NEWS & NOTES
1. The Central Board of Direct Taxes (CBDT) Chairman,
Mr.M.S.Darda today indicated that the Revenue Department would try to make it easier for industry to comply with the fringe benefit tax (FBT) provisions of the income-tax law in the forthcoming budget.
Direct tax collections up to December 21 were about Rs.96,000 crore this fiscal. "This collection level somewhat disappointing as usually by the end of December 31, we would have collected at least 60 percent of the budget estimate," he said.
For 2005-06, the budget estimate for gross direct tax collection is Rs.1,77,000 crore approximately. The CBDT Chairman, however, expressed confidence that the budget estimates for the current fiscal would be achieved. (The Hindu Business Line December 24, 2005)
2. ` India not able to market education potential'
WHILE Indians continue to top the chart of international students studying in the US for the fourth consecutive year, the reverse is not true in terms of inflow of students to India from the US.
According to the Open Doors 2005, an annual survey on international academic mobility published by the Institute of International Education (IIE) with support from the US Department of State's Bureau of Educational and Cultural Affairs, of the total 5,65,000 overseas students in the US in 2004-05, 80,466 students were from India as against only 1,157 American students in India .
India has not been able to market its potential; hence the flow of overseas students particularly from the US continues to be very low.
In the case of Indian students going to pursue higher studies overseas, majority of students pursue graduate programmes in the US in comparison to those going for undergrad and other courses.
The most sought after American universities by overseas students include University of Southern California , University for Texas at Austin , Columbia University and New York University .
The trend of more students pursuing graduate programmes is indicative of the fact that students from India are focused on career goals, the survey report says.
The report also states that with the student population in the higher education in India expected to increase from 9.3 million at present to 11 million by 2008, the mobility of Indian students to the US is also expected to maintain an upward trend.
"Students find their investment for education in the US worthwhile in view of career opportunities. Most of the students are getting jobs, hence the flow is increasing." Said Prof Damodar Acharva of All India Council of Technical Education (AICTE). (The Economic Times December 26, 2005)
3. Government set to make a DIN to track co directors.
The Ministry of Company Affairs is planning to issue mandatory identification numbers to all directors sitting on the boards of companies after a through verification of their credentials and antecedents. This Director Identification Number (DIN) will be used to keep a constant eye on them as the ministry's e-governance system takes off on January 16, 2006.
It will help the government to know if a director sits on the boards of more than 15 companies or whether a director on the board of a company which has defaulted on its statutory has defaulted on its statutory obligations, is violating the law by sitting on the board of another company.
Such offences will be immediately detected as all the 20 offices of the Registrar of Companies (ROCs) will be networked using IT between January and April. "Introducing DIN will induce a sense of discipline as the threat of penal action will look more real, "said an official.
The move is in line with the J J Irani committee's recommendation that companies should be asked to make detailed disclosures about the identity and residence of its promoters and directors at the time of incorporation, with photographs, PAN number and passport.
The ministry feels that DIN will be an effective tool in nabbing the executives in case the company vanishes after raising money from the public.(The Economic Times December 26, 2005)
4. An Ernst and Young report says that India lags other Asian countries in competitiveness when it comes to administrative efficiency that directly impinges on productivity. It takes 81 days in India to start a new operation, while it takes on average 36 days in China , Taiwan or Korea . Shipping time in other south Asian countries is two days, it is 15 days in India , from an electronic hardware industry perspective. Commercial lending rates are three-fourths as much as in competing countries.(The Economic Times December 27, 2005)
5. Tax refunds credit through ECS
EFFECTIVE June 2006, tax refunds will be sent directly to the taxpayer's bank account.
The refunds would be sent through the electronic clearing system to the respective bank accounts of the assessees. The bank account number has to be furnished by assessees for this purpose (The Hindu Business Line December 25, 2005).
6. Government will address India Inc's concerns over tax burden: PM
THE Prime Minister, Dr Man Mohan Singh, has promised to address, over the next year, the concerns voiced by corporate India over the high direct tax burden.
Delivering the inaugural address at the 78th Annual General Meeting of the Federation of Indian Chambers of Commerce and Industry (FKCCI) here on Saturday, Dr. Singh said, "Many of you have concerns about the tax system. Over the last two years, we have moved towards lower tariffs, uniform tax rates and easier procedures. There are still some concerns. I promise to address these concerns over the next year".
Corporate India 's direct tax burden stood at over 40 percent. "Corporate India today pays 30 percent corporate tax on its profits. Another 3 to 4 percent as dividend distribution tax and another 3 to 4 percent on Fringe Benefit Tax raise the burden.
The Prime Minister also assured the corporate sector that the Government would work to improve the tax administration to ensure that the industry's interface with the tax system is "pleasant, smooth, problem free and conducive to easy tax compliance."
He underscored the need to move towards greater rationalization of VAT and CENVAT (Central Value Added Tax) rates and more importantly towards common goods and service tax.
Stating that the Indian economy needs a massive dose of investments in the foreseeable future, the Prime Minister said that the next decade must be a decade of investment for India . "This investment should convert India into a first rate agricultural, industrial and service economy. At the core of this is transformation of our manufacturing sector," he said.
7. Bank interest income may escape tax net
THE GOVERNEMENT is considering giving tax breaks on interest income accrued from bank deposits. Though a limit on the interest income for bank deposits. Though a limit on the interest income for bank depositors, which will be eligible for tax exemption is yet to be decided, current indications are that the limit it may be fixed at interest accruals from deposits of up to Rs 1 lakhs.
According to top government sources, the move is aimed at helping banks to compete with Mutual Funds and other small savings schemes to shore up their deposit base at a time when their loan portfolios are growing at a brisk pace.
Investors currently prefer equity linked mutual fund schemes or saving deposit schemes of post office or Public Provident Fund for making long-term investment because of twins reasons: such deposits are eligible for tax benefits under section 80C of the Income Tax Act, besides providing comparatively high interest rates.
Interest income from saving and term deposits with banks with bank were earlier exempted from taxed subject to an upper limit. While the limit used to be Rs.2,500 till 2002-03, it was hiked four-fold to Rs. 10,000 in 2003-04 under Section 80L.
This tax break, however, was totally withdrawn in the lat budget as part of the rejig in the limit and instruments eligible for exemption. As per the new provision under 80CCE, investments up to Rs.11 lakh in any one or a combo of instruments in a specified basket of schemes including LIC and medical insurance.(The Economic Times January 5, 2006)
8. Bad loans cross 16% if India 's GDP
THE TOTAL stock of impaired debts in the possession of the country's banking system is estimated to be around Rs. 2,36,000 crore or 16.3% of the country's gross domestic product.
According to the Asset Re- construction Company of India (Arcil) these distress assets could help banks raise the additional capital needed to meet Basel II norms. Arcil has pointed out that in addition to the Rs.1,11,000 crore gross non-performing assets (NPAs) of the financial sector, banks have structured Rs.24,000 crore standard assets which do not figure as NPAs. Besides, Rs. 65,000 crore of debts have been restricted through the corporate debt re-structuring format. "Experience suggests that some of these restructured loans (Rs. 92,000 cr) are likely to turn into NPAs, "said Arcil in its latest newsletter. In addition to this, banks have written off Rs.77,000 crore worth of bad loans in the last three years. "Out of the written off accounts, around 50% will be in AUCA *(Assets Under Collection Accounts) having potential for value realization. If we add 50% of the AUCA figures to the NPA level of Rs. 2,30,000 cr the same will increase to Rs.2, 36,000cr and the same will account for 16.3% of GDP. The Economic Times January 5, 2006
9. Companies with Indian accounting norms can list on LSE
Indian companies can now get listed on London Stock Exchange (LSE) by reporting their financial results based on Indian accounting standards. Until now, these companies had to report their financial data in accordance with the International Financial Reporting Standards (IFRS).
10. CBDT notified amendments to Income-tax Rules
To allow recognized funds, approved superannuating funds and approved gratuity funds to invest a part of their corpus in equity-linked schemes of mutual funds, the Central Board of Direct Taxes (CBDT), has notified amendments to the Income-tax Rules. The notified amendments also allow provident funds, superannuating and gratuity funds to invest a part of their corpus in collateral borrowing and lending obligation (CBLO) issued by Clearing Corporation of India Ltd., and approved by the Reserve Bank of India . The notification to be effective from April 1, 2005, also provides that the exposure to rities funds set up, as dedicated fund for Government securities shall not exceed 5 percent of its portfolio at any point of time.
[ET November 8, 2005]
11. Peter Drucker-
The dean of management excellence wrote in 1994 in the Atlantic Monthly essay: The Essence of management is not techniques and procedures. The essence of management is to make knowledge productive.
12. Stock market will continue to boom in 2006: Assocham
The benchmark Sensex increased to 9397.90 on December 31, 2005 from 6602.69 on the same day in 2004, showing a gain of 42.33 percent. The year 2004 similarly ended with gains over the close of 2003 which itself had seen improvement over 2002.
In 2005 alone, FFIs had invested over $10 billion and the trend is likely to continue in line with the past y-on-y improvement trend of the last four years.
As the Indian economy scales new peaks, the world economy too sees a robust growth. According to estimates, the US economy will be improving between 3.5 percent. In Asia, China would continue to grow and Japan too would follow suit.
The Indian market has a huge potential market has a huge potential waiting to be tapped. With a population of over 100 crore, there are only 60-70 lakh investors comprising only 0.06-0.07 percent of the population. The household's investments in the capital market too have fallen down 23.3 percent of gross financial savings in 1991-92 to a dismal 1.1 percent in 2004-05.
The study said if the household savings are invested in the market, then more funds will be available for investment by corporate India.
Direct Taxes Case Studies
1. (2005) 97. TTJ (Bang.) (TM) 329 ITO v. Sheel Sunder Trust A.Ys 1984-85 to 1986-87. Dated 5-7-2004.
Liability in special cases- Assessment of trust Applicability of S.164 Where the sole beneficiary of the trust is minor and is entitled to whole of the income as well as corpus only after attaining majority and not earlier Interest of beneficiary contingent during his minority and income not specifically receivable on his behalf or for his benefit Tax to be charged on the relevant income of trust as per S.164 (1) at maximum marginal rate.
The Tribunal relied on the following judgements:
i. Yogendra N.Mafatlal v. CIT, 109 ITR 602 (Bom).
ii. Nirmala Bala Sarkar v. CIT, 74 ITR 268.
The Tribunal distinguished the following judgments:
a. CWT v. Trustees of H.E.H. Nizam Family Trust, 108 ITR 555(SC)
b. CIT v Karelal Kundanlal Trust, 148 ITR 415 (MP).
c. Sitaratnam Family Trust v. ITO, 22 ITD 117 (Hyd).
d. Would-be wife of T.Senthil Kumaran v. ITO, 37 ITD 265(Mad).
e. Kashiba Family Trust v. ITO, 15 ITD 383 (Ahd).
2. (2005) 97. TTJ (Jd.) (TM) 426 DCIT v. Shakthi Enterprises Pvt Ltd. A.Ys 1988-89 Dated 3-1-2005.
Income under undisclosed sources Addition made on basis of DVO' s report regarding cost of construction incurred by the assessee Expenditure on addition to factory building duly accounted for as evidenced from the audited accounts- Full particulars of investment also filed Year wise investment not disputed by the AO Furthermore, no refernce made to DVO during assessment proceedings of the relevant assessment year Addition cannot be sustained.
(2005) 97 TTJ (Del). 479 JCIT v Hilton Roulunds Ltd. A.Y. 1996-97. Dated 22.12.2004
3. (2005) 97 TTJ (Mumbai) 516 Amitabh Bachahan v DCIT A.Y. 2001-2002. Dated 18.5.2005
Income Diversion by overriding title Transfer of income in compliance of Arbitration award in terms of agreement - Held that Revenue cannot ignore the legal implications of the transactions and the disputes between the parties Revenue cannot assess more than the real income When transfer of incomes earned by assessee from other parties like Pepsi, etc. to ABCL having been accepted by the Department, genuineness of agreement and arbitration award cannot be questioned.
M/s. Lokaraksha Society Thevalakkara v. CIT.
ITAT Cochin Bench, Cochin
Before N.Barathvaja Sankar (AM) and R.S. Padvekar (JM)
ITA No. 481/Coch./2002.
Decided on: 30.6.2005
Counsels for assessee/ revenue: Ivan Joseph/ V.Sreekumar
4. S.12A and S.12AA of the Income-tax Act, 1961 Registration of Trust Assessee society formed to run hospital run by another charitable institution Whether CIT was right in treating the assessee as a branch of the said institution and denying registration Held No.
Cases referred to:
1. Fifth Generation Education Society v. CIT, 185 ITR 634(All.)
2. CIT v. Jodhpur Chartered Accountants Society, 258 ITR 548
5. ITO v. Ranganath Ananth Haridas ITAT `C' Bench, Mumbai.
ITA No.2504/Mum./98
A.Y. 1994-95.Decided on: 31.08.2005.
S.28 of the Income-tax Act, 1961, - Business income-Assessee in construction business Flat sold under MoU re-acquired on account of non-payment The said flat re-sold to another party at higher price Whether resale of the flat would result into short-term capital gainHeld No. (The Economic Times January 5, 2006)
