CBDT Instruction Regarding Unmatched TDS Challans In Form 26AS

Pursuant to the judgement of the Delhi High Court in Court on Its Own Motion vs. UOI 352 ITR 273, the CBDT has issued Instruction No. 11 of 2013 dated 27.08.2013 stating that where the report by the deductor in the TDS statement are not found available in the OLTAS database resulting in TDS mismatch,
the CPC(TDS)/ AOs(TDS) shall immediately issue
letters to the deductors, in whose case TDS challans are unmatched, with a view to verify and correct these challans. If necessary, the deductors may be asked to file correction statements, as per the procedure laid down and necessary follow up action be taken. It has been directed that the task should be completed by 31st December 2013 for FY 2012-13 in the case of CPC (TDS) and FYs 2011-12 & earlier in case of AOs (TDS).

Source:- ITATonline.org

PM spoke 2nd time in month of August!!!!!!!!!!

August is a month of festivals like janmastmi, eid,raksha bandhan , historic day 15^th August and PM Manmohan Singh Spoke twice in a month, isn’t surprising. 

Prime Minister Manmohan Singh on Friday told Parliament that the rupee fall was a matter of concern to his government, but growth was expected to pick up after a good monsoon.

"There are concerns and justifiably so on how rupee fall will impact economy, the movement of the rupee recently is a matter of concern to the government," he said in the Lok Sabha.

"The rupee has been especially hit because of large current account deficit and other investment factors. We intend to act to reduce current account deficit."

But he said despite the shock of the rupee fall, the government would not address the crisis through capital control.

After the PM's statement, senior BJP leaders LK Advani, Sushma Swaraj and Rajnath Singh will meet President Pranab Mukherjee to discuss their concerns on the economy.

The Congress-led government has been under fire to tackle an economy growing at its slowest pace in a decade, the widening current account deficit, and stabilize finances - a tough task ahead of general elections due by May.

The opposition had repeatedly forced disruptions as the rupee touched an alarming 68.50 to the dollar on Wednesday.

The rupee is the worst-performing major emerging market currency since May. It declined to a record low of 68.85 per dollar on Wednesday, posting its biggest single-day percentage fall in 18 years.

AO is supposed to be mentor of assessee; should provide correct advice to assessee if wrong claim is made in return

Where due to ignorance wrong section had been mentioned by assessee in return, AO was required to advise assessee about correct claim and assess tax legitimately
In the instant case the assessee had invested sale consideration from sale of shop in construction of residential house and claimed exemption of capital gains. The AO didn’t consider the claim of the assessee on ground that the assessee had mentioned the wrong sections while claiming the exemption. On appeal, the CIT (A) upheld the order of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) Claim of the assessee was fortified by the assessment order itself, wherein it had been mentioned that exemption was claimed by assessee by mentioning a wrong section. Further, the CIT (A) had acknowledged this fact;

2) Even if a wrong section was mentioned by the assessee in the return, it was the duty of the AO to assist the taxpayer in a reasonable way and provide the relief if due to the assessee. This attitude rather would help the revenue in assessing the income correctly;

3) A correct advice by the department would inspire the confidence of public at large. Even identical guidelines or instructions have been issued from time-to-time by the CBDT to its Officers;

4) If due to ignorance a wrong section had been mentioned by the assessee, AO ought to have advised the assessee about the correct claim and assessed the tax legitimately. This was the clear intention of the Legislature;

5) Thus, matter was remanded to the AO to examine the claim of the assessee afresh under provisions of section 54F after providing due opportunity of being heard to the assessee - Paramjeet Singh Chhabra v. ITO [2013] 35 taxmann.com 612 (Indore - Trib.)

 

source:- http://taxmannpublications.blogspot.in

No deduction of tax from medical allowances paid to employees along with salary before incurring of such exp

Employer was not at fault for not deducting tax at source from medical allowances paid to its employees before incurring of actual medical expenditure. It couldn’t be deemed to be in default for non-deduction of tax on medical reimbursements if it has made bona fide estimate of taxable salary of its employees

In the instant case the payments made by assessee to its employees every month included a component towards medical expenditure. The AO treated assessee as an ‘assessee-in-default’ for not deducting tax at source from medical reimbursements upto Rs. 15,000 paid to the employees. In this regard, AO held that the payment of medical expenditure had not to precede the actual incurring of the expenses and it should be only by way of reimbursement. On assessee’s appeal, the CIT(A) quashed the order of the AO Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The exemption in respect of medical expenditure was to be restricted to expenditure actually incurred by the employees, or Rs. 15,000 whichever was lower. The exemption was to be granted even if the payment preceded the incurrence of expenditure;

2) Though the allowance paid by the assessee to the employees would not form part of taxable salary of an employee, yet if the employer was required to deduct tax at source treating it as part of salary, then that would be contrary to the provisions of Sec.192(3) of the Act;

3) The liability of the person deducting tax at source couldn’t be greater than the liability of the person on whose behalf tax at source was deducted. No tax could be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee was made by the employer. Thus, the order passed by the AO was rightly quashed by the CIT(A) – ACIT v. SAP Labs India (P.) Ltd. [2013] 36 taxmann.com 200 (Bangalore - Trib.)

 

Source:- taxmannpublication

‘Tax avoidance’ arrangement is legitimate if it’s within four corners of law, says HC

Where arrangement of assessee to avoid payment of tax did not contravene any statutory provision and was achieved within four corners of law, it couldn’t be found fault with

In the instant case the assessee was holding shares in BFSL, which had purchased 15 acres of land from assessee. The assessee sold its shareholding in BFSL for a certain consideration to DLF through Stock Exchange after paying STT and claimed exemption from gain on sale of shares under section 10(38). The AO held that sale of shares by assessee was a colourable device and that virtually the immovable property had been transferred to DLF and assessee was liable to tax on short-term capital gain on sale of immovable property. Further, the CIT (A) and the Tribunal upheld the order of the AO.

The High Court held in favour of assessee as under:

1) Every taxpayer is entitled to arrange his affairs so that his taxes would be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. If the taxpayer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other will not, he would at liberty to choose the latter one and would do so effectively in the absence of any specific tax avoidance provision;

2) If BFSL had sold the property by executing a registered sale deed and received the sale consideration, then it ought to have paid capital gains on the said consideration. All the authorities were carried away by this aspect of the matter and because the Department was deprived of the tax, they had come to the conclusion that it was a colourable device and tax planning to avoid payment of taxes;

3) The assessee by resorting to such tax planning had taken advantage of the benefit of the loopholes in the law, which had endured to his benefit. After seeing how this loophole had been exploited within four corners of the law, it was open to the Parliament to amend the law plugging the loopholes;

4) However, by any judicial interpretation one couldn’t read into the section, which was not intended to by the Parliament at the time of enacting this provision. If the shareholder chose to transfer the land to the purchaser of the shares, it would be a legal transaction, in law, and merely because it was able to avoid payment of tax, it couldn’t be said to be a colourable device or a share transaction;

5) The finding of the assessing authority that it was a transfer of immovable property was contrary to law and material on record.

Unfortunately, three authorities committed the very same mistake which was illegal, contrary to settled legal position and, therefore, required to be set aside - Bhoruka Engineering Inds. Ltd. v. Dy.CIT [2013] 36 taxmann.com 82 (Karnataka)

Gift received by assessee on the occasion of his daughter’s marriage isn’t exempt from tax

Gift received by assessee on occasion of his daughter's marriage won't be exempt as the word individual appearing in proviso to sub-clause (vi) of sec. 56(2) relates to marriage of assessee and not of his daughter

The High Court held as under:

1) Proviso to sec. 56(2)(vi) provides that gift received on the occasion of the marriage of an individual would be exempt from tax. There is no ambiguity in such proviso;

2) The expression "individual" appearing in proviso (b) to section 56(2)(vi) of the Act, is preceded by the word "marriage" and, therefore, relates to the marriage of the individual concerned, i.e., the assessee and not to the marriage of any other person related to him in whatsoever degree, whether as his daughter or son;

3) The expression "marriage of the individual" is unambiguous in its intent and does not admit of an interpretation, that it would include an amount received on the marriage of a daughter;

4) If the Legislature had intended that gifts received on the occasion of marriage of the assessee's children would be exempted, nothing would prevent the Legislature from adding the words "or his children", after the words "marriage of the individual";

5) Thus, in view of unambiguous legislative intent appearing in the proviso, the addition made to the appellant's income on account of gifts received on the occasion of his daughter's marriage was to be affirmed - Rajinder Mohan Lal v. Dy.CIT [2013] 36 taxmann.com 250 (Punjab & Haryana)

 

 Source:- http://taxmannpublications.blogspot.in

No TDS on Service Tax charged on Professional or Technical fees

We are sharing with you an important judgement of the Hon’ble Rajasthan High Court, in the case of Commissioner of Income Tax (TDS), Jaipur Vs. M/s. Rajasthan Urban Infrastructure [2013 (8) TMI 12 – RAJASTHAN HIGH COURT] on following issue:

Issue:

Whether TDS is to be deducted on the amount of Service Tax charged on professional/ technical fees under Section 194J of the Income Tax Act, 1961?

Facts & Background:

M/s Rajasthan Urban Infrastructure Development Project (“the Respondent”or “the RUIDP”or “the assessee”) is a project of Government of Rajasthan for the Infrastructure Development and Civic Amenities in the specified areas/ cities in the state of Rajasthan. The RUIDP appoints the technical and project consultants and deducts income tax at source from the amount of fee payable as per the agreement and deposit the same as per the relevant provisions of the Income Tax Act, 1961 (“the Income Tax Act”) and subsequently files the return for the same within due time.

The Assessing Officer, vide its order dated 30.01.2009 raised a demand of Rs. 1,70,881/- alongwith interest thereon amounting to Rs. 44,776/-, on account of TDS on the amount paid as Service Tax pertaining to Financial Year 2005-06. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Jaipur which was allowed. Being aggrieved with the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal, Jaipur but the same was dismissed. Hence the revenue preferred an appeal before the Hon’ble Rajasthan High Court.

Held:

It was held by the Hon’ble Rajasthan High Court that if Service tax is payable in addition to professional/ technical fees under the contract, the withholding tax will be restricted to the professional fees. Hence, examination of contract terms is imperative.

The Hon’ble Rajasthan High Court held that the words “any sum paid” used in Section 194J of the Income Tax Act, relate to “fees for professional services or fees for technical services”. In terms of the agreement, the amount of Service Tax was to be paid separately and was not included in the fees. Hence the orders passed by Appellate Authority as well as the Appellate Tribunal are in accordance with the provisions of Section 194J of the Income Tax Act.

Points to note:

The Central Board of Direct Tax (“the CBDT”) vide its Circular No. 4/2008, dated 28.04.2008 held that TDS under Section 194I of the Income Tax Act would be required to be made on the amount of rent paid/payable without including the Service Tax. However, the CBDT vide its Circular No. 275/73/2007-IT(B), dated 30.06.2008 decided not to extend the scope of Circular No. 4/2008 to payment made under Section 194J of the Income Tax Act since it covers any sum paid.

Therefore, it remains to be seen that whether the Revenue files another appeal before the Hon’ble Supreme Court or accepts the above judgment of the Hon’ble Rajasthan High Court and gives relief to assessees.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards.
 Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

Service tax on restaurants and hotels not Constitutional

In a recent ruling, the Kerala High court, in Kerala Classified Hotels and Resorts Association and others vs Union of India and others (2013-TIOL-533-HC-KERALA-ST), held the levy of service tax on supply of food and beverages by restaurants and services of lodging provided by hotels as unconstitutional.

As per the Constitution of India, the definition of tax on sale or purchase of goods was expanded by the 46th amendment to the Constitution, which inserted the clause 29A to the article 366, to include: "(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating),…"

The high court, while adjudging the levy of the service tax on transaction of sale of foods and beverages by the restaurants as unconstitutional, has relied on the judgment of the Constitutional Bench of the apex court, in K Damodarasamy Naidu and Bros vs state of Tamil Nadu (2002-TIOL-884-SC-CT-CB). There, the

apex court held that the article 366(29A)(f) empowers the state government to impose tax on supply of food and beverages whether it is by way of service or as a part of a service. Such transfer delivery or supply is deemed to be a sale of those goods and the provision of service is only incidental to such sale. Accordingly, it was held that the price paid by the customer for supply of foods in a restaurant cannot be split up.

The Constitutional validity in this case was challenged on the basis that the entry 62 of list II of the seventh schedule to the Constitution of India exclusively empowers the state government to impose tax on "luxuries". The high court in this case relied on yet another landmark judgment by the Constitutional Bench of the apex court in Godfrey Phillips India Ltd vs state of UP (2005-TIOL-10-SC-LT-CB), wherein the apex court defined the word "luxuries" as the activities of enjoyment of or indulgence in that which is costly or which is generally recognised as being beyond the necessary requirements of an average member of society.

Keeping in view of the extended meaning of luxuries provided by the apex court, the high court was of the view that by imposing service tax on hotels, etc, the central government has departed from its Constitutional mandate and accordingly, liable to be held unconstitutional.

Relevant date for determining the rate of Service Tax applicable??

We are sharing with you an important judgement of the Hon’ble CESTAT, Ahmedabad in the case of Commissioner of Central Excise & Service Tax, RajkotVersus M/s Kandla Port Trust [2013 (7) TMI 859 – CESTAT AHMEDABAD]on following issue:

Issue:

What will be the relevant date for determining the rate of Service Tax applicable - whether the date of providing service or the date of issue of invoice or date of making payment?

Facts & Background:

M/s Kandla Port Trust (“the Respondent”) is engaged in providing services of Port Service. During the course of audit, it was observed by the Department that the Respondent had paid service tax at the rate prevailing on the date of providing service instead of the rate prevailing at the time of raising invoices.

Service tax had been paid at the rate of 5% instead of 8% for the invoices raised on or after 14.05.2003 and at the rate of 8% instead of 10% for the invoices raised on or after 10.9.2004. Further, Education Cess at the rate of 2% of the service tax amount for the invoices raised after 10.9.2004 was not paid.

Hence, show cause notice was issued to the Respondent on 07.4.2006, which was adjudicated by the Joint Commissioner, Rajkot who confirmed the demand of service tax of Rs. 6,02,353/- and also imposed equal amount of penalty under Section 76 read with Section 78 of the Finance Act, 1994.

Thereafter the Respondent filed an appeal before the Commissioner of Central Excise (Appeals) Rajkot, who has allowed their appeal. However, the Revenue has challenged the order passed by the Commissioner of Central Excise (Appeals).

Held:

It was held by the Hon’ble CESTAT that the relevant date for determining the rate of service tax applicable is the date of providing service and not the date of raising invoice or making payment.The Hon’ble Ahmedabad Tribunal rejected the appeal filed by the Revenue and decided the case in favour of the Respondent.

The Hon’ble Ahmedabad Tribunalrelied on the following judgements to decide the case in favour of the Respondent:

1.      Commissioner of Central Excise & Customs, Vadodara vs. Schott Glass India Pvt. Limited [2009 (14) STR 146 (Guj.)]

2.      Commissioner of Central Excise &Cus. vs. Reliance Industries Limited [2010 (19) STR 807 (Guj,)]

3.      Commissioner of Service Tax vs. Consulting Engineering Services (I) Pvt. Limited.

Points to note:

It is worthwhile to note that only rendering of service triggers the incidence of service tax and hence, it is treated as the taxable event. The Hon’ble Supreme Court in the case of Association of Leasing & Financial Service Companies [2010-TIOL-87-SC-ST-LB]has held that for levy of service tax, the taxable event is rendition of services.

In the instant case, the Hon’ble Ahmedabad Tribunal has passed its judgment on similar premise that taxable event in relation to service tax is rendering of service and not raising of invoices or making of payment. Hence, additional liability cannot be fastened on the assessee merely because the invoices were raised or payments were made subsequent to the increase in rate of service tax.

Further, the above judgment has been passed for a period prior to the Point of Taxation Rules, 2011 (“the POT Rules”). Hence, the readers are advised to consider the POT Rules for final conclusion but moot question is still valid whether the rules can override the chargeability, which results in taxable event for the chargeability of Service tax.

Date of determination of rate of tax, value of taxable service and rate of exchange:

W.e.f 28^th May, 2012, Section 67A of the Finance Act, 1994 was inserted vide Finance Act, 2012 to provide certainty on the rate of service tax, value of a taxable service and rate of exchange, if any, which shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

Explanation.— For the purposes of this section, "rate of exchange" means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962.'; (52 of 1962.)

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards.

Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com

Released a Book - "Guide to Service Tax Voluntary Compliance Encouragement Scheme, 2013", authored by Bimal Jain, FCA, FCS, LLB

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.