TIOL-DDT 166 · the untouched capture
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<html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 166</font><br> 27 07 2005<br> Wednesday</b></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Dividend Stripping – Avoidance or evasion?</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The judgement of the Special Bench of ITAT we are carrying today is a masterly dissection on interpretation of law, especially when the conflict is between assumed noble intentions of law and blunt meanings of words used to convey the law. What the law allows, the lawmen are not always prepared to concede for the lawmen often think with their hearts while the assessee (or rather his consultant) uses his head.<br> <br> It may look ridiculous to a layman that somebody will buy units only for selling them at a loss to claim deduction of that loss for computing Income tax. Of course there is the dividend which is not taxable. <br> <br> Mutual Funds give wide publicity to their proposed dividend. You can buy the units on the record date and sell it the next day and still collect your tax-free dividend. The icing on the cake is you can claim the loss in selling the units as deduction from Income without showing the dividend as income. Too good to be true! But that is the law! <br> <br> Is the transaction colourable? Is it avoidance or evasion? The Special Bench of the Tribunal in an exhaustive scholarly judgement held that the assessee is eligible for both the benefits as per law. <br> <br> Incidentally the Income Tax Act was amended in 2001 to control this instant profit and loss activity. As per Section 94(7) inserted in 2001, loss will not be allowed if the units are bought within three months before the record date and sold before three months after and if there is a dividend or income. One of the questions before the Tribunal was whether this amendment had retrospective validity. <br> <br> There is another aspect to this issue which is not covered in the judgement.<br> <br> The 2001 amendment did not take into consideration all possibilities. The 2001 amendment which brought in Section 94 (7) to the Income Tax Act dealt with the dividend or income from the mutual fund which is exempted. Now to circumvent this provision, mutual funds can issue bonus units instead of giving income or dividend. Now an experienced stripper can collect these bogus (not a spelling mistake) units and sell the original units he had with him at a loss and claim the loss in computing his income. This is not a figment of imagination from the fertile mind of a Tax consultant but obviously this has actually happened and to rectify this, government has further amended Section 94 and brought in sub-Section (8) to disallow the loss in selling of the units when additional units are allotted. Law making is a big match between the makers and the sufferers – Who wins ultimately? (Consultants)<br> <br> <b>DDT</b> strongly suggests that you should read this classic judgement for a deep appreciation of the concept of avoidance and evasion. While on that we also suggest you have a glance at this article <a href="http://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=605"><b>TAX AVOIDANCE VS TAX EVASION!</b></a><b> </b></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Exchange rates announced for imported goods and export goods</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2005/cnt05_067.htm">Notification Nos 67</a> and <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2005/cnt05_068.htm">68/2005-NT-CUSTOMS, dated, July 26, 2005</a> fix the exchange rates for imports and exports respectively with effect from 1st April, 2005. Notifications 51 and 52/2005-Cus. (N.T.), dated 27-06-2005 are superseded.</font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Containers/cargo—Movement of containers Board issues instructions</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Containers which are of durable nature and intended to be imported temporarily are exempt from the levy of Customs duties by Notification No. 104/94-Customs, dated 16th March, 1994 subject to the condition of re-export within a period of six months from the date of importation and subject to other conditions specified in the notification. <br> <br> As different practices are prevailing in the field, the Board has issued the following instructions for uniformity.<br> <br> (i) The nature of bond should be “continuity bond”.<br> <br> (ii) No Bank Guarantee / Security is required is furnished along with the bond.<br> <br> (iii) Bond should be executed by shipping line, Non Vessel Owning Common Carrier (NVOCC), Steamer agents or their authorised representatives.<br> <br> (iv) The bond amount should cover only the duty element of the imported containers and not the cargo it is carrying.<br> <br> (v) The validity period of the bond should be for a year which would be extendable till further such period as requested by the person executing the bond.<br> <br> (vi) While Directorate of Systems and Data Management is developing a module for automatic matching of imported and export containers within permissible time, the process of monitoring of period of temporary importation should be done manually in respective Customs houses till such time. <br> <br> (vii) The extension of time period of six months should be done in accordance with the <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/tradenotice.htm">Circular No. 83/98-Cus., dated 5-11-1998.</a><br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2005/cuscir05_031.htm">CIRCULAR NO. 31/2005-Cus. dated the July 25, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Amendment to SION</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The DGFT has amended the statement of Standard Input Output Norms (SION) for a large number of items.<br> <br> <a href="http://www.taxindiaonline.com/RC2/pdfnoti/pdfdgft/pdf2005/dgft05pn032.pdf">PUBLIC NOTICE NO. 32 (RE:2005)/2004-2009, Dated : July 26, 2005</a><br> <br> <font color="#FF6666"><b>Until Tomorrow with more DDT<br> <br> Have a nice day. <br> <br> Mail your comments to</b></font> <a href="vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a> </font></p> </body> </html>