15 November 2009
Lately, the Central Board of Direct Taxes or CBDT
(which is the highest ranking executive authority for
income taxes in India) has withdrawn several of
its circulars / instructions, which NRI4were relied
upon by foreign companies and non resident taxpayers.
In July this year, the CBDT withdrew its Instruction
No. 1829 dt. 21 September 1989, which relaxed
the taxability of consortium of foreign companies
engaged in execution of turnkey power projects.
n yet another such instance, the CBDT has recently
issued Circular No. 7/2009 on 22 October 2009,
withdrawing its following circulars:
• Circular No. 23 dt. 23 July 1969,
• Circular No. 163 dt. 29 May 1975; and
• Circular No. 786 dt. 7 February 2000.
The CBDT has cited that such withdrawal is on account
of their interpretation by some taxpayers, seeking to
claim relief, which was not in accordance with the
provisions of the Indian Income Tax Act (Act) or the
intention behind these circulars. Circular No. 23
was issued by the CBDT to provide clarifications
regarding taxability of foreign companies and
non-residents, engaged in specified business activities.
It provided that no tax shall be payable by non-residents
in India, where they are engaged only in
principal-to-principal (P2P) sale of goods from
abroad to Indian importer(s), or to their Indian
subsidiary on an arm’s length basis, or in case of similar
P2P sale of plant and machinery to Indian importers on
installment basis. It also provided for non-taxability of
certain other incomes such as commission received by
foreign agents (of Indian exporters) operating in their
own country, where the same is remitted directly
outside India. Another important aspect clarified by
this circular (and subsequently, by Circular No. 163)
was as regards the exemption of foreign companies
having a procurement office or agency in India,
where their operations were limited to purchase
of goods in India for the purpose of export.
Circular 23 emphasized that the Act does not seek to tax
the entire profits of a non-resident, where it carried out
only a part of its business activities in India – and only
that portion of the profits of a non resident is liable to
tax in India, which can be reasonably attributed to the
Indian operations of its business.
Yet another clarification was issued vide Circular No. 786,
regarding taxability of export commission earned by non-resident agents.
It was explained that where the services of such
an agent are rendered outside India, its commission
income (in respect of export of goods from India) cannot
be taxed in India.
Over the last 40 years, various judicial
authorities and courts placed reliance on these circulars
while pronouncing their judgments. One such landmark
decision was passed by the Supreme Court in the case
of Morgan Stanley and Co. Inc. (292 ITR 416), where it
was held that if an Indian enterprise is remunerated on
an arm’s length basis, no further income would be left
to be attributed to the foreign enterprise and, therefore,
such enterprise would not be liable to tax in India.
Similarly, in the case of SET Satellite (Singapore) Pte Ltd.
(307 ITR 205) the Mumbai High Court, relying on the decision
of Morgan Stanley and Co. Inc. and Circular No. 23,
affirmed the aforesaid proposition.
As a principle, circulars issued by CBDT are binding on
the income tax authorities. But in the aforesaid cases
(and various others which are still pending for adjudication),
the tax department challenged the applicability
of the CBDT circulars before the courts.
Circular No. 7/2009 also states that even when Circular 23 was in force,
the revenue authorities have argued that it does not actually apply
to a particular case, or it cannot be interpreted to allow such a relief,
which is not in accordance with the provisions of the Act or the
intention behind the issue of the Circular.
Withdrawal of Circular 23 is likely to boost and complement
the case of revenue authorities in such other matters which
are pending adjudication. With the withdrawal of the
Circular No. 23, taxpayers will be unable to place direct
reliance on it. It is important to note that such withdrawal
does not necessarily mean that non-residents would be
liable to tax in India, in situations described in these
circulars. Even so, in the absence of these circulars,
taxability of non-resident taxpayer needs to be evaluated
independently having regard to the provisions of the Act,
provisions of tax treaties and relevant judicial precedents.
Taxpayers may, therefore, need to evaluate and assess the
impact of the withdrawal of the above circulars on their
transactions. It will be worthwhile to examine whether the
judicial interpretation on this subject materially different
from the interpretation adopted in the CBDT circular, and
will the principles set out in the CBDT circular continue to
apply in appropriate cases? The question is still open,
whether such withdrawal is in line with the principle of
justice, equity and good conscience, particularly when a
number of cases are pending adjudication on the subject matter.
It would also be interesting to witness further developments
on this issue, especially considering that a similar circular
issued in 2004 (dealing with taxability of non-residents which
outsource services to BPO units in India) continues to be in force
and is not sought to be withdrawn. Nonetheless such changes in
domestic tax laws may cause doubt about Indian tax regime
among non-resident tax payers. Considering the current
economic scenario, the Government must try to build
confidence in the stability of Indian tax regime and economic
climate, particularly for foreign investors.
Tuesday, 17 November 2009
US banks failure toll reaches 123 so far in 2009
15 November 2009,
NEW YORK: The number of bank failures in the US has continued
to increase with a staggering 123 entities going out of business so far this year,
despite the economy witnessing some signs of recovery.
The authorities shut down three banks -- Orion Bank based
in Naples, Pacific Coast National Bank in San Clemente
and Century Bank F.S.B of Sarasota on November 13,
taking the count of failed banks to 123 this year.
The Federal Deposit Insurance Corp (FDIC), which was
named the receiver of the failed banks, took over
Orion Bank, with about USD 2.7 billion in assets and
USD 2.1 billion in deposits and Century Bank with
USD 728 million in assets and USD 631 million in deposits.
Meanwhile, Pacific Coast National Bank was also
shut down. It had USD 134.4 million in assets and
USD 130.9 million in deposits.
In addition, FDIC had entered into a purchase and
assumption agreement with Iberia Bank of Lafayette,
Louisiana, to assume all of the deposits of Century Bank, FSB.
However, the maximum number of collapses this year
took place in July, when 24 banks were closed down,
while 20 entities bite the dust last month.
Despite the slowly improving economic situation,
soaring unemployment rate have resulted in rising
defaults, primarily impacting the small and medium banks.
Frequently asked question on Annual Tax Statement (ATS)
What is the annual tax statement?
The annual tax statement is a list that contains
details about all the tax deducted at source (TDS)
or tax collected at source (TCS) for a particular
permanent account number. This amount may
be deducted either by an employer in case of
salaried individuals or by bank for fixed deposits, etc.
The ATS will tell you the amount deducted as tax for
your PAN in a particular year. So, if tax has been
deducted by someone in 2008-09, the letter from
TIN will state ATS for Assessment Year 2009-10
(when you pay taxes for income earned between
April 1, 2008 and March 31, 2009).
TIN creates the statement based on the information
submitted by the organisations who have deducted
tax from the money paid to you. The information
contained there has to be verified by you.
When do I get the statement?
You would have received a similar mail from TIN
of National Securities Depository Ltd (NSDL) earlier,
when your company or bank filed its returns.
Companies usually file returns beforeindividuals .
So, if a company, your employer or your bank cuts tax
before paying you ther amount due, the same would be
mentioned in the company’s returns. The first ATS would
have landed in your account during March-April 2009.
The second one would be sent to you after you file
your income-tax return, the deadline for which was July 31.
This second statement would also containthe tax that you paid in excess to the one deducted by banks or employers.
What to do with the ATS?
You need to check this document thoroughly and
ensure that all the tax paid by you is reflected with
an ‘F’ (meaning final) mentioned in the ’status’ column.
The ATS has three parts — the tax deducted at source
(TDS) in Part A and the tax collected at source (TCS) in
Part B. When you deposit tax in a bank as self-assessment
or advance tax via a challan, the same would be reflected in Part C.
The status of the tax credit too would be mentioned besides
the tax entry, using three letters — P for provisional,
U for unmatched and F for final.
A provisional status means the tax paid has been shown
because the organisation that deducted your tax mentioned
it in its returns. This would turn to final on verification.
Thedetails you submit in your returns need to match with
the ones submitted by your tax deductor or collector.
Unmatched would mean the deductor has not yet deposited
the taxes or has provided incorrect details of tax payment.
Sometimes, a final status will not appear if the payment
details in the bank don’t match the details of deposit in
the TDS or TCS return, or if your employer has not yet
submitted the tax cut from your salary.
When and why was this exercise started?
This mailer is being sent to most tax-payers since the
past two years, when the income-tax department moved
to a separate system of filing and submitting returns without
any attachments such as Form 16, TDS certificates, etc.
As there was no proof of tax deducted or collected,
with the income-tax department, they were finding
it difficult to process the returns.
Hence, the ATS was initiated to tell individuals about
the tax credited under their permanent account number.
It is claimed that the process would help the I-T department
process returns faster like in the US, where refunds are given
to theindividuals within two months’ time.
This year, the income-tax department claims that between
April 2009 and July 2009, they have given out refunds worth
Rs 20,768 crore, which is 53% more than Rs 13,542 crore
given out during the same period last year.
Why should you check the ATS?
The statement will be referred to by the income-tax
department while processing your income tax return.
So, if the data provided by you doesn’t match that
provided by deductors, then your return won’t be
accepted until it is corrected. Only the deductor has
the right to correct the ATS data, not the individual
on whom the data has been entered.
The ATS sent for this assessment year notes
“The statement is being sent to enable you to
take up the matter pertaining to any deficiencies
in your statement with your deductor at the time
of taking the TDS certificate( s) at the end of the
financial year. This would also ensure that complete
and correct tax credit is available to you at the time of
filing of the income-tax return for the assessment year 2009-10.”
Why could there be discrepancies in the ATS?
Your tax credit could be erroneous if the deductor
or collector has not filed its quarterly TDS/TCS return,
or has either not quoted or wrongly quoted your PAN
in its return. It may also happen if the deductor has not
paid the required TDS to the government account.
If you have not provided your PANdetails, the
employer or bank may not be able to submit your
tax details as PAN is mandatory for submission.
In case of any such errors, you must persuade the
deductor to rectify the mistake.
If you don’t correct it…
Tax credits would be given to you only
on the basis of the tax statement.
The income-tax department has stated:
“The same (tax credit) should be verified before
claiming tax credit and only the amount which
pertains to you should be claimed.” NSDL
will send you a fresh tax statement after the
deductor corrects the data provided earlier.
Whom to contact in case of queries?
In case you are still have queries on the ATS,
you can call 020-2721 8080 or contact NSDL
via fax at 91-20-2721 8081 or email them at
reply@nsdl.co. in or tininfo@nsdl. co.in
Do you have to register to get ATS?
If you have not been getting ATS and want register
or see the tax credits given to you, you can register
for the same.
Details are available at www.incometaxindia.gov.in and www.tin-nsdl.com .
The annual tax statement is a list that contains
details about all the tax deducted at source (TDS)
or tax collected at source (TCS) for a particular
permanent account number. This amount may
be deducted either by an employer in case of
salaried individuals or by bank for fixed deposits, etc.
The ATS will tell you the amount deducted as tax for
your PAN in a particular year. So, if tax has been
deducted by someone in 2008-09, the letter from
TIN will state ATS for Assessment Year 2009-10
(when you pay taxes for income earned between
April 1, 2008 and March 31, 2009).
TIN creates the statement based on the information
submitted by the organisations who have deducted
tax from the money paid to you. The information
contained there has to be verified by you.
When do I get the statement?
You would have received a similar mail from TIN
of National Securities Depository Ltd (NSDL) earlier,
when your company or bank filed its returns.
Companies usually file returns beforeindividuals .
So, if a company, your employer or your bank cuts tax
before paying you ther amount due, the same would be
mentioned in the company’s returns. The first ATS would
have landed in your account during March-April 2009.
The second one would be sent to you after you file
your income-tax return, the deadline for which was July 31.
This second statement would also containthe tax that you paid in excess to the one deducted by banks or employers.
What to do with the ATS?
You need to check this document thoroughly and
ensure that all the tax paid by you is reflected with
an ‘F’ (meaning final) mentioned in the ’status’ column.
The ATS has three parts — the tax deducted at source
(TDS) in Part A and the tax collected at source (TCS) in
Part B. When you deposit tax in a bank as self-assessment
or advance tax via a challan, the same would be reflected in Part C.
The status of the tax credit too would be mentioned besides
the tax entry, using three letters — P for provisional,
U for unmatched and F for final.
A provisional status means the tax paid has been shown
because the organisation that deducted your tax mentioned
it in its returns. This would turn to final on verification.
Thedetails you submit in your returns need to match with
the ones submitted by your tax deductor or collector.
Unmatched would mean the deductor has not yet deposited
the taxes or has provided incorrect details of tax payment.
Sometimes, a final status will not appear if the payment
details in the bank don’t match the details of deposit in
the TDS or TCS return, or if your employer has not yet
submitted the tax cut from your salary.
When and why was this exercise started?
This mailer is being sent to most tax-payers since the
past two years, when the income-tax department moved
to a separate system of filing and submitting returns without
any attachments such as Form 16, TDS certificates, etc.
As there was no proof of tax deducted or collected,
with the income-tax department, they were finding
it difficult to process the returns.
Hence, the ATS was initiated to tell individuals about
the tax credited under their permanent account number.
It is claimed that the process would help the I-T department
process returns faster like in the US, where refunds are given
to theindividuals within two months’ time.
This year, the income-tax department claims that between
April 2009 and July 2009, they have given out refunds worth
Rs 20,768 crore, which is 53% more than Rs 13,542 crore
given out during the same period last year.
Why should you check the ATS?
The statement will be referred to by the income-tax
department while processing your income tax return.
So, if the data provided by you doesn’t match that
provided by deductors, then your return won’t be
accepted until it is corrected. Only the deductor has
the right to correct the ATS data, not the individual
on whom the data has been entered.
The ATS sent for this assessment year notes
“The statement is being sent to enable you to
take up the matter pertaining to any deficiencies
in your statement with your deductor at the time
of taking the TDS certificate( s) at the end of the
financial year. This would also ensure that complete
and correct tax credit is available to you at the time of
filing of the income-tax return for the assessment year 2009-10.”
Why could there be discrepancies in the ATS?
Your tax credit could be erroneous if the deductor
or collector has not filed its quarterly TDS/TCS return,
or has either not quoted or wrongly quoted your PAN
in its return. It may also happen if the deductor has not
paid the required TDS to the government account.
If you have not provided your PANdetails, the
employer or bank may not be able to submit your
tax details as PAN is mandatory for submission.
In case of any such errors, you must persuade the
deductor to rectify the mistake.
If you don’t correct it…
Tax credits would be given to you only
on the basis of the tax statement.
The income-tax department has stated:
“The same (tax credit) should be verified before
claiming tax credit and only the amount which
pertains to you should be claimed.” NSDL
will send you a fresh tax statement after the
deductor corrects the data provided earlier.
Whom to contact in case of queries?
In case you are still have queries on the ATS,
you can call 020-2721 8080 or contact NSDL
via fax at 91-20-2721 8081 or email them at
reply@nsdl.co. in or tininfo@nsdl. co.in
Do you have to register to get ATS?
If you have not been getting ATS and want register
or see the tax credits given to you, you can register
for the same.
Details are available at www.incometaxindia.gov.in and www.tin-nsdl.com .
Sunday, 15 November 2009
Proposal to give FM power to approve foreign investments of up to Rs 1,200 crore
Nov 10, 2009
The finance minister could approve foreign investments of up
to Rs 1,200 crore (Rs 12 billion), without going to the Cabinet,
if a proposal of the Department of Industrial Policy and
Promotion to fast-track clearance of foreign direct investment is accepted.
At present, a project with investment of more than
Rs 600 crore (6 billion) in sectors routed through
the Foreign Investment Promotion Board has to
be referred to the Cabinet Committee on Economic Affairs.
“With the depreciation of the monetary value, it is
considered appropriate to review the limit, which
may be revised to Rs 1,200 crore (12 billion),”
according to a Cabinet note circulated by DIPP.
The Rs 600-crore limit was set in 1996.
DIPP has argued that the proposal would “enable
FIPB to function more efficiently and reduce
regulatory burden on foreign companies, leading
to enhanced level of foreign investments”.
India received $15.3-billion FDI in the first half
of this financial year. It is lower than
the $17.2 billion received in the first half
of 2008-09, but the inflow is seen as healthy,
given the global liquidity crunch.
There is also a proposal that the threshold for
CCEA approval be fixed for only the ‘foreign investment’
part of the project and not the total investment involved
and its total cost.
The committee of secretaries is meeting on November 17
to review the country’s FDI policy, and the DIPP proposal
to enhance the finance minister’s power is likely to be
discussed there.
Under the present dispensation, the proposals relating to
the sectors not under the automatic route go to the FIPB,
which gives its recommendation to the finance minister
The finance minister could approve foreign investments of up
to Rs 1,200 crore (Rs 12 billion), without going to the Cabinet,
if a proposal of the Department of Industrial Policy and
Promotion to fast-track clearance of foreign direct investment is accepted.
At present, a project with investment of more than
Rs 600 crore (6 billion) in sectors routed through
the Foreign Investment Promotion Board has to
be referred to the Cabinet Committee on Economic Affairs.
“With the depreciation of the monetary value, it is
considered appropriate to review the limit, which
may be revised to Rs 1,200 crore (12 billion),”
according to a Cabinet note circulated by DIPP.
The Rs 600-crore limit was set in 1996.
DIPP has argued that the proposal would “enable
FIPB to function more efficiently and reduce
regulatory burden on foreign companies, leading
to enhanced level of foreign investments”.
India received $15.3-billion FDI in the first half
of this financial year. It is lower than
the $17.2 billion received in the first half
of 2008-09, but the inflow is seen as healthy,
given the global liquidity crunch.
There is also a proposal that the threshold for
CCEA approval be fixed for only the ‘foreign investment’
part of the project and not the total investment involved
and its total cost.
The committee of secretaries is meeting on November 17
to review the country’s FDI policy, and the DIPP proposal
to enhance the finance minister’s power is likely to be
discussed there.
Under the present dispensation, the proposals relating to
the sectors not under the automatic route go to the FIPB,
which gives its recommendation to the finance minister
FM circulate discussion paper on Goods and Services Tax
By : Y.Prakash on 10 November 2009
With barely over four months left for the rollout of the goods and services tax,
states on Tuesday proposed that the new tax regime should subsume most
central indirect levies like excise and service tax as well as state taxes
like VAT, making it easier for business and industry.
The states released a discussion paper prepared by the Empowered
Committee of their finance ministers in New Delhiwhich said the
GST should also replace cesses and surcharges at both the central
and state levels.
The much-talked about discussion paper did not give any idea
about rates and the items to be included in it.
However, it made some specific suggestions such as alcohol
and petroleum tax should be out of GST, while tobacco be
included in it.
The committee would take a final view on whether natural gas
would be included in the GST after further deliberations, it said.
Finance Minister Pranab Mukherjee, present on the occasion,
made it clear that the discussion paper is by the states.
"These are the views of the empowered committee of state
finance ministers. We will also look into it," he said.
Mukherjee evaded a direct reply to a query on whether GST
would be introduced as scheduled. Some states like Madhya
Pradesh, Gujarat and Haryana have asked for a delay in the
GST introduction.
"So far as dates are concerned, we are working on it,"
Mukherjee said, when asked about whether GST would
be rolled out from April one, 2010.
Doubts over the GST introduction has lingered for sometime
now, and Haryana on Tuesday came out with an official
statement saying the Centre should defer the rollout by a year.
The state also asked for compensation for the loss of revenue
of Rs 600 crore on account of the purchase tax levied on
foodgrains like wheat and paddy.
Gujarat has said that time available to introduce GST from
the proposed date is not adquate and the time frame need to be recast.
The discussion paper suggests that among central taxes,
additional excise duty, additional customs duty, and special
additional duty be replaced by the GST.
State taxes like entertainment tax, except for the one levied
by local bodies, luxury tax, taxes on lottery, entry tax except
octroi are proposed to be out once the new tax regime is introduced.
It proposed that exports from SEZs would not attract GST,
but sales from SEZ to domestic markets will draw the tax.
It also suggests that industrial incentives in the form of tax
exemptions should be converted into cash refund schemes.
Insurance against Tax Liability in near Future
12 November 2009
In a bid to avoid unpleasant surprises, private equity players and
companies are demanding covers against changing tax rules.
This has forced insurers in India to file for products like a tax
liability cover, along with warranty and indemnity covers.
insurance-2Insurers say the demand for such a cover shot up
after the Vodafone tax case where the telecom major
was subjected to a capital gains tax of $2 billion for
buying $11.2 billion worth shares of Hutchison.
“There is a huge demand from private equity players
and companies going global. In another three-six months,
we expect to see these products in India,” said Marsh
Managing Director and country head Sanjay Kedia.
He expects deal sizes to be in the range of $4-150 million.
Since these will be mega-risk policies, they will be mostly
driven by reinsurance. In such cases, Indian insurance
companies place 10 per cent of the risk with the national
reinsurer, passing off the rest to international reinsurers.
The premium will vary from 1 per cent to 5 per cent of the sum assured.
“Underwriting risks arising from changes in the tax structure
of a particular country is not easy. We have to see if the
insurance regulator allows these products,” said a senior
executive of a large private insurance company.
In a bid to avoid unpleasant surprises, private equity players and
companies are demanding covers against changing tax rules.
This has forced insurers in India to file for products like a tax
liability cover, along with warranty and indemnity covers.
insurance-2Insurers say the demand for such a cover shot up
after the Vodafone tax case where the telecom major
was subjected to a capital gains tax of $2 billion for
buying $11.2 billion worth shares of Hutchison.
“There is a huge demand from private equity players
and companies going global. In another three-six months,
we expect to see these products in India,” said Marsh
Managing Director and country head Sanjay Kedia.
He expects deal sizes to be in the range of $4-150 million.
Since these will be mega-risk policies, they will be mostly
driven by reinsurance. In such cases, Indian insurance
companies place 10 per cent of the risk with the national
reinsurer, passing off the rest to international reinsurers.
The premium will vary from 1 per cent to 5 per cent of the sum assured.
“Underwriting risks arising from changes in the tax structure
of a particular country is not easy. We have to see if the
insurance regulator allows these products,” said a senior
executive of a large private insurance company.
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