TIOL-DDT 367 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 367</font><br>
23 05 2006<br>
Tuesday</b></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Difference
between trader in stocks and investor in stocks – Justice Rangarajan offers
his comments</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Justice
Rangarajan is one of those serious judges with a sense of humour. In my
first mail to him, I addressed him as ‘my lord’. He replied to me, ‘Mr.
Vijay Kumar’.
I asked him to call me vijay. He said if ‘vijay’ is in ‘my lord’ is out. Justice
Rangarajan was a member of the ITAT from 1973 to 1994 and was vice president
from 1991 to 1994. From 1994 to 1998 he was a judge of the Madras and AP High
Courts. Since the last two years I was trying to get him to write for TIOL.
But retired judges being more busy than serving ones, I had failed in getting
him to write an article for us. Recently the CBDT had called for comments
from the public on how to determine whether a person is an investor or trader.
See
<u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3737">TIOL-DDT
366 - 19 05 2006</a></u>. Here are the views of Justice Ranagarajan on the
issue. We will also bring you the stinging views from a crusader in our special
story.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
1. First I wish to express my appreciation for initiating the process of consultation
in laying down guidelines for assessing officers.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
2. The question whether an activity is investment or business is a hot-point
when the rate of tax is not the same for the two activities. Therefore the assessing
officer will be interested in treating it as business where the tax is more,
while the taxpayer would like to claim it as investment to avail the concessional
rate or exemption provided.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
3. In my opinion, any amount of guidelines would not solve the problem as long
there is a conflict in the approaches of the two sides. The various factors
outlined in the draft would have to weighted and it is anybody's guess
as to what will be the weightage given by each adjudication at each higher
level. As is usually said by courts, each case will have to be decided
on its own facts and no case will be a precedent for others. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
4. It is better to have a clearcut distinction between the two kinds of activities.
One method is to require everyone who wishes to trade in stocks to register.
Since such registration is already required by SEBI, those who are registered
as traders would not be allowed to claim any holding as investment as long as
it is part of their balance sheet. Only those who are not registered as traders
with SEBI could be allowed to claim as investors. This kind of classification
will remove any discretion in the matter.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
5. However if the department feels that those claiming to be investors may actually
be trading, then there is the other yardstick of short term and long term capital
gains. The Act already provides for treating holding of more than a year as
long term capital assets and there is no need to investigate whether transactions
in long term capital assets of those who are not registered as traders should
be taken as business. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
6. It is only in the case of short term holdings that there could be a doubt
whether the transactions are regularly carried out as business activity. Here
again with the advent of trading online, it is possible to stipulate that such
online activity in intra-day trade would be business and others as investments.
</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
7. Modern policy making should be evidence based. So it is advisable to collect
data about the number of persons other than traders registered with SEBI who
indulge in online trading or inter-day short term transactions and then see
whether they could be classified on clear criteria as traders or investors and
such classification is worthwhile. </font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Payment
of service tax on services rendered prior to 18-4-2006 – Commissioner clarifies</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
rate of service tax has been increased to 12% from 18-4-2006; now what would
be rate of service tax for service rendered prior to 18-04-2006 but payment
received later?</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Commissioner of service tax, Mumbai has the answer. He says in Trade Notice
No. 3/2006 Service tax dated 20-04-2006 that for payments received after
18-04-2006, service tax has to be paid at the enhanced rate. Perhaps the
learned commissioner is not aware of the proviso to rule 6(1) Service Tax
rules which clearly stipulate that the time of payment received is not the
criterion for deciding the taxability. It would be apparent even to a common
man that for the service rendered prior to 18-04-2006, tax cannot be levied
at 12% just because payment is received after 18-04-2006. But commissioners
are not ordinary mortals and they have the right to confuse even when issues
are very clear. Now even before you can say Service Tax, other Commissioners
will start demanding Service Tax at the higher rate for the lower period.
What happened to Board’s instructions barring Commissioners
from issuing trade notices on policy matters? If confused, you must let there
be one solitary authority to do so and the Board is perhaps the best equipped
authority. </font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Cost
of collection of excise duty </font></b></font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0 class=MsoTableGrid>
<tr>
<td width=75 rowspan=2 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Year</b></font></p></td>
<td width=171 colspan=2 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Receipts
from excise duty</b></font></p></td>
<td width=185 colspan=2 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Expenditure
on collection</b></font></p></td>
<td width=88 rowspan=2 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Cost
of collection as percentage of receipts</b></font></p></td>
</tr>
<tr>
<td width=73 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Amounts</b></font></p></td>
<td width=97 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Percentage
increase over previous year </b></font></p></td>
<td width=88 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Amount</b></font></p></td>
<td width=97 valign=top > <p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Percentage
increase over previous year</b></font></p></td>
</tr>
<tr>
<td width=75 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2000-01</font></p></td>
<td width=73 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">68526</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11.11</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">615.84</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.30</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.90</font></p></td>
</tr>
<tr>
<td width=75 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2001-02</font></p></td>
<td width=73 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72555</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.88</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">635.78</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.24</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.888</font></p></td>
</tr>
<tr>
<td width=75 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2002-03</font></p></td>
<td width=73 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">82310</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">13.44</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">702.80</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10.54</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.85</font></p></td>
</tr>
<tr>
<td width=75 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2003-04</font></p></td>
<td width=73 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">90774</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10.28</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">750.58</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6.80</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.83</font></p></td>
</tr>
<tr>
<td width=75 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2004-05</font></p></td>
<td width=73 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">99125</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9.20</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">825.90</font></p></td>
<td width=97 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10.03</font></p></td>
<td width=88 valign=top > <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.83</font></p></td>
</tr>
</table>
<p ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>From the CAG’s
report.</b></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Indian
paan popular in <st1:place w:st="on"><st1:country-region w:st="on">Pakistan</st1:country-region>
despite hefty customs duty</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Indian paan is more popular in <st1:country-region
w:st="on"><st1:place w:st="on">Pakistan</st1:country-region> than the Bollywood
movies. All anti-<st1:country-region
w:st="on">India</st1:country-region> campaigns could not
persuade the Pakistani from chewing the Indian Paan. It seems on an average
a Pakistani chews 25 paans per day. Traders are forced to sell Pakistani <i>paans</i>
disguised as Indian <i>Paans.</i></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B><IMG height=62 src="http://www.taxindiaonline.com/RC2/image/ddt/gnl_txt2.jpg" width=375></B></font></p>
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<TD><p ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i><strong><font color="#0000FF">Ex
nihilo nihil fit</font></strong></i><strong><font color="#0000FF">
</font>-rom nothing, nothing is produced</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> </font></p>
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<p align=justify ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"How
can Non-existence come from Existence? Existence alone existed in the beginning".
– Upanishad</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nothing
can come from nothing". In other words, everything has a cause.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Everybody
knows that you cannot absolutely make a thing by hand in the sense that you
can create matter by hand, because in that sense you can make nothing: “Ex nihilo
nihil fit.” You can only make one thing out of another. I think the essence
of making or of manufacturing is that what is made shall be a different thing
from that out of which it is made – Supreme Court in the <i>Empire Industries
case</i></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You
can see this phrase in our Special story.</font></p>
<p ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Tomorrow with more DDT </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day. </font></p>
<p><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>
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