Hi Friends,
I have an issue on PE for an Indian subsidiary company of the parent company in Belgium.
B India (BI) is a subsidiary of B Belgium (BB). They have entered into an agreement effective from 24th December 2004. The broad terms are:
BB sales machinery and equipments to its customers in India.
1. BB to provide management assistance and technical training to the technicians of BI for installation, maintenance and servicing of BB products.
2. BI to provide services of installation, maintenance and after sales services under the instructions of and to the customers BB.
3. BI to promote the products of BB in the domestic market.
BB will pay a fee of 3% to 5% on the amount of sales invoice of BB to its customers.
Whether BI will be considered as a PE of BB?
Can i have your opinion on this?
Thanks & Best Regards,
Malay
AS-22 BY DEEEPSH VORA
AS 22 – Accounting for Taxes on Income
• For the purposes of this Statement, taxes on income include all domestic and foreign taxes which are based on taxable income.
• It does not cover FBT, Dividend Tax, etc.
Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods.
Permanent differences are the differences between taxable income and accounting income for a period that originate in one period and do not reverse subsequently. For instance, if for the purpose of computing taxable income, the tax laws allow only a part of an item of expenditure, the disallowed amount would result in a permanent difference.
Current tax is the amount of income tax determined to be payable (recoverable) in respect of the taxable income (tax loss) for a period.
Deferred tax is the tax effect of timing differences.
Recognition
• Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period.
• Deferred tax should be recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets.
• Except in the situations stated below, deferred tax assets should be recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
• Where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets should be recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.
Measurement
• Current tax should be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.
• Deferred tax assets and liabilities should be measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
• The carrying amount of deferred tax assets should be reviewed at each balance sheet date. An enterprise should write-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down may be reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.
Presentation and Disclosure
• An enterprise should offset assets and liabilities representing current tax if the enterprise:
(a) has a legally enforceable right to set off the recognized amounts; and
(b) intends to settle the asset and the liability on a net basis.
• An enterprise should offset deferred tax assets and deferred tax liabilities if:
(a) the enterprise has a legally enforceable right to set off assets against liabilities representing current tax; and
(b) the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
• Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.
• The break-up of deferred tax assets and deferred tax liabilities into major components of the respective balances should be disclosed in the notes to accounts.
• The nature of the evidence supporting recognition of deferred tax assets should be disclosed, if an enterprise has unabsorbed depreciation or carry forward of losses under tax laws.
Transitional Provisions
On the first occasion that the taxes on income are accounted for in accordance with this Statement, the enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior to the adoption of this Statement as deferred tax asset/liability with a corresponding credit/charge to the revenue reserves, subject to the consideration of prudence in case of deferred tax assets. The amount so credited/charged to the revenue reserves should be the same as that which would have resulted if this Statement had been in effect from the beginning.
Examples of Timing Differences
1. Expenses debited in the statement of profit and loss for accounting purposes but allowed for tax purposes in subsequent years.
e.g. a) Expenditure of the nature mentioned in section 43B accrued in the statement of profit and loss on mercantile basis but allowed for tax purposes in subsequent years on payment basis.
b) Payments disallowed for tax purposes under section 40(a) and allowed for tax purposes in subsequent years when relevant tax is deducted or paid.
c) Provisions made in the books in anticipation of liabilities where the relevant liabilities are allowed in subsequent years when they crystallize.
2. Expenses amortized in the books over a period of years but are allowed for tax purposes wholly in the first year (e.g. substantial advertisement expenses to introduce a product, etc. treated as deferred revenue expenditure in the books) or if amortization for tax purposes is over a longer or shorter period (e.g. preliminary expenses under section 35D, expenses incurred for amalgamation under section 35DD, prospecting expenses under section 35E).
3. Where book and tax depreciation differ. This could arise due to:
a) Differences in depreciation rates.
b) Differences in method of depreciation e.g. SLM or WDV.
c) Differences in method of calculation e.g. calculation ofdepreciation with reference to individual assets in the books but on block basis for tax purposes and calculation with reference to time in the books but on the basis of full or half depreciation under the block basis for tax purposes.
d) Differences in composition of actual cost of assets.
4. Where a deduction is allowed in one year for tax purposes on the basis of a deposit made under a permitted deposit scheme (e.g. tea development account scheme under section 33AB or site restoration fund scheme under section 33ABA) and expenditure out of withdrawal from such deposit is debited in the statement of profit and loss in subsequent years.
5. Income credited to the statement of profit and loss but taxed only in subsequent years e.g. conversion of capital assets into stock in trade.
6. If for any reason the recognition of income is spread over a number of years in the accounts but the income is fully taxed in the year of receipt.
AS – 22 in the situations of tax benefits u/s 80-IA and 80-IB, 10A, 10B of the Income-tax Act, 1961
• The deferred tax in respect of timing differences which reverse during the tax holiday period should not be recognised to the extent the enterprise’s gross total income is subject to the deduction during the tax holiday period as per the requirements of the Act.
• Deferred tax in respect of timing differences which reverse after the tax holiday period should be recognised in the year in which the timing differences originate. However, recognition of deferred tax assets should be subject to the consideration of prudence
• For the above purposes, the timing differences which originate first should be considered to reverse first.
Eg.
Tax holiday available for 15 years
Original cost of Machinery : Rs. 1500 lakhs
Depreciation as per books : SLM to be w/off in 15 years
Depreciation as per I.T. Act : 15% WDV
Computation of depreciation on the machine for accounting purposes and tax purposes
(Amounts in Rs. lakhs)
Year Depreciation for accounting purposes Depreciation for tax purposes
1 100 375
2 100 281
3 100 211
4 100 158
5 100 119
6 100 89
7 100 67
8 100 50
9 100 38
10 100 28
11 100 21
12 100 16
13 100 12
14 100 9
15 100 7
At the end of the 15th year, the carrying amount of the machinery for accounting purposes would be nil whereas for tax purposes, the carrying amount is Rs. 19 lakhs which is eligible to be allowed in subsequent years.
AS – 22 in the situations of Section 115JB (MAT)
In a period in which a company pays tax under section 115JB of the Act, the deferred tax assets and liabilities in respect of timing differences rising during the period, tax effect of which is required to be recognized under AS 22, should be measured using the regular tax rates and not the tax rate under section 115JB of the Act.
• For the purposes of this Statement, taxes on income include all domestic and foreign taxes which are based on taxable income.
• It does not cover FBT, Dividend Tax, etc.
Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods.
Permanent differences are the differences between taxable income and accounting income for a period that originate in one period and do not reverse subsequently. For instance, if for the purpose of computing taxable income, the tax laws allow only a part of an item of expenditure, the disallowed amount would result in a permanent difference.
Current tax is the amount of income tax determined to be payable (recoverable) in respect of the taxable income (tax loss) for a period.
Deferred tax is the tax effect of timing differences.
Recognition
• Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period.
• Deferred tax should be recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets.
• Except in the situations stated below, deferred tax assets should be recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
• Where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets should be recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.
Measurement
• Current tax should be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.
• Deferred tax assets and liabilities should be measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
• The carrying amount of deferred tax assets should be reviewed at each balance sheet date. An enterprise should write-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down may be reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available.
Presentation and Disclosure
• An enterprise should offset assets and liabilities representing current tax if the enterprise:
(a) has a legally enforceable right to set off the recognized amounts; and
(b) intends to settle the asset and the liability on a net basis.
• An enterprise should offset deferred tax assets and deferred tax liabilities if:
(a) the enterprise has a legally enforceable right to set off assets against liabilities representing current tax; and
(b) the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
• Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.
• The break-up of deferred tax assets and deferred tax liabilities into major components of the respective balances should be disclosed in the notes to accounts.
• The nature of the evidence supporting recognition of deferred tax assets should be disclosed, if an enterprise has unabsorbed depreciation or carry forward of losses under tax laws.
Transitional Provisions
On the first occasion that the taxes on income are accounted for in accordance with this Statement, the enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior to the adoption of this Statement as deferred tax asset/liability with a corresponding credit/charge to the revenue reserves, subject to the consideration of prudence in case of deferred tax assets. The amount so credited/charged to the revenue reserves should be the same as that which would have resulted if this Statement had been in effect from the beginning.
Examples of Timing Differences
1. Expenses debited in the statement of profit and loss for accounting purposes but allowed for tax purposes in subsequent years.
e.g. a) Expenditure of the nature mentioned in section 43B accrued in the statement of profit and loss on mercantile basis but allowed for tax purposes in subsequent years on payment basis.
b) Payments disallowed for tax purposes under section 40(a) and allowed for tax purposes in subsequent years when relevant tax is deducted or paid.
c) Provisions made in the books in anticipation of liabilities where the relevant liabilities are allowed in subsequent years when they crystallize.
2. Expenses amortized in the books over a period of years but are allowed for tax purposes wholly in the first year (e.g. substantial advertisement expenses to introduce a product, etc. treated as deferred revenue expenditure in the books) or if amortization for tax purposes is over a longer or shorter period (e.g. preliminary expenses under section 35D, expenses incurred for amalgamation under section 35DD, prospecting expenses under section 35E).
3. Where book and tax depreciation differ. This could arise due to:
a) Differences in depreciation rates.
b) Differences in method of depreciation e.g. SLM or WDV.
c) Differences in method of calculation e.g. calculation ofdepreciation with reference to individual assets in the books but on block basis for tax purposes and calculation with reference to time in the books but on the basis of full or half depreciation under the block basis for tax purposes.
d) Differences in composition of actual cost of assets.
4. Where a deduction is allowed in one year for tax purposes on the basis of a deposit made under a permitted deposit scheme (e.g. tea development account scheme under section 33AB or site restoration fund scheme under section 33ABA) and expenditure out of withdrawal from such deposit is debited in the statement of profit and loss in subsequent years.
5. Income credited to the statement of profit and loss but taxed only in subsequent years e.g. conversion of capital assets into stock in trade.
6. If for any reason the recognition of income is spread over a number of years in the accounts but the income is fully taxed in the year of receipt.
AS – 22 in the situations of tax benefits u/s 80-IA and 80-IB, 10A, 10B of the Income-tax Act, 1961
• The deferred tax in respect of timing differences which reverse during the tax holiday period should not be recognised to the extent the enterprise’s gross total income is subject to the deduction during the tax holiday period as per the requirements of the Act.
• Deferred tax in respect of timing differences which reverse after the tax holiday period should be recognised in the year in which the timing differences originate. However, recognition of deferred tax assets should be subject to the consideration of prudence
• For the above purposes, the timing differences which originate first should be considered to reverse first.
Eg.
Tax holiday available for 15 years
Original cost of Machinery : Rs. 1500 lakhs
Depreciation as per books : SLM to be w/off in 15 years
Depreciation as per I.T. Act : 15% WDV
Computation of depreciation on the machine for accounting purposes and tax purposes
(Amounts in Rs. lakhs)
Year Depreciation for accounting purposes Depreciation for tax purposes
1 100 375
2 100 281
3 100 211
4 100 158
5 100 119
6 100 89
7 100 67
8 100 50
9 100 38
10 100 28
11 100 21
12 100 16
13 100 12
14 100 9
15 100 7
At the end of the 15th year, the carrying amount of the machinery for accounting purposes would be nil whereas for tax purposes, the carrying amount is Rs. 19 lakhs which is eligible to be allowed in subsequent years.
AS – 22 in the situations of Section 115JB (MAT)
In a period in which a company pays tax under section 115JB of the Act, the deferred tax assets and liabilities in respect of timing differences rising during the period, tax effect of which is required to be recognized under AS 22, should be measured using the regular tax rates and not the tax rate under section 115JB of the Act.
SERVICE TAX-- BY VIKRAM MEHTA
Amendments in the Budgets in respect of Service Tax.
Existing Provisions Amended :
The rate of tax for levy of service tax continues @ 12%, however education cess increased from 2% to 3% with the date of president’s assent to the bill.
The threshold level of Service tax exemption raised from Rs 4 lakhs to Rs 8 lakhs
Consequently limit of Registration raised from Rs 3 lakhs to Rs 7 lakhs
Sec65(12) Banking and Financial Services.
1. The term any other person is substituted with any commercial concern.
2. The clause financial leasing is defined to mean as under:
Contract of leasing of specific asset between the parties
Asset leased to be used or utilized by lessee
The lease payment cover the cost of the asset as well as interest charges thereon
The lessee has an option to own the assets at the end of the period of lease.
Thus it clearly lays down that operational lease shall not be taxable.
3.The exclusion of Cash management in clause V is now deleted thereby making the services of cash management as taxable.
Sec65(20) “Cab” definition has been amended to include
Any motor vehicle constructed or adapted to carry more than 12 passengers excluding driver for Hire or Reward. However exemption is granted for the education inistitution hiring or renting the maxi-cab or motor vehicle.
Sec65(40) “Event Management” term has been expanded to include Marriage.
Management Maintainance or Repair an explanantion is added “goods” include computer software.
Sec65(65) Sec 65(105) –(r ) “Management or Business Consultant ‘ has been redrafted and include business consultancy.
Sec65(66) / (67) / (77a) Mandap/ Mandap Keeper / Pandal or Shamiana Contractor definition expanded to include Marriage as social function,thereby negating the decision of the court which held marriage to be social function not liable to be taxed.
Sec 65(105)-(g) Consulting Engineers- Exclusion of term Computer Hardware engineering is deleted.Exclusion of Software Engineering continues.Thus computer hardware engineering is brought within the taxable net.
Sec 65(105)-(j) Manpower Recruitment or Supply Agency- term expanded to include services of Pre recruitment Screening, Verification of Credentials and antecedents and authencity of documents supplied by the candidate.
Sec 65(105)-(zzzm) Sale of Advertisement Space- The term print media is now defined thereby bringing in to the taxable net commercial items like business catalogues , directories ,yellow pages etc.
Sec 65 pertaining to i) Telephone Connection ii) Pager iii) Leased Circuit
iv) Communication through Telegraph v) Communication through Telex
vi)Facsimile communication Deleted
All above services merged in “Telecommunication Service”.
Software is a part of information and technology act and transmission of software in digitized format is covered under this taxable head.At the same time it is clarified that software are goods. In a digitized format the transmission of software is therefore transfer of goods taxable under the state enactment then whether service tax can be levied on such goods .
Section 65(zzze) “To its members by any club or association” an exemption is granted to residential society from whole of service tax where the consideration received from each individual member does not exceed three thousand Rupees. Whether the municipal taxes collected separately will be covered in the limit of Rs 3000/-? Whether the limit of 800000/- applicable over and above of this Rs 3000/- limit?
Section 65(zzh) Technical Testing and Analysis – exemption granted for approved clinical research organization conducting trials in relation to testing and analysis or newly developed drugs , vaccines ,herbal remedies on humans .
The exemption is also granted where the exhibition of cinematography rights are granted to a cinema theatre in a digitized format in non physical method of delivery.
Exemption is also granted to Technological Business Incubators / Science and Technology Entrepeneurship Parks.
Section 70 is amended to file the late return with prescribed late fee not exceeding
Rs 2000/-.
Sec 38A introduces as Savings clause to allow government to take action on pending cases in respect of repealed act rules or notification.
Rules are amended as under
Rule 4 has been amended to modify the registration certificate without submission of original in cases where change is to be recorded on the certificate.Only certified copy should be sent.
Rule 6 has been amended to allow a facility to self-adjust the excess service tax paid in subsequent month or quarter subject to limitation and conditions and also subject to an overall monetary limit of Rs 50000/-.
Rules 7B has been inserted to allow filing of revised return within a period of 60 days.
Rule 2(d) (vii) has been amended to include sponsorship service under reverse charge mechanism.Thereby making the receipient of sponsorship in India liable to pay tax.
Cenvat credit rules have been amended to allow providers of general insurance service proportionate credit where they provide taxable as well as tax-free service.
Export Service Rules have been amended .Term “delivered outside India and used outside India” has to be substituted with “provided from India and used outside India” Further both rule 3(1) and (2) are to be satisfied for a service to be treated as a export service .
NEW SERVICES INTRODUCED IN THE BUDGET-2007-2008
Following services are specifically included in the list of taxable services:
(i)Service provided by a telegraph authority in relation to telecommunication service [sub-clause (zzzx) of section 65(105) refers];
(ii) Service provided in relation to mining of mineral, oil or gas [sub-clause (zzzy) of section 65(105) refers];
(iii) Service provided in relation to renting of immovable property for use in the course or furtherance of business or commerce [sub-clause (zzzz) of section 65(105) refers];
(iv) Service provided in relation to the execution of a works contract [subclause (zzzza) of section 65(105) refers];
(v) Service provided in relation to development and supply of content for use in telecom services, advertising agency services and on-line information and database access or retrieval services [sub-clause (zzzzb) of section 65(105) refers];
(vi) Service provided by any person, except a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to asset management including portfolio management and all forms of fund management [subclause (zzzzc) of section 65(105) refers]; and
(vii) Service provided in relation to design services [sub-clause (zzzzd) of section 65(105) refers].
1. TELECOMMUNICATION SERVICE:
Distinct telecommunication related services, merged into one
2. MINING SERVICE [section 65(105)(zzzy)]:
Presently, geological, geophysical or other prospecting, surface or sub-surface surveying or map-making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under "survey and exploration of mineral service" [section 65(105)(zzv)]. Services of minerals ,oil and gas exploration and related services are sought to be brought under one head.
3.Renting of Immovable Property :
(90a) "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include -
(i) renting of immovable property by a religious body or to a religious body; or
(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;
Explanation.-For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;';
Taxable Service.
(zzzz) to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.
Explanation 1.-For the purposes of this sub-clause, "immovable property" includes-
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include
(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and parking purposes; and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.
Explanation 2.-For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;
Issues :-
1. Whether on going contracts will be affected?
2. In case of co-ownership where the total rent received for the property is more than Rs. 800,000/- but individual rent earned by the co-owner is less than Rs. 800,000/-, whether exemption will be available?
3. In the above case whether it is necessary that two separate cheques should have been received for claiming exemption?
Consider the situation where commercial property is rented to trust which is doing charity, whether the provision would be attracted?
Consider the situation where in residential building on the ground floor there are commercial shops. In such building residential flat is given on rent, whether in this situation provision of the above act will be attracted or not?
Indian postal department is given a premises on the rent on the ground floor of a residential building whether the provisions will be attracted.
A chartered accountant paying rent of a residential house which he uses partly for his office. Whether liable to tax ?
Design Services: Sec 36(b)
(36b) "design services" includes services provided in relation to designing of furniture, consumer products, industrial products, packages, logos, graphics, websites and corporate identity designing and production of three dimensional models;
(zzzzd) to any person, by any other person in relation to design services, but does not include service provided by
(i) an interior decorator referred to in sub-clause (q); and
(ii) a fashion designer in relation to fashion designing referred to in sub-clause (zv);';
Development and Supply of content: Sec36 [ c ]
(36c) "development and supply of content" includes development and supply of mobile value added services, music, movie clips, ring tones, wall paper, mobile games, data, whether or not aggregated, information, news and animation films;';
(zzzzb) to any person, by any other person in relation to development and supply of content for use in telecommunication services, advertising agency services and on-line information and database access or retrieval services;
Works Contract:
(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation.-For the purposes of this sub-clause, "works contract" means a contract wherein,-
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,-
(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;
Definition as per MVAT Act, 2002:
Under Sec 2(24) Explanation (b)(ii) “ the transfer of property in goods ( whether as goods or in some other form ) involved in the execution of a [ works contract namely, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;]”.
Definition as per Central Sales Tax Act, 1956:
Under Sec. 2(ja) “ works contract” means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property; ]
Issues.
Whether the central government has the power to tax the services in view of the specific disapproval of the Escotel Judgement by the Supreme Court in BSNL ‘s case.
Whether BSNL ‘s Judgement has any effect on the application of judgement of K Raheja.
Whether the service tax on works contract in relation to immovable property only?
What is the position of an on going contract?
Whether the contract of zinc coating on iron bar would be exigible to service tax?
Whether the contract to contruct a port or some part of a port would be taxable ?
Whether the answer will change if there is any repair contract granted at port ?
Whether the answer will be different if the contruction is of a bus terminal ?
Whether the percentage deduction granted u/r 58 will be recognized as goods liability and billing can be done of balance percentage as services ?
What is position with respect to sub contractors. Whether the deduction available for tax paid on goods used by sub contractor will be available to main contractor vis a vis taxability of services ?
The Finance Minister has announced the composition scheme for payment of tax on service portion of works contract. @ 2% of the entire contract value.[The scheme is awaited ].
THANK YOU
Existing Provisions Amended :
The rate of tax for levy of service tax continues @ 12%, however education cess increased from 2% to 3% with the date of president’s assent to the bill.
The threshold level of Service tax exemption raised from Rs 4 lakhs to Rs 8 lakhs
Consequently limit of Registration raised from Rs 3 lakhs to Rs 7 lakhs
Sec65(12) Banking and Financial Services.
1. The term any other person is substituted with any commercial concern.
2. The clause financial leasing is defined to mean as under:
Contract of leasing of specific asset between the parties
Asset leased to be used or utilized by lessee
The lease payment cover the cost of the asset as well as interest charges thereon
The lessee has an option to own the assets at the end of the period of lease.
Thus it clearly lays down that operational lease shall not be taxable.
3.The exclusion of Cash management in clause V is now deleted thereby making the services of cash management as taxable.
Sec65(20) “Cab” definition has been amended to include
Any motor vehicle constructed or adapted to carry more than 12 passengers excluding driver for Hire or Reward. However exemption is granted for the education inistitution hiring or renting the maxi-cab or motor vehicle.
Sec65(40) “Event Management” term has been expanded to include Marriage.
Management Maintainance or Repair an explanantion is added “goods” include computer software.
Sec65(65) Sec 65(105) –(r ) “Management or Business Consultant ‘ has been redrafted and include business consultancy.
Sec65(66) / (67) / (77a) Mandap/ Mandap Keeper / Pandal or Shamiana Contractor definition expanded to include Marriage as social function,thereby negating the decision of the court which held marriage to be social function not liable to be taxed.
Sec 65(105)-(g) Consulting Engineers- Exclusion of term Computer Hardware engineering is deleted.Exclusion of Software Engineering continues.Thus computer hardware engineering is brought within the taxable net.
Sec 65(105)-(j) Manpower Recruitment or Supply Agency- term expanded to include services of Pre recruitment Screening, Verification of Credentials and antecedents and authencity of documents supplied by the candidate.
Sec 65(105)-(zzzm) Sale of Advertisement Space- The term print media is now defined thereby bringing in to the taxable net commercial items like business catalogues , directories ,yellow pages etc.
Sec 65 pertaining to i) Telephone Connection ii) Pager iii) Leased Circuit
iv) Communication through Telegraph v) Communication through Telex
vi)Facsimile communication Deleted
All above services merged in “Telecommunication Service”.
Software is a part of information and technology act and transmission of software in digitized format is covered under this taxable head.At the same time it is clarified that software are goods. In a digitized format the transmission of software is therefore transfer of goods taxable under the state enactment then whether service tax can be levied on such goods .
Section 65(zzze) “To its members by any club or association” an exemption is granted to residential society from whole of service tax where the consideration received from each individual member does not exceed three thousand Rupees. Whether the municipal taxes collected separately will be covered in the limit of Rs 3000/-? Whether the limit of 800000/- applicable over and above of this Rs 3000/- limit?
Section 65(zzh) Technical Testing and Analysis – exemption granted for approved clinical research organization conducting trials in relation to testing and analysis or newly developed drugs , vaccines ,herbal remedies on humans .
The exemption is also granted where the exhibition of cinematography rights are granted to a cinema theatre in a digitized format in non physical method of delivery.
Exemption is also granted to Technological Business Incubators / Science and Technology Entrepeneurship Parks.
Section 70 is amended to file the late return with prescribed late fee not exceeding
Rs 2000/-.
Sec 38A introduces as Savings clause to allow government to take action on pending cases in respect of repealed act rules or notification.
Rules are amended as under
Rule 4 has been amended to modify the registration certificate without submission of original in cases where change is to be recorded on the certificate.Only certified copy should be sent.
Rule 6 has been amended to allow a facility to self-adjust the excess service tax paid in subsequent month or quarter subject to limitation and conditions and also subject to an overall monetary limit of Rs 50000/-.
Rules 7B has been inserted to allow filing of revised return within a period of 60 days.
Rule 2(d) (vii) has been amended to include sponsorship service under reverse charge mechanism.Thereby making the receipient of sponsorship in India liable to pay tax.
Cenvat credit rules have been amended to allow providers of general insurance service proportionate credit where they provide taxable as well as tax-free service.
Export Service Rules have been amended .Term “delivered outside India and used outside India” has to be substituted with “provided from India and used outside India” Further both rule 3(1) and (2) are to be satisfied for a service to be treated as a export service .
NEW SERVICES INTRODUCED IN THE BUDGET-2007-2008
Following services are specifically included in the list of taxable services:
(i)Service provided by a telegraph authority in relation to telecommunication service [sub-clause (zzzx) of section 65(105) refers];
(ii) Service provided in relation to mining of mineral, oil or gas [sub-clause (zzzy) of section 65(105) refers];
(iii) Service provided in relation to renting of immovable property for use in the course or furtherance of business or commerce [sub-clause (zzzz) of section 65(105) refers];
(iv) Service provided in relation to the execution of a works contract [subclause (zzzza) of section 65(105) refers];
(v) Service provided in relation to development and supply of content for use in telecom services, advertising agency services and on-line information and database access or retrieval services [sub-clause (zzzzb) of section 65(105) refers];
(vi) Service provided by any person, except a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to asset management including portfolio management and all forms of fund management [subclause (zzzzc) of section 65(105) refers]; and
(vii) Service provided in relation to design services [sub-clause (zzzzd) of section 65(105) refers].
1. TELECOMMUNICATION SERVICE:
Distinct telecommunication related services, merged into one
2. MINING SERVICE [section 65(105)(zzzy)]:
Presently, geological, geophysical or other prospecting, surface or sub-surface surveying or map-making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under "survey and exploration of mineral service" [section 65(105)(zzv)]. Services of minerals ,oil and gas exploration and related services are sought to be brought under one head.
3.Renting of Immovable Property :
(90a) "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include -
(i) renting of immovable property by a religious body or to a religious body; or
(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;
Explanation.-For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;';
Taxable Service.
(zzzz) to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.
Explanation 1.-For the purposes of this sub-clause, "immovable property" includes-
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include
(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and parking purposes; and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.
Explanation 2.-For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;
Issues :-
1. Whether on going contracts will be affected?
2. In case of co-ownership where the total rent received for the property is more than Rs. 800,000/- but individual rent earned by the co-owner is less than Rs. 800,000/-, whether exemption will be available?
3. In the above case whether it is necessary that two separate cheques should have been received for claiming exemption?
Consider the situation where commercial property is rented to trust which is doing charity, whether the provision would be attracted?
Consider the situation where in residential building on the ground floor there are commercial shops. In such building residential flat is given on rent, whether in this situation provision of the above act will be attracted or not?
Indian postal department is given a premises on the rent on the ground floor of a residential building whether the provisions will be attracted.
A chartered accountant paying rent of a residential house which he uses partly for his office. Whether liable to tax ?
Design Services: Sec 36(b)
(36b) "design services" includes services provided in relation to designing of furniture, consumer products, industrial products, packages, logos, graphics, websites and corporate identity designing and production of three dimensional models;
(zzzzd) to any person, by any other person in relation to design services, but does not include service provided by
(i) an interior decorator referred to in sub-clause (q); and
(ii) a fashion designer in relation to fashion designing referred to in sub-clause (zv);';
Development and Supply of content: Sec36 [ c ]
(36c) "development and supply of content" includes development and supply of mobile value added services, music, movie clips, ring tones, wall paper, mobile games, data, whether or not aggregated, information, news and animation films;';
(zzzzb) to any person, by any other person in relation to development and supply of content for use in telecommunication services, advertising agency services and on-line information and database access or retrieval services;
Works Contract:
(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation.-For the purposes of this sub-clause, "works contract" means a contract wherein,-
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,-
(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) construction of a new residential complex or a part thereof; or
(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;
Definition as per MVAT Act, 2002:
Under Sec 2(24) Explanation (b)(ii) “ the transfer of property in goods ( whether as goods or in some other form ) involved in the execution of a [ works contract namely, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;]”.
Definition as per Central Sales Tax Act, 1956:
Under Sec. 2(ja) “ works contract” means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property; ]
Issues.
Whether the central government has the power to tax the services in view of the specific disapproval of the Escotel Judgement by the Supreme Court in BSNL ‘s case.
Whether BSNL ‘s Judgement has any effect on the application of judgement of K Raheja.
Whether the service tax on works contract in relation to immovable property only?
What is the position of an on going contract?
Whether the contract of zinc coating on iron bar would be exigible to service tax?
Whether the contract to contruct a port or some part of a port would be taxable ?
Whether the answer will change if there is any repair contract granted at port ?
Whether the answer will be different if the contruction is of a bus terminal ?
Whether the percentage deduction granted u/r 58 will be recognized as goods liability and billing can be done of balance percentage as services ?
What is position with respect to sub contractors. Whether the deduction available for tax paid on goods used by sub contractor will be available to main contractor vis a vis taxability of services ?
The Finance Minister has announced the composition scheme for payment of tax on service portion of works contract. @ 2% of the entire contract value.[The scheme is awaited ].
THANK YOU
DIVIDEND- UNDER COMPANIES ACT BY BHARAT JAIN POSTED ON 31/3/2007
Summarized DIVIDEND Provisions under Cos Act
Section 205
• Dividend should be approved in Annual General meeting. In case of Interim Dividend, the board can pay but the same should be authorized by Articles and later on should be regularized by AGM..
• Dividend should be paid out of profits.
• No dividend would be declared before providing depreciation (to be worked out as defined in the section)
• Dividend can be declared out of current profits or earlier year’s profits but after providing for depreciation.
• Dividend can be declared out of accumulated reserves in accordance with rules made by CG (refer declaration of dividend out of reserves rule 1975)/ otherwise with the previous approval of CG.
• Dividend can be declared out of money provided by Central Govt in pursuance of guarantee provided by the CG.
• In case of losses in previous financial years, amount of loss or amount provided for that year’s depreciation/ those years whichever is less, shall be setoff against the profit of the year for which dividend is proposed to be declared.
• Central govt may give exemption from providing depreciation to the company for declaring dividend out of profits if the said act is in public interest.
• Depreciation would be provided as per section 350 or any other method prescribed by the Govt. [As per schedule xiv of the Income Tax Act]
• No dividend should be provided before transferring to the reserves % of profits as specified in transfer of Reserves rule 1975.
• The said transfer generally may not exceed 10% of the profit but this section does not prohibit higher % of transfer in accordance with the rules framed under transfer of Reserves rule 1975.
• No dividend can be declared if the co. has violated the provision of section 80A (redemption of irredeemable preference shares)
• Dividend can be only paid in cash and not in kind. But there are some exceptions based on various judgments.
Summarized DIVIDEND Provisions under Cos Act
Section 205 A
• Dividend warrant should be posted with in 30 days of declaration of dividends.
• After completion of 30 days of declaration of dividend, with in 7 days, the unpaid dividend should be transferred to a separate bank account.
• The said bank account should be in scheduled bank and the name of the would be “unpaid Dividend Account of __________ Company Limited/ Company private limited.
• In case of non-transfer to said bank account, the company has to pay interest @ 12% pa and the said interest would be added to the dividend o/s in proportionate.
• After completion of seven year from date of transfer, said unpaid dividend should be transferred to Investor education and protection fund with all the particulars about the beneficiaries. (GRA till 1999)
Section 205 B
• The person entitled for said dividend can apply to CG for the claim till 1999- General Revenue account
Section 205 C
• Following types of unpaid/ unutilized amount should be trf to IEPF:
1. Unpaid dividend- after 7 years from due date for payment
2. Application money- after 7 years from due date for payment
3. Matured deposit/ debentures & accrued interest due there on- after 7 years from due date for payment
4. Grant & donation given to the fund by co./ Govt / Institutions for the purpose of fund and interest thereon out of Investment.
• No claim would lie against the said fund after completion of 7 years from due date.
The entire set of criteria is also applicable to Interim Dividends and the said dividend has to be deposited with in 5 days of declaration to a separate bank account.
Summarized DIVIDEND Provisions under Cos Act
Section 206
• Dividend should be paid to regd shareholders only.
Section 206A
• Dividend should be transf. to special account as mentioned in section 205A in case of pending transfer request/ Bonus shares/ right shares.
Section 207
• In case of failure to distribute dividend with in 30 days of declaration, every director of the co. may be punishable with simple imprisonment of max 3 year & shall also be liable for fine of Rs. 1500/- per day till the default continue.
• Simple interest @ 18% during the period of default is also applicable.
Section 205
• Dividend should be approved in Annual General meeting. In case of Interim Dividend, the board can pay but the same should be authorized by Articles and later on should be regularized by AGM..
• Dividend should be paid out of profits.
• No dividend would be declared before providing depreciation (to be worked out as defined in the section)
• Dividend can be declared out of current profits or earlier year’s profits but after providing for depreciation.
• Dividend can be declared out of accumulated reserves in accordance with rules made by CG (refer declaration of dividend out of reserves rule 1975)/ otherwise with the previous approval of CG.
• Dividend can be declared out of money provided by Central Govt in pursuance of guarantee provided by the CG.
• In case of losses in previous financial years, amount of loss or amount provided for that year’s depreciation/ those years whichever is less, shall be setoff against the profit of the year for which dividend is proposed to be declared.
• Central govt may give exemption from providing depreciation to the company for declaring dividend out of profits if the said act is in public interest.
• Depreciation would be provided as per section 350 or any other method prescribed by the Govt. [As per schedule xiv of the Income Tax Act]
• No dividend should be provided before transferring to the reserves % of profits as specified in transfer of Reserves rule 1975.
• The said transfer generally may not exceed 10% of the profit but this section does not prohibit higher % of transfer in accordance with the rules framed under transfer of Reserves rule 1975.
• No dividend can be declared if the co. has violated the provision of section 80A (redemption of irredeemable preference shares)
• Dividend can be only paid in cash and not in kind. But there are some exceptions based on various judgments.
Summarized DIVIDEND Provisions under Cos Act
Section 205 A
• Dividend warrant should be posted with in 30 days of declaration of dividends.
• After completion of 30 days of declaration of dividend, with in 7 days, the unpaid dividend should be transferred to a separate bank account.
• The said bank account should be in scheduled bank and the name of the would be “unpaid Dividend Account of __________ Company Limited/ Company private limited.
• In case of non-transfer to said bank account, the company has to pay interest @ 12% pa and the said interest would be added to the dividend o/s in proportionate.
• After completion of seven year from date of transfer, said unpaid dividend should be transferred to Investor education and protection fund with all the particulars about the beneficiaries. (GRA till 1999)
Section 205 B
• The person entitled for said dividend can apply to CG for the claim till 1999- General Revenue account
Section 205 C
• Following types of unpaid/ unutilized amount should be trf to IEPF:
1. Unpaid dividend- after 7 years from due date for payment
2. Application money- after 7 years from due date for payment
3. Matured deposit/ debentures & accrued interest due there on- after 7 years from due date for payment
4. Grant & donation given to the fund by co./ Govt / Institutions for the purpose of fund and interest thereon out of Investment.
• No claim would lie against the said fund after completion of 7 years from due date.
The entire set of criteria is also applicable to Interim Dividends and the said dividend has to be deposited with in 5 days of declaration to a separate bank account.
Summarized DIVIDEND Provisions under Cos Act
Section 206
• Dividend should be paid to regd shareholders only.
Section 206A
• Dividend should be transf. to special account as mentioned in section 205A in case of pending transfer request/ Bonus shares/ right shares.
Section 207
• In case of failure to distribute dividend with in 30 days of declaration, every director of the co. may be punishable with simple imprisonment of max 3 year & shall also be liable for fine of Rs. 1500/- per day till the default continue.
• Simple interest @ 18% during the period of default is also applicable.
Malaybhai--Querry
* An Indian Resident person (Mr. A) is working in TCS. In Jan'05 he was posted for a project in UK. For the entire fy 05-06 he was in UK. His salary was paid in India after TDS. He was getting an allowance of 200 Pounds per month. Now that he is back in India, he transferred some 1000 Pounds, out of his savings from the allowance, in his Indian account. Will this amout transferred be subject to tax?
Thanx/Malay
Thanx/Malay
EXTENTION OF DATE FOR MVAT AUDIT
MVAT Audit date extended to 31/3/2007 by Bombay High Court -- New Circular
NEW YEAR
नये साल का पहला दिन।
गुजरे सबका अच्छा दिन।
सूरज निकला आया दिन।
सूरज डूबा बीता दिन।
नाबीना ये क्या जाने,
कैसी रातें कैसा दिन।
दिल में आग लिये सूरज।
दर-दर भटका सारा दिन।
सुबह से लेकर शाम तलक।
किस्तों में बंट जाता दिन।
कोहरे की चादर ओढे,
ठिठुरी रातें ठिठुरा दिन।
कतरा- कतरा रात कटी,
लम्हा-लम्हा गुजरा दिन।
जाने किसकी आस लिये,
धरती घूमे सारा दिन।
दिनेश दोशी
गुजरे सबका अच्छा दिन।
सूरज निकला आया दिन।
सूरज डूबा बीता दिन।
नाबीना ये क्या जाने,
कैसी रातें कैसा दिन।
दिल में आग लिये सूरज।
दर-दर भटका सारा दिन।
सुबह से लेकर शाम तलक।
किस्तों में बंट जाता दिन।
कोहरे की चादर ओढे,
ठिठुरी रातें ठिठुरा दिन।
कतरा- कतरा रात कटी,
लम्हा-लम्हा गुजरा दिन।
जाने किसकी आस लिये,
धरती घूमे सारा दिन।
दिनेश दोशी
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