TIOL-DDT 1283 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1283 </font><br> 21.01.2010 <br> Thursday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No PAN? Pay TDS @20% - CBDT reiterates Law </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT</strong> has issued a Press note reiterating an important provision of law which comes into force with effect from 1.4.2010. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1st April 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All deductors are liable to deduct tax at the higher rate in all transactions not having PAN of the deductees on or after 1st April 2010. In order that there is no dispute regarding quoting / non-quoting of PAN or accuracy thereof, the law requires all deductees and dedutors to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other. All deductors are, therefore, advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate. All deductees, including non-residents having transactions in India liable to TDS, are advised to obtain PAN by 31st March 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“The procedure for obtaining PAN is simple, inexpensive and quick”, says CBDT – so please go ahead and get that PAN. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">The Provisions of Law: </font></strong>The new provision of law referred to by the Board is the new Section 206AA, inserted in the statute by the Finance Act, 2009, with effect from 01.04.2010. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>206AA. </strong><em>(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:-</em></font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(</em>i<em>) at the rate specified in the relevant provision of this Act; or </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(</em>ii<em>) at the rate or rates in force; or </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(</em>iii<em>) at the rate of twenty per cent. </em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1). </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly</em>. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Does amount collected as prepaid brokerage attracts service tax? </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ONE</strong> of our Netizens forwarded us the following news item published in the Economic Times and wanted to know the implication of service tax on such prepaid brokerage collected by the stock brokers. </font></p> <p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>News Item published in 19th January, ECONOMIC TIMES </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">MUMBAI:</font></strong><font color="#FF6633"> Prepaid brokerage schemes have made a spectacular comeback as big stock broking firms look to hook as many clients as possible while the upbeat market sentiment lasts and customers flock to a trading system that is up to 40% cheaper. </font></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Market watchers see the system of collecting commissions before trades - similar to a prepaid mobile card — intensifying, with the stock market expected to continue its heady run this year. Advance credit/deposit, or prepaid brokerage in popular parlance, is typically in vogue during a market rally when bullish investors expect plenty of trading opportunities. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">“Of the 15,000 new accounts we add every month, about 30% customers opt for these schemes,” says R Kalyanaraman, senior vice-president, client acquisition, Sharekhan.</font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Sharekhan and other brokerage majors such as Motilal Oswal, Angel Broking, Reliance Money, Anand Rathi and Kotak Securities are all seeing an uptick in prepaid schemes. Large brokerage houses are keen on such schemes as their infrastructure keeps a check on costs while margins improve with a surge in the number of clients. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">“There has been an average monthly growth of 25% in the number of new clients opting for this (prepaid) system,” says Vinay Agrawal, equities broking executive director, Angel Broking. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> The upsurge in prepaid brokerage schemes, according to analysts, is a reflection of the buoyant outlook for the stock market as the facility works on the principle of a validity period, just like cellphone cards. The trader/investor has to make use of the available credit before the end of the validity period, failing which it is forfeited. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> For instance, if the standard brokerage rate is 10 paise per Rs 100 trade in the futures and option segment, a client using the prepaid facility will be charged only 6 paise per Rs 100, provided Rs 2,000 is paid upfront. Each time a client trades with the brokerage house, the commission would be deducted from this amount. In the conventional trading system, charges are on a per trade basis. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> So, if investors are lapping up this scheme, they are surely upbeat about the prospects of the stock market, at least in the next one year. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Indeed, most experts presage the staggering returns of last year to continue in 2010, underpinned by an economy largely unshaken by the global downturn. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We made a curious search in our archives to find if any clarification was issued by the CBEC on the issue and to our surprise, we find CBEC did give a clarification on the issue in response to a similar news item carried by the same news paper some time back during 2008. The Board vide letter <em>F.No. 341/93/2008-TRU dt. 13th October, 2008</em> has clarified that such amounts collected does attract service tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board had clarified, “the amount charged explicitly as commission or brokerage being conditional, cannot be treated as total consideration. The money value of the conditions stipulated should also be added with the commission or brokerage to determine the taxable value.” </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2008/st_clarification.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC Letter F.No. 341/93/2008-TRU dated October 13, 2008 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Post Tender Negotiations – A source of Corruption – Warns CVC </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WAY</strong> back in 2007, CVC had clarified that “as post tender negotiations could often be a source of corruption, there should be no post tender negotiations with L1 except in certain exceptional situations”. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It has come to the notice of the CVC that this has been interpreted to mean that there is a ban on post tender negotiations with L1 only and there could be post tender negotiations with other than L1, i.e. L2,L3 etc. CVC clarifies that this is not correct. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CVC has clarified that there should be normally be no post tender negotiations. If at all it is so warranted, then it can be with L1(Lowest tenderer) only if the tender pertains to the award of work/supply orders etc, where the Government or the Government Company has to make payment. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/pdfdocs/wnew/tpn20012010.pdf" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CVC Circular No.01/01/10 Dated: January 20, 2010 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DG, safeguards appointed </strong></font></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">GOVERNMENT</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> has appointed Ms. Indrani Dutta Majumder as the Director General, (Safeguard) and (Specific Safeguard) </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2010/cnt10_003.htm" target="_blank">Notification Nos. 3</a> and </strong><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2010/cnt10_003.htm" target="_blank">4/2010 – Cus. (NT) Dated: January 11, 2010</a> </strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Friday's cases</font></strong></font></strong></font></p> <p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left">Central Excise </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Inherent contradiction – By upholding demand of duty, Commissioner(A) has given his stamp of approval to invocation of extended period of limitation – in such an eventuality, mandatory penalty and interest payable – revenue appeal allowed- CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> entire demand of duty was for a period beyond the normal period of limitation. But upholding such demand of duty, the learned Commissioner(Appeals) was giving his stamp of approval to the invocation of the extended period of limitation. Therefore, it was not open to him to hold that the proviso to section 11A(1) was not applicable. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>STPI unit – Deduction under Sec 80HHE and Sec 10A eligible for two different periods of same Asst Year - ITAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> principle of apportionment of income or expenditure is well entrenched in the taxation laws. The assessee computed profits for the two periods on a reasonable basis by taking receipt on actuals and expenditure on a proportionate basis. The Assessing Officer has not found any fault with the allocation of profit in the two periods. It is settled that in law, the profits of a business accrue on the last date of the previous year. However, that does not mean that allocation of profits of the year in two different periods is an impossibility because of the aforesaid principle of law. Such an apportionment was necessary as the assessee became entitled to deduction under two different provisions for the two periods. The principle of accrual of profit does not come in the way of allocation of profit in the two periods. What can be done at best is to ensure that the allocation is made on a proper basis so as to avoid excessive claim of deduction under one or the other provision. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Construction of a building in Sri Lanka – tax paid by misunderstanding of law – Amount paid is not tax and refund not governed by limitation under Section 11B of Central Excise Act – Madras High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is clear that if what was paid cannot be taken to be duty of excise, the bar of limitation under section 11B(1) cannot be applied. This is on account of the fact that the bar of limitation prescribed under Section 11B(1) applies only to "any person claiming refund of any duty of excise and interest". Therefore, the claim of the petitioner for refund can be entertained by this Court, since there is no dispute about the fact that no service tax was payable by the petitioner and as a corollary, what was paid by them was not service tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And we came across a similar case from another High Court </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax – Amount paid due to misunderstanding of law, when no tax was payable – limitation under Section 11B of Central Excise Act not applicable – Karnataka High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION</strong> 11B provides for making a claim to refund duty. Admittedly, the sums deposited by the petitioner are held to be a deposit and not as a duty, therefore, there was no necessity for the petitioner to have made a claim invoking Section 11B of the Act for refund. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong> </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p> </body> </html>