TIOL-DDT 969 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 969</font><br>
13.10.2008<br>
Monday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax – Payment of more than Rs 20,000/- in cash – Rule 6DD Amended</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 6 DD of the Income Tax Rules has been amended.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This Rule deals with,</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made by a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The main part of the Rule earlier read as,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely …</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the amended Rule reads as,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"><strong>No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section ( 3A ) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely:-</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the 2008 Finance Act, Section 40 A has been amended as follows:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Amendment of section 40A</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In section 40A of the Income-tax Act, for sub-section (3), the following subsections shall be substituted with effect from the 1st day of April, 2009, namely:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors."</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government explained this amendment as follows:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amendment to the provisions of section 40A (3) of the Income-tax Act, Section 40A (3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000 /- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Section 40A (3)(b) also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 40A (3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. It has come to notice that the provisions of section 40A (3) are being circumvented by splitting a particular high value payment to a person into several cash payments, each below Rs. 20,000/-. This splitting is also resorted to for payments made in the course of a single day. Courts have also held that the statutory limit in section 40A (3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. According to the judicial opinion, the words used are ‘in a sum', i.e., single sum.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction, the rigours of section 40A (3) will not apply.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A , as the case may be.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-, Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The proviso to the proposed sub-section (3A) provides that in certain prescribed cases and circumstances the provisions of proposed sub-sections (3) and (3A) shall not apply.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This amendment will take effect from 1st April, 2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accordingly Rule 6DD is amended accordingly.</font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=35&filename=notification/cbdt/2008/it08not097.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT Notification No. 97/2008 [F.NO. 142/10/2008- TPL], Dated: October 10, 2008</font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Main Problem is liquidity – FM</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As the economy is looking anything but bright and this is a global phenomenon, the FM had in a statement said,</font></p>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have identified that the main problem is liquidity, and we have assured the people that we will respond swiftly and take steps to infuse more liquidity according to the needs of the situation.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I have received a number of representations from banks, other financial entities/intermediaries, corporates and small businesses that the issue of liquidity must be addressed in a comprehensive manner. They have impressed upon me that intermediation of credit must take place smoothly and efficiently.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I wish to draw attention to the statement made by Mr. Robert Zoellick , President, World Bank that “India is in a position to weather the global financial turmoil.” I also wish to draw attention to the statement of Mr. H. Kuroda, President, ADB that “the impact on the financial sector in Asia is limited this time.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Credit is the lifeline of trade, commerce and business and, hence, it is important that credit continues to flow to all sectors of the economy. In consultation with RBI and other regulatory authorities, Government will address the liquidity and other concerns about the economy.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is also important to maintain our confidence in the Indian economy. As the Cabinet noted on Wednesday, the fundamentals of our economy are strong and there are many indicators which affirm the sound fundamentals.</font></li>
</ul>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe things are not really bad – if the stocks don't fall today.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Potatoes at Rs. 50/- a kg – inflation under control</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While potatoes are being sold at Rs. 50/- a kg, the Finance Ministry feels things are in control.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Annual rate of inflation, year on year as conventionally measured, further declined to 11.80 per cent for the week ending September 27, 2008. Inflation in the same period in the previous year at 3.36 per cent, however, was significantly lower.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the ‘primary articles' group, the annual point-to-point inflation declined to 11.17 per cent, as compared to 11.29 per cent reported last week. Out of a total of 98 articles, 17 articles have shown a decline in prices in the current week as compared to September 20, 2008. These included among others, bajra , maize, masur , gram, moong , raw wool and cotton, tomatoes, onions, dry chillies, black pepper, okara and sapota . Another 57 articles have shown no increase in prices.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the case of ‘manufactured products', rate of inflation in the current week declined to 10.33 per cent, as compared to 10.55 per cent in previous week. Out of 318 commodities, a large number, 295 in all, have shown no increase in prices over the last week. In the case of 10 commodities, there has been a decline in prices. These commodities included cotton yarn, polyester staple fibre, enamelled copper wire, groundnut and gingelly oil, groundnut cake, pipes and tubes and cement. Only 13 products, particularly rice bran, mustard, cottonseed and imported edible oils; lead and zinc ingots; oxygen; calcium ammonium nitrate; ointment and tablets other than vitamins and penicillin witnessed an increase in prices.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Inflation of 30 essential commodities marginally increased to 7.74 per cent as on the week ending September 27, 2008 from 7.70 per cent reported in the earlier week. There was, however, a decline in the prices of 7 of these commodities and prices of other 16 commodities remained unchanged.</font></p>
<p align="center"><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">– Tomorrow's cases</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><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"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font>Service Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Chit Funds not taxable under ‘Banking and other financial services' - Board Circular quashed: High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the absence of a specific statutory definition of ‘cash management' or even ‘asset management', the question of its wider interpretation either by seeking to include or exclude any other transactions or business does not arise and is not permissible and any such act on the part of the executive would certainly be in the teeth of Article 265 of the Constitution of India. The entire action on the part of the respondents in trying to extend the levy of the tax for the first time by way of a circular is merely an executive fiat, which is not permissible under the law.</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>Income Tax and CENVAT Credit - CENVAT balance as such does not amount to payment. The balance becomes equivalent to, payment only at point of time assessee exercises his option to set off balance against excise liability and not before; Whatever adjustment is made in valuation of closing stock, same will be reflected in opening stock also irrespective of any consequences on computation of income for tax purposes.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In cases where there are statutory compulsion u/s 145A to give adjustment in closing stock, in such cases it has to presume that the assessee has exercised his option to set off against MODVAT Account. It is to be presumed that the assessee exercises his option to set off MODVAT a/c against excise liability, which amounts to payment of excise duty and accordingly the assessee is entitled to deduction u/s 43B . The above presumption is based on legal fiction created by section 145A of the Act. However, to avoid double deduction, the assessee should ensure that there will be no double adjustment of MODVAT account firstly at the time of giving effect to the section 145A and secondly at the time of final exercise option for adjustment of MODVAT account. In this regard burden is on the assessee.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Motor vehicle body built on chassis supplied by Tata Motors – Valuation under Rule 10A of the Valuation Rules, 2000 – Applicant offers to deposit Rs 25 lakhs as pre-deposit and Tribunal graciously accepts</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is the Revenue's contention that the valuation of these “motor vehicles” manufactured on job work on behalf of the principal manufacturer should be in terms of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 from the day it was inserted viz. 01.04.2007.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the value of these “motor vehicles” at the job worker's end for discharge of Central Excise duty is now supposed to be the transaction value at which the principal manufacturer [ Tata Motors ] sells these goods to be unrelated buyer.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs/FEMA</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Even a Court has no power to impound a passport, let alone DRI or Enforcement Directorate – Avinash Bhosale's passport ordered to be released: High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Even the Court cannot impound a passport. Though, no doubt, Section 104 CrPC states that the court may, if it things fit, impound any document or thing produced before it, in our opinion, this provision will only enable the court to impound any document or thing other than a passport. This is because impounding of a “passport” is provided for in section 10(3) of the Passports Act. The Passports Act is a special law while CrPC is a general law. It is well settled that the special law prevails over the general law. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements</strong></font></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>
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