with the situation when deduction is not made. In such situation, section 192 (3) comes to the rescue of the employer. Section 192 (3) of the Act permits the person responsible, to deduct tax, to make the adjustments by increasing or decreasing the TDS amount. It not only allows adjusting by increase or decreasing in TDS amounts, it also authorizes adjustment in case of total failure of making TDS during the financial year. As nowhere it is mentioned that section 192(3) shall be read separately, it is part of section 192 only and has to be read with sub-section (1) of section 192. [CIT v. Enron Expat Services Inc. (2010) 194 Taxman 70 (Uttarakhand)]
The adjustment of TDS amount during the financial year is always allowed considering section 192 (3) however it is not allowed to give refund of excess deduction to one employee out of deduction of another employee. Adjustment is permissible with reference to the estimated income of 'the assessee' i.e. one employee and not all employees taken together. [Shriram Pistons & Rings Ltd. v. ITO (2000) 73 ITD 30 (Delhi Tri.)]
Section 192(1) nowhere mentions that each monthly installment of TDS should exactly 1/12 of the total tax deductible for the year, as the adjustment by way of increasing or decreasing TDS amount which is authorized by section 192(3) will otherwise have no meaning. Interest is leviable only if there is a short fall in the total TDS for the year. [Vinsons v. Third ITO (2004) 89 ITD 267 (Mum. Tri.), ITO v. Cadila Laboratories (P) Ltd (1996) 56 TTJ (Ahd. Trib) 156]
On the contrary, Ahmedabad tribunal in the case of Madhya Gujarat Vij co. Ltd v. ITO (2011) 133 ITD 89/14 taxmann.com 156 held that what is required to be seen by the AO in respect to such shortfall or failure in making TDS by employer is whether, while making payment of salary to employees, there was bona fide belief in making the lesser deduction in a particular month and it was made good immediately after noticing the deficiency. Section 192(3) no doubt allows adjustment but it doesn't mean that employer can resort to lump sum deduction during the financial year and to make adjustment at year end. If so done, AO can charge interest by calculating monthly deficiency being difference between what was required to be deducted and what is actually deducted.  
(Author may be reached at ganatraneil@gmail.com)

Taxability of Prepaid / Sodexo Coupons Under Salary Income

CA Neil Ganatra
As it is not possible to discuss all the perquisites in one article, let us discuss the taxability of a perquisite which is always in question – taxability of prepaid coupons say for example Sodexo coupons which are very famous. These days many employers are giving sodexo coupons to the employees. The value of the coupons varies from employer to employer. It is observed that many of such employers as well as their employees are under the impression that sodexo coupons are fully exempt and are not taxable as perquisites irrespective of the amount. This is not correct interpretation of law.
Rule (3)(7)(iii) dealing with such perquisites is reproduced here under for discussion.
'The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:
Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.'
As mentioned in the rule, the valuation of this perquisite is done taking the gross cost to the employer as reduced by an amount collected from the employee in this regards, i.e. at the net cost to employer. This perquisite is tax free only to the extent of Rs. 50 (max) per meal during the working hours. It is very important to understand that one has to consider the working hours of the organization to calculate the tax-free amount of this perquisite.
Sodexo coupons are actually paid vouchers referred in the proviso. However, most of employers don't consider the words highlighted in the proviso reproduced above. The paid vouchers must be non-transferable and USABLE ONLY AT EATING JOINTS. The problem occurs here as sodexo coupons can be used not only at eating joints but also at other places like super/hypermarkets (eg. big bazaar). This means it can also be used for buying groceries or any other thing sold by such hypermarkets.
Hence, strictly going through the rule dealing with paid coupons, the intention of the legislature behind the said rule, sodexo (or any other such prepaid coupon which is usable at places other than eating joints also) are not tax free perquisite, in other-words are taxable perquisites.
However, if it is given as gift by employer to the employees and is not the part of the salary as perquisite, it can be considered as tax free provided its value is less than Rs. 5,000/-, under another rule.
(Author may be reached at ganatraneil@gmail.com)

Rebate under section 87A of the Income Tax Act, 1961

CA Neil Ganatra
Rebate under section 87A
Section 87A of the Income Tax Act, 1961 was introduced in Finance Act, 2013 to give benefit to a large number of people whose net total income is less than Rs. 5,00,000/-. The rebate under this section is available to resident individuals from A.Y. 2014-15. The rebate available is maximum of 1) 100% of tax payable on total income or 2) Rs. 2,000/-.
As per section 192 (2A), while calculating the taxable salaries, employer should consider the relief under section 89(1) if at all it is available to the employees subject to Rule 21AA and furnishing of Form 10E. However, at the time of introducing rebate under section 87A or even later, provisions of section 192 are not amended in this respect to cover this rebate. Meaning there by is looking to the current provisions of Section 192, employers can not consider rebate u/s 87A and have to make TDS from the salaries of the employees without giving effect of such rebate benefit. The employees will have to ask for refund of such excess amount of TDS by taking benefit of rebate while filing the return of income.
It is noticed most of the accounting and return filing softwares have made amendments in their programming to give benefit of this rebate while calculating TDS from Salaries. This may result in short deduction of tax at source to the extent of rebate calculated. The provision of section 192 has to be amended to include rebate u/s 87A while calculating taxable salary to avoid unnecessary litigations.
As most of the employers all over country would have considered this rebate as mentioned above by default (due to TDS calculation of softwares), it may happen that CBDT amends the provisions with retrospective effect or issue instructions internally to avoid litigations on this base.
(Author may be reached at ganatraneil@gmail.com)

TDS Credit cannot be denied on the ground of Form 26AS mismatch

CA Sandeep Kanoi
In the instant case, it is apparent that there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax returns. The Court finds that when the assessment was processed and a refund of Rs.43,740/- was issued, no intimation was given by the department as to why the balance TDS amount could not be credited in favour of the petitioner. The Court further finds that the assessing officer was under a duty to verify whether or not the deductor had made the payment of the T.D.S. in the government account.
The petitioner has suffered a tax deduction at source, but has not been given due credit inspite of the fact that he has been issued a TDS certificate by a government department. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the petitioner. The fault, if any, lay with the deductor. In the instant case, nothing had been indicated that the fault lay with the petitioner in furnishing false details.
From the perusal of the counter affidavit, that the respondents have denied refunding the TDS on the ground that the refund would only be granted when the TDS matches with the details mentioned in Form 26AS. Since the mismatching is not attributable to the assessee and the fault solely lay with the deductor, we find that a case has been made out for grant of a mandamus for refund of the TDS amount. The petitioner has also made out a case for payment of interest since we find that the delay in refunding the amount was attributable solely with the Income Tax Department and there is no fault on the part of the assessee.
HIGH COURT OF JUDICATURE AT ALLAHABAD
Civil Misc Writ Petition (Tax) No.657 of 2013
Rakesh Kumar Gupta
Vs.
Union of India and another
***
Hon'ble Tarun Agarwala,J.
Hon'ble Dr. Satish Chandra,J.
(Per: Tarun Agarwala,J.)
The petitioner is a civil contractor and is deriving his income by executing civil contracts in various Government Departments. For the Assessment Year 2010-11, the petitioner, in the course of his business, received certain payments from the Government Departments, which in the instant case is, the North Central Railway and a total sum of Rs.3,14,766/- as tax was deducted at source by the Government Department (hereinafter referred to as "TDS").
For the Assessment Year 2010-11, the petitioner filed his income tax return in Form-4, showing his gross income at Rs.6,86,650/-. The petitioner disclosed that he was liable for payment of tax amounting to Rs.82,295/- and consequently, claimed a refund of Rs.2,32,370/-.
The returns were processed by the Central Processing Centre of the Income Tax Department at Bangalore. The returns were accepted under the deemed assessment scheme. The Central Processing Centre, Bangalore issued an income tax refund of Rs.43,740/-. No intimation was given to the petitioner as to why the balance amount of Rs.1,88,630/- was not refundable.
The petitioner, accordingly, filed an application under Section 154 of the Income Tax Act (hereinafter referred to as "the Act") for rectification of the mistake and praying for the refund of the balance amount. Reminders were sent and when it became known to the petitioner that his application was not received by the Department, the petitioner filed a second application under Section 154 of the Act. When nothing happened, the petitioner, being frustrated, filed the present writ petition under Article 226 of the Constitution of India praying for a writ of mandamus commanding the respondents to refund an amount of Rs.1,88,631/- along with interest to the petitioner.
The Income Tax Department has filed a counter affidavit admitting that the return was processed and was accepted and that a refund of Rs.43,750/- was issued to the petitioner. The Department, however, denied having received the first application filed by the petitioner under Section 154 of the Act and submitted that the second application was not entertained since the said application was not signed by the assessee nor any power of attorney was attached to the application. On the issue of refund of the TDS, the respondents in paragraph 14 of the counter affidavit admitted that the refund was allowed only of that amount which matched the TDS in Form 26AS and that the balance amount was not refunded since it was mismatched and, therefore, credit was not given on these TDS certificates.
In the light of the aforesaid stand taken by the parties, we have heard Sri Nitin Kesarwani, the learned counsel for the petitioner and Sri Shambhu Chopra, the learned counsel for the Income Tax Department.
The difficulty faced by the tax payers relating to credit of tax deducted at source, i.e., TDS, which stands paid by the deductor was considered by the Delhi High Court in a Public Interest Litigation in Court On its Own Motion vs. Commissioner of Income Tax, 2013 (352) ITR 273. The Court found that a large percentage of cases were coming up where an assessee was entitled to be given the credit of TDS, which had been deducted by the deductor, but, was not being given credit by the Income Tax Department on account of the fact that the TDS was not reflected in Form-26AS for various reasons. The Court noticed that there were cases where the deductor failed to upload the correct and true particulars of the TDS, which had been deducted, as a result of which, the assessee was not given credit of the tax paid. The Court also noticed that there were cases where the details uploaded by the deductor and the details furnished by the assessee in the income tax returns were mismatched and, on this ground, credit was not given to the assessee.
The Delhi High Court also noticed that on account of mismatch, the tax payer was required to approach the income tax authority for rectification of the earlier intimation and based on corrected entries prayed for refund of the TDS. The Court found that the problem was apparent, real and enormous and had escalated because of centralised computerisation and problems associated with incorrect and wrong data, which was uploaded by the tax deductors. The Delhi High Court found that the issue of not giving credit of the TDS deducted by the deductor was one of general governance, failure of administration, fairness and arbitrariness. The Court found that the Income Tax Department admitted that the Central Processing Unit at Bangalore had errors and faults, which was required to be rectified. The Delhi High Court further found that filing of an application under Section 154 of the Act for rectification and correction by the assessee entails substantial expenses on the part of the assessee. The Delhi High Court further observed that rectification and getting corrections made by the deductor and to get them uploaded was not an easy task. Filing a revised return or getting the application under Section 154 processed, was not only daunting, but expensive and that the problem of not getting the credit was being faced by a majority of small and middle class tax payers, including senior citizens. The Delhi High Court, accordingly, issued a mandamus directing the Central Board of Direct Taxes (hereinafter referred to as the "CBDT") to issue directions with regard to giving credit of unmatched and mismatched TDS certificates.
Pursuant to the said decision of the Delhi High Court, the CBDT issued instruction No.5 of 2013, dated 8.7.2013, directing that where the assessee approaches the assessing officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatch amount, the assessing officer would verify whether or not the deductor had made payment of the TDS in the government account and, in the event, the payment had been made, credit of the same would be given to the assessee. For facility, the relevant portion of instruction No.5 of 2013 is extracted hereunder:
"In view of the order of the Hon'ble Delhi High Court (reference: para 50 of the order): it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down."
In the light of the decision of the Delhi High Court and the instructions issued by the CBDT, we find that the admitted position in the instant case is, that the returns were processed and accepted by the Income Tax Department. A sum of Rs.43,740/- was refunded and the balance amount was not refunded on account of the TDS being mismatched. It is also admitted that the TDS certificates were also filed by the assessee. It is also an admitted position that the deductor in the instant case is a Government Department.
We find from a perusal of the counter affidavit that no effort was made by the assessing officer to verify the fact as to whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income Tax Department has shown their helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS. The stand of the respondents is, that a refund could be allowed only on matching the TDS with that disclosed in Form 26 AS.
In the instant case, it is apparent that there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax returns. The Court finds that when the assessment was processed and a refund of Rs.43,740/- was issued, no intimation was given by the department as to why the balance TDS amount could not be credited in favour of the petitioner. The Court further finds that the assessing officer was under a duty to verify whether or not the deductor had made the payment of the T.D.S. in the government account.
The petitioner has suffered a tax deduction at source, but has not been given due credit inspite of the fact that he has been issued a TDS certificate by a government department. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the petitioner. The fault, if any, lay with the deductor. In the instant case, nothing had been indicated that the fault lay with the petitioner in furnishing false details.
Section 237 of the Income Tax Act provides for refund. For facility, the said provision is extracted hereunder:-
"237. If any person satisfies the [Assessing] Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess."
Further, Section 243 relates to payment of interest on delayed refund. For facility, the said provision is extracted hereunder:
"243. (1) If the [Assessing] Officer does not grant the refund,-
(a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and
(b) in any other case, within three months from the end of the month in which the claim for refund is made under this Chapter,
the Central Government shall pay the assessee simple interest at [ fifteen] per cent per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund.
Explanation.- If the delay in granting the refund within the period of three months aforesaid is attributable to the assessee, whether wholly or in part, the period of the delay attributable to him shall be excluded from the period for which interest is payable.]
(2)Where any question arises as to the period to be excluded for the purposes of calculation of interest under the provisions of this section, such question shall be determined by the [Chief Commissioner or Commissioner] whose decision shall be final.
[(3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989 or any subsequent assessment years.]"
In the light of the aforesaid, we find from the perusal of the counter affidavit, that the respondents have denied refunding the TDS on the ground that the refund would only be granted when the TDS matches with the details mentioned in Form 26AS. Since the mismatching is not attributable to the assessee and the fault solely lay with the deductor, we find that a case has been made out for grant of a mandamus for refund of the TDS amount. The petitioner has also made out a case for payment of interest since we find that the delay in refunding the amount was attributable solely with the Income Tax Department and there is no fault on the part of the assessee.
For the reasons stated aforesaid, the writ petition is allowed. A writ of mandamus is issued commanding respondent no.2 to refund an amount of Rs.1,88,631/- along with interest as per the law within three weeks from the date of the production of a certified copy of this order is produced before respondent No.2.
In the circumstances of the case, respondent No.2, will also pay cost of Rs.25,000/- to the petitioner within the same period.
Dated: 6.5.2014.
( Dr. Satish Chandra,J.) (Tarun Agarwala,J.)

Income Tax Return – Which form to use for IT Filing AY 2014-15

CA Chirag Chauhan
Income Tax Department has released FORM ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 for A.Y. 2014-15 vide its Income-tax Notification No. 28/2014, Dated- 30th day of May, 2014 and SAHAJ (ITR-1), ITR-2, SUGAM (ITR-4S) , ITR-V FOR A.Y. 2014-15 vide its Income-tax Notification No. 24/2014, Dated: April 1, 2014.
The Income Tax Department has come out with all Return Form applicable for AY 2014-15. The below table will give you details of usage of forms by Assessee.
Forms Who can use this Return Form Who cannot use this Return Form
ITR-1
SAHAJ Indian Individual Income Tax Return
This Return Form is to be used by an individual whose total income for the assessment year 2012-13 includes:-
(a) Income from Salary/ Pension; or
(b) Income from One House Property (excluding cases where loss is brought forward from previous years); or
(c) Income from Other Sources (excluding Winning from Lottery and Income from Race Horses)
Further in case of income of another person like spouse, minor child, etc is to be clubbed with the Assessee, this return form can be used only if income being clubbed falls into above form category
This return form should not be used by individual whose total income includes:
a)Income from more than one house property
b) Income from winning lottery or income from race horses
c) Income under head capital gains
d) Income from Agriculture / Exempt income of more than Rs 5000/- .
e) Income from Business or Profession
f) Loss under income from Other Sources
g) Person Claiming relief under Section 90 ot 91
f) any resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India.
ITR-2
For Individuals and HUFs not having Income from Business or Profession
This Return Form is to be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2014-15 includes:
a) Income from Salary / Pension;
b) Income from House Property
c) Income from Capital Gains
d) Income from Other Sources
(including Winning from Lottery and Income from Race Horses)
Further, in a case where the income of another person like spouse, minor child, etc. is to be clubbed with the income of the assessee, this Return Form can be used where such income falls in any of the above categories
This Return Form should not be used by an individual whose total income for the assessment year 2014-15 includes Income from Business or Profession.
 
NOTE:
A resident assessee having any assets (including financial interest in any entity) located outside India or signing authority in any account located outside India, shall fill out schedule FA and furnish the return in return electronically under digital signature or transmit data electronically and submit ITR V
ITR-3 This Return Form is to be used by an individual or an Hindu Undivided Family who is a partner in a firm and where income chargeable to income-tax under the head "Profits or gains of business or profession" does not include any income except the income by way of any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by him from such firm. In case a partner in the firm does not have any income from the firm by way of interest, salary, etc. and has only exempt income by way of share in the profit of the firm, he shall use this form only and not Form ITR-2. This Return Form should not be used by an individual whose total income for the assessment year 2013-14 includes Income from Business or Profession under any proprietorship.
ITR-4S SUGAM
This Return Form is to be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2014-15 includes:
a) Business income were income is computed in accordance with the special provision under section 44AD and 44AE
b) Income from Salary / Pension
c) Income from other source(Excluding Income from Lottery and income from race horse )
Further, in a case where the income of another person like spouse, minor child, etc. is to be clubbed with the income of the assessee, this Return Form can be used where such income falls in any of the above categories
 
This return form should not be used to file following incomes
a)Income from more than one house property
b) Income from winning lottery or income from race horses
c) Income under head capital gains
d) Income from Agriculture / Exempt income of more than Rs 5000/- .
e) Income from Speculative Business
f) Income from Profession
g) Person Claiming relief under Section 90 ot 91
f) any resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India
ITR-4
This Return Form is to be used by an individual or a Hindu Undivided Family who is carrying out a proprietary business or profession.
 NA
ITR-5
This Form can be used a person being a firm, LLPs, AOP, BOI, artificial juridical person referred to in section
2(31)(vii), cooperative society and local authority. However, a person who is required to file the return of income under section 139(4A) or 139(4B) or 139(4C) or 139(4D) shall not use this form.
 This return form should not be used by individual and HUF and Companies



ITR -6 This Form can be used by a company, other than a company claiming exemption under section 11. This return form should not be used by person other than Companies
ITR- 7 This Form can be used by persons including companies who are required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D). This return form should not be used by person other than Companies
 Manner of filing the return form:
a)      By furnishing the return in paper form
b)      By furnishing return electronically with digital signature
c)       By transmitting the data in the return electronically and there after submitting ITR V to be send by speed post to Bengaluru.
A resident assessee having any assets (including financial interest in any entity) located outside India or signing authority in any account located outside India, shall fill out schedule FA and furnish the return in the manner provided at either B) or c) above.
From the assessment year 2013-14 onwards all the assessees having total income more than 5 lakh rupees are required to furnish the return in the manner provided at B) or c) Also in case of an assessee claiming relief under section 90, 90A or 91 to whom Schedule FSI and Schedule TR apply, he has to furnish the return in the manner provided at either B) or c)
From assessment year 2014-15 onwards in case an assessee who is required to furnish a report of audit under section10(23C)(iv), section 10(23C)(v), section 10(23C)(vi), section 10(23C)(via), section 10A, section 10AA, section 12A(1)(b), section 44AB, section 44DA, section 50B, section 80-IA, section 80-IB, section 80-IC, section 80-ID, section 80JJAA, section 80LA, section 92E,  section 115JB or section 115VW he shall file the report electronically on or before the date of filing the return of income. Further, the assessee who is liable to file the above reports electronically shall file the return of income in the manner provided at either B) or c).
Where the Return Form is furnished in the manner mentioned at c), the assessee should print out two copies of Form ITR-V. One copy of ITR-V, duly signed by the assessee, has to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bangaluru–560100 (Karnataka). The other copy may be retained by the assessee for his record.
For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor.  Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.

Registers under Companies Act 2013 in EXCEL Format

Priya Bhansali

I have complied following Registers and forms  to be maintained by a Company under the Companies Act,2013 Read with New Companies Rules.
Form MBP – 2  – Register of loans, guarantee, security and acquisition made by the company
Form MBP – 3 – Register of investments not held in its own name by the company
Form MBP – 4 – Register of contracts with related party and contracts and Bodies etc. in which directors are interested
Register of directors and key managerial personnel
Register of details of securities held by Directors and Key Management Personnel
Form No. MGT-1 – Register of members
Form No. MGT-2 – Register of debenture holders/ other securities holders
Form No. MGT-3 – Notice of situation or change of situation or discontinuation of situation, of place where foreign register shall be kept
Form No. MGT-4 – Declaration by the registered owner of shares who does not hold the beneficial interest in such shares
Form No. MGT-5 – Declaration by the beneficial owner who holds or acquires beneficial interest in shares but whose name is not entered in the register of members
Download Excel Format of Registers to be maintained under the Companies Act,

Gold Installment Schemes May Come Under MCA Scanner

The new Companies Act 2013 has changed the regulatory face of the corporate India. The new regulatory changes including greater transparency, increased disclosure norms and sea-changes in various provisions like Loans and Deposits have been the larger issues of discussion with the elite section of the corporate sector. However smaller refinements in the new Act against the old one have also created quite a buzz.
 Among other, the one subject which has influenced the corporate sector is the acceptance of Loan and Deposits by Companies. The new Act has made a significant change in this regard.
The Indian economic environment has witnessed a large variety of deposits schemes like mutual benefit finance companies, chit funds, nidhis etc. The history of such schemes is not so good in India. Some of the good companies have closed their businesses overnight and have eroded crores of rupees of investors.
Another popular scheme which is now very common among Indian household is Gold Investment Scheme.
What are Gold Investment Schemes?
Typically, a Gold Investment Scheme collects monthly installments from customers for at certain period, after which the investor gets some benefits (concessions or discounts) on the principal, which can be redeemed against gold jewellery sold by the company after the installments have been paid for specified period.
Such schemes promise the last installment as free or waived after the payment of all the previous installments. That is, the investor pays for say the first 11 installments and the company shall then pay the 12th installment. It is upto the investor to purchase any jewellery at the prevailing price from the company only. The amount accumulated can thus be used only to purchase in kind and is not refundable in cash.
For instance, the 'Golden Harvest Scheme' by 'Tanishq', a unit of Tata group - Titan Industries Ltd, which has at least 1.5 million customers, requires the customer to pay advance installments for 11 months. The 12th month installment is paid by Tanishq and the accumulated amount can be redeemed against gold jewellery by the customer. The minimum monthly installment amount for Golden Harvest is Rs.500.
How the new Companies Act, 2013 and Rules framed thereunder affects Gold Investment Scheme?
The Companies Act, 2013 has brought a comprehensive definition of deposit as "Deposit includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India".
Such schemes collect money from investors and will fall in the definition of deposit.
The Central Government has framed The Companies (Acceptance of Deposits) Rules, 2014 in this regard which has been made applicable from 01st April, 2014.
Explanation (a) to rule 2 of said Rules provides that any amount:
(a) received by the company, whether in the form of installments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or
(b) any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer,
shall be treated as a deposit;
The Gold Investment Schemes which runs in India will fall in this category and accordingly to all such deposits, the elaborate provisions under The Companies (Acceptance of Deposits) Rules, 2014 shall apply.
Are these schemes may be treated as Advance?
Surely not. Advances are always against some pre-identified goods or service. The question of determining the goods and services at a later date does not arise at all and neither does the element of "returns" does not arise at all. Thus, even if it is argued that the gold investment schemes are in the nature of advances, the argument can easily be struck down as there can be no promise or offer to give returns in case of advances. Even the good (i.e. gold) is not appropriated within 365 days from the date of receipt of advance, which is an essential condition for any money to be treated as Advance for goods or services.
Are these schemes legal?
Under Rule 3(6) of Companies (Acceptance of Deposits) Rules, 2014, no company can accept deposit which carries a rate of interest more than what has been prescribed by RBI for deposit accepting NBFCs. Presently, the rate of interest prescribed by RBI for acceptance of deposit by Non-Banking Finance Companies is 12.50%.
The popular Gold Investment Schemes running in India is depicted through following chart:
Now, if we take the Simple rate of interest (or Investment) on 'Jewels for Less' of PC Jewellers, it is coming to 16.67%. However, the simple Rate of Interest (or Investment) on schemes offered by other jewelers is below 12.50%.
But, still if Internal Rate of Return (IRR) is computed, such rate will exceed 12.50%. For example, the 'Golden Harvest Scheme' of Tanishq, which is the only scheme for which deposits runs for 11 months, the IRR for deposit of Rs. 1,000/- p.m. is calculated in following table:
No. of Installment Amount contributed or received
1 -1,000/-
2 -1,000/-
3 -1,000/-
4 -1,000/-
5 -1,000/-
6 -1,000/-
7 -1,000/-
8 -1,000/-
9 -1,000/-
10 -1,000/-
11 -1,000/-
12 12,000/-
IRR 17.321% = > 12.50%
 This clearly shows that the present jewellery schemes may actually be promising returns under a scheme which is illegal. Thus, such schemes seem to be a complete impossibility.
Besides these, there are other such schemes runs by small jewelers, but the modus-operandi of such scheme is also more or less same.
Companies offering such deposit schemes will also have to comply with requirements like creation of deposit redemption reserve, appointment of deposit trustee, create deposit insurance among others.
Were Gold Investment Schemes regulated so far?
The answer is a disappointing 'no' and the same can be attributed to the lethargic attitude of regulators. Both, RBI and SEBI have washed their hands off of classifying such gold purchase schemes. The passing the buck game has even been played by the courts of the land.
Thus, even if regulators have washed their hands off in deciding the true character of such gold purchase schemes, the fact remains that the investment of investors was at large risk as there was nothing stopping such companies from ending their operations overnight and walking away with the hard earned money of lakhs of investors.
Will Companies Act, 2013 can stop or atleast regulate these scheme?
The answer is 'Yes' by more enforcement of more stringent provision in the Companies Act, 2013. The new Act provides that any non-compliance with Section 74 of the Act, 2013 imposes fine ranging between 1 crore to 10 crores on the company and every officer in default shall be punishable with imprisonment extending upto 7 years or with fine between 25 lakhs to 2 crores or with both.
Section 75 of the Act, 2013 additionally prescribes liabilities applicable for frauds u/s 447 of the Act, 2013 if the company incurs non-compliance u/s 74 and it is proved that the company had fraudulent intensions. Section 447 prescribes that any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud. Where the fraud in question involves public interest, the term of imprisonment shall not be less than 3 years.
Conclusion
Gold is treated as a very emotional item in India. Apart from being precious, the yellow stone is one of the common modes of investment of lakhs of households in India. A typical Indian father accumulates his hard earned money for purchasing gold for her daughter at the time of her marriage. The need of country is to regulate such schemes by enforcing proper regulatory measures and successful enforcement of Companies Act, 2013.
Gold retailers bank on such schemes for working capital requirements and a guaranteed customer base. It's the equivalent of interest-free loans that they deploy back into the business. While, some of jewelers have employed this money in highly returned, but risky debt securities.
Although, such schemes are still running successfully in our country and fortunately, the country has not witnessed any big fraud or consumer complaint for same, apart from RTI's filed by citizens of country in SEBI and RBI, in this regard.
——————–
  1. Reference to Act means Companies Act, 2013 unless stated otherwise.
  2. Views are personal and may not be relied as a professional opinion on any statutory act, section or rule.
  3. The names of Schemes and Companies offering such scheme, used in above article, are just for illustration purpose. The data of scheme is collected at a cutoff date – 20.05.2014.
  4. With Inputs from article of CS. Nivedita Shankar & Vinod Kothari & Co. – "Installment schemes for jewellery – are they illegal under Companies Act, 2013"
(CA. Amit G. Chandani,  ACA, ACMA, Lic. ICSI, B.Com-  Email-  amitgchandani@icai.org)



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