PROFESSIONAL NEWS

• residential status under Indo-Mauritius Double Taxation Avoidance Convention (DTAC)

  Clarification regarding It has been clarified that where an assessee is a resident of both the contracting states, in accordance with para 1 of Article 4 of Indo Mauritius DTAC, then his residence is to be determined in accordance with para 3 of the said article. Where an Assessing Officer finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed to determine the residential status under para 3 of Article 4 of DTAC, where it is found as a fact that the company has its place of effective management in India, then notwithstanding its being incorporated in Mauritius, it would be taxed under the DTAC in India. (Circular No. 1/2003 Dated 10.02.2003).

• Valuation of goods captively consumed

  Board has desired that the EA-2000 audit of EOUs should be conducted by the jurisdictional Central Excise Commissionerates. However, for the frequency of audit, the criteria of selection and the number of days for conduct of EA-2000 audit of EOUs, the jurisdictional Commissioners may draw a parallel from the criteria fixed for non-EOUs given in the Audit Manual. (Circular No. 8/692/2003 Dated 13.02.2003).

• Removal of Budget Day restrictions for Budget 2003-04

  Budget Day restrictions were aimed at preventing duty evasion as the duty was required to be paid before the removal of the excisable goods and the duty rates were normally enhanced. It has been decided to do away with Budget Day restrictions with immediate effect and this decision has been implemented vide issue of Notification 6/2003 CE (NT) dated 11th February, 2003. To reiterate , there shall be no Budget Day restrictions this year. The net effect shall be that as on any other day, on the Budget Day i.e. 28th February, 2003 also, the assessees shall be free to carry out their activities without seeking special permission from the Department. (Circular No. 7/691/2003 Dated 11.02.2003).

• Section of All Industry Rate of Duty Drawback pending fixation of Brand Rate of Drawback

  There have been representations from the trade that since the procedure of application and issuance of brand rate letters under Rule 7 involves one to two months, they remain out of funds and face financial difficulties. This issue has been considered by the Kelkar Committee and based on its recommendations, the Board has decided that henceforth in all those cases, where the exporters have applied for brand rate of draw back, they may be permitted the duty drawback at all Industry Rate as admissible under the relevant S.S. No. of the Duty Drawback Table. Subsequently, when the exporters are issued brand rate of drawback, the differential amount may be sanctioned to them. (Circular No. 10/2003-Cus Dated 17.02.2003).

• I-T lens on staff costs reimbursed by firms

  The income tax department is planning to take a closer look at the expenses that companies routinely reimburse to their employees. In fact, internally, the department suspects that some of these reimbursements are actually part of the salary, masquerading as expenses incurred by the employees to reduce tax incidence. The department has started quizzing corporates about the nature of employee expenses reimbursed by them. In the case of some major corporates, such as public sector units ONGC, BPCL, HPCL and BSES, the department has also conducted surveys, in some cases it is also in the process of reopening assessment of last four years. According to the I-T department, the employee expenses reimbursed by the companies will be taxed as part of salary, unless it is proved beyond doubt that they are actual expenses incurred for carrying out duties of business for the company.

• IMPOSITION OF PENALTY U/S 271(1)© IN LOSS CASES

  Section 271(1)© of the Income Tax Act, 1961 provides for the imposition of penalty for the concealment of particulars of income by the assessee. One of the important issues is in this context is that can penalty be imposed in cases where the loss returned by the assessee is reduced by the assessing officer but the resultant figure continues to be a loss. The assesses and their counsels are of the opinion that penalty cannot be imposed in such a case. However, the assessing officers hold a contrary view and generally impose penalty in such cases. Before attempting to resolve the difference of opinion, it is worthwhile to go through the provisions of section 271(1)©, which read as under: ”271(1): If the assessing officer or CIT (Appeals) in the course of any proceedings under this act, is satisfied that any person…. ( c ) has concealed the particulars of his income or has furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty……. (iii) in the cases referred to in clause ( c ), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.” A perusal of the above reveals that penalty can be imposed only if: a) income has been concealed, or b) inaccurate particulars of income have been furnished Explanations to section 271(1)© seeks to widen the scope of concealment.

• Whether income includes loss

  It is clear from the above provisions that the legislature has used the term income at all places. Under the Income Tax Act, nowhere is the term income defined to include losses. The Madras High Court had observed in (1990) 84 CTR (Mad) 259 that the word income has been defined in section 2(24) in an inclusive manner and it not only includes real income, but also includes certain transactions, which are not income in the real sense. It does not include a loss there. It is also important to note that wherever the legislature intended the term income to include loss, it specifically stated so. For instance, explanation 2 to section 64 states that income would include loss. Whereas in section 271(1)( c) and 271(1)(iii), it is nowhere stated that income includes loss.

• Verdicts of High Courts

  The issue has come up for consideration before various High Courts, and most of them have opined that penalty cannot be levied in a case where the loss is reduced. Noteable among them is the decision of the Honorable Punjab and Haryana High Court in the case of CIT VS. Prithpal Singh & Co. (1990) 85 CTR (P & H) 26, in which the court observed that penalty is paid in addition to tax. Where there is no tax, there can be no penalty. The above judgment has been affirmed by the Honorable Supreme Court of India in the judgment reported at (2001) 166 CTR (SC) 508.

• CHANGE IN JURISDICATION OF ACIT & ITO ( TDS ) DEHRADUN

  In exercise of the power conferred by the by CBDT under subsection (2) of Section 120 of The Income Tax Act, 1961 vide notification No. SO 732E dated 31-7-2001 and in suppression of the previous orders on this subject, The Commissioner of Income Tax , Dehradun hereby directs that: 1. ACIT, TDS Circle, Dehradun in Addl/JCIT, Range-1, Dehradun shall excercise the jurisdiction as per Schedule given hereunder. 2. ITO (TDS), Dehradun is hereby placed under the Addl./JCIT, Range-2 , Dehradun and shall exercise jurisdiction as per Schedule given here under. This order shall come into force w.e.f 1-4-2003 TERRITORAIL AREA Area specified in Col. 4 in Schedule 1 annexed to Notification No. 1/CIT/2001-02 dated 10-8-2001 against the designation of JCIT, Range-I , Dehradun i.e Area of Dehradun City falling on the left hand side of the roads from Mohebewala to Darshani Gate through Saharanpur Road, from Darshani Gate to Clock Tower through Paltan Bazar Road, and from to Kothal Gate through Rajpur Road, as demarcated by the Mussoorie Dehradun Development Authority ( MDDA) in the district of Dehradun. Area specified in Col. 4 in Schedule 1 annexed to Notification No. 1/CIT/2001-02 dated 10-8-2001 against the designation of JCIT, Range-2, Dehradun i.e. Area of Dehradun City as demarcated by the Mussoorie Dehradun Development Authority ( MDDA) excluding the area mentioned in Col. 3 on which the jurisdiction is exercised by ACIT, TDS Circle, Dehradun PERSON OR CLASSES OF PERSON All persons being those responsible for deducting/collecting tax in accordance with the provisions of Chapter XVII (Sections 190 to 206CA) of the I.T Act, 1961 and whose offices are within the territorial area mentioned in Col. 3

• I-T DEPT. SEES GROWTH IN SEARCH AND SEIZURE

  Data collected by the income-tax department, which has started easing procedures and methods employed for search and seizure operations seems to suggest a qualitative improvement in searches and seizures during ’02-03 and this will continue in the coming years, say senior officials. There was, for instance, a 12% increase in the number of searches which stood at 4,913 during ’02-03 as compared to 4,385 in ’01-02. Compared to this, seizures for every search rose by 80% and topped Rs 532.15 crore as compared to Rs 295.71 crore in ’01-02. The number of searches and seizures, however, dropped in ’01-02 as compared to ’00-01, signalling a slowdown which was reversed last year. Officials admit that seizures by the income-tax department cash, jewellery and others, constitute a very insignificant proportion of the total direct tax collections, which are estimated to top Rs 95,569 crore in the current fiscal. ”Our focus is on qualitative improvement in searches and surveys as we do not want any dislocation or disruption of business due to these operations,” said a senior official. The inventory of goods and their valuation would be done during the course of searches to avoid any disruption in business. Beginning this fiscal, stocks found during the course of search and seizure operations will not be seized. The Revenue Department has gone a step ahead of the Budget announcement to bar revenue authorities from obtaining confession on the undisclosed income of the assessee during search and seizure operations. The bar would extend to survey operations as well. At times, assessees make voluntary declaration of income when they are unable to explain the nature or source of transactions, accumulation of certain income and creation of assets. According to officials, the Central Board of Direct Taxes has also come across instances where assessees have claimed that they have been forced to confess undisclosed income during the course of search, seizure and surveys. Such confessions, if not based upon credible evidence are later retracted by the concerned assessee while filing returns of income. Revenue authorities have been told that the focus should be on collection of evidence of income, which leads to information of what has not been disclosed or is not likely to be disclosed before the income tax department.

• LAST DATE FOR FILING OF WITHHOLDING TAX RETURNS EXTENDED TO SEP’ 03

  In exercise of powers conferred u/s 119 of IT Act the CBDT has extended uniformly the last date for filing of annual withholding tax returns to Sep 30, 2003 in respect of tax withheld at source during financial year 2002-03. This has been done in order to give effect to certain proposals contained in the Finance Bill 2003 relating to filing of return of TDS. In the Finance Bill, 2003, it was provided that the tax returns could be filed on floppy, diskette, magnetic cartridge etc. under a scheme to be specified by the Board. The amendment was to come into effect from June 1, 2003. Since the annual return for salary is due for submission on or before May 31, 2003 (for the financial year 2002-03), it is still not clear whether the proposed scheme would be applicable to salary returns or not.

• ONLINE TAX FILING SOON

  The entire process of filing of taxes will undergo a sea change soon. The income tax department is close to a tie-up with the National Securities Depository Ltd (NSDL) that will allow taxpayers to file their returns online. Besides tying up with the NSDL, the department is also creating a network of almost 10,500 branches of commercial banks, designated as tax collection centres. Once the project is completed, assessees will be able to pay tax anywhere in the country. Not only that, refunds, if any, will also be credited directly to an assessee’s account. Moreover, assessees will receive acknowledgments in a dematerialised format, instead of challans. They will also be able to easily access information pertaining to payments, refunds etc. This income tax department is also trying to ensure that applicants are furnished with permanent account numbers (PAN) within 10 days of the submission of requests. Also, assessees will be refunded the excess tax deposited within four months of filing their tax returns. ”We have embarked on a major outsourcing drive of our non-core functions. As domestic tax rates are in sync with global trends, we are striving to come up to international standards on the services front,” B Swarup, Member, Central Board of Direct Taxes, said. The department will invest Rs 250 crore to upgrade its information technology infrastructure this year, he added. The department is now focusing on the payment of refunds. This was underscored by the fact that the department made out 39,87,000 refund vouchers amounting to Rs 22,676 crore in Browse the Branch Website regularly to stay updated on Branch News 2002-03 against 26,72,000 vouchers amounting to Rs 17,304 crore in 2001-02. Also, the number of assessees increased 20 per cent in 2002-03 to 34 million from 28.4 million in 2001-02. The quality of search and seizure operations also improved in the last financial year. The amount seized went up 53 per cent to Rs 532.15 crore from Rs 295.71 crore in 2001-02.

• NO LEVY OF SERVICE TAX ON EXPORT OF SERVICES

  Recently, with the withdrawal of notification no 6/99 dated 9/4/1999 the benefit of exemption from service tax in respect of payment received in convertible foreign exchange was withdrawn. This lead to confusion relating to levy of service tax on export of services, especially BPOs, IT enabled services etc. Now the Finance Ministry has clarified that since Service Tax is a destination based consumption tax, the same would not be applicable on export of services. Therefore, export of service will not attract service tax even after withdrawal of notification number 6/99 as stated above.

• NO CREDIT FOR SERVICE TAX PAID ON INPUT SERVICES PROVIDED IN MANUFACTURE OF GOODS EXPORTED

  It has also been clarified that since at present there is no provision for providing inter-sectoral tax credit, there would not be any credit for service tax paid on services consumed in the manufacture of goods which are finally exported.

• RESIDENT BUT NOT ORDINARILY RESIDENT - A CASE STUDY

  Section 6(6) of the Income Tax Act, 1961 has been amended by the Finance Act 2003 to provide that a person being an individual would enjoy the status of a Resident but not ordinarily resident for a period of only two years of his return to India. This article seeks to examine the matter in the light of the section as it stood prior to the amendment and the verdict of the Honorable High Court of Gujarat in Pradip J. Mehta Vs. CIT (2002) 175 CTR (Guj) 394.

• The ambiguity

  Language at best is an imperfect way for the expression of human thoughts. It is not always possible to convey the intentions by words, which leads to ambiguity. Section 6(6) as it stood prior to the amendment made by the Finance Act 2003 was somewhat ambiguous in its wording. The ambiguity is the result of the use of double negative in the sub-section. The section read as under: (6) A person is said to be ’not ordinarily resident’ in India in any previous year if such person is : a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; A close reading of the section leads to two possible interpretations. The first interpretation could be that the individual should have been non-resident in India in atleast two of the previous ten previous years. This interpretation, being beneficial to the assessees, found favor with them. However, the section could be interpreted in another way and that is that the assessee should be non-resident in nine of the ten previous years. In the second interpretation, the phrase ’not been resident in India’ has been construed as meaning a non-resident.

• Verdict of the Gujrat High Court

  In Pradip J. Mehta VS. CIT (2002) 175 CTR (Guj) 394, the High Court of Gujarat held that an individual can be said to be ’not ordinarily resident’ within the meaning of section 6(6)(a) only if the individual has in all the nine out of ten previous years preceding the relevant previous years not been resident in India or if he has not been in India for a total period of seven hundred and thirty days or more during seven years preceding the relevant previous year. The court observed as under: In order that an individual is ’not ordinarily resident’ in India, what is required to be considered is the length of his residence in India as defined, and if an individual is resident in India in such number of years which does not make him not being resident in nine out of ten preceding years or has been in India for seven hundred and thirty or more days during the preceding seven years, then he is not a ’not ordinarily resident’ in India and the benefit of the exemption to which a ’not ordinarily resident’ would be entitled to claim u/s 5(1)©, would not be available to him.

• Amendment made by Finance Act 2003

  The Finance Act 2003 has amended section 6(6) of the Act to remove the ambiguity associated with the section. The section in clear terms provide that a person shall be not ordinarily resident only when he is a non-resident in nine of the ten previous years. The amended section reads as under: (6) A person is said to be ’not ordinarily resident’ in India in any previous year if such person is: a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to seven hundred and twenty nine days or less The amendment will have far reaching implications on NRI’s willing to settle down in India as they will be regarded as ordinary resident in India after two years of their stay and will be laible to pay tax on their global income.

• DATE FOR TAX COLLECTION AT SOURCE FOR LIQUOR AND SCRAP CHANGED

  Section 206C of the Income-tax Act provides for collection of tax at source from dealers of country liquor by the manufacturer/distiller at the time of purchase by the dealers and deposit of the same to the credit of Central Government. The scheme which came into effect vide Finance Act, 1988, however, excluded from the purview of the scheme, the buyers who do not obtain goods by way of auction and where the sale price of such goods to be sold by the buyer fixed by or under any State Act. Finance Act, 2003 removed the above condition from section 206C and made it applicable irrespective of whether the buyer obtained the goods by way of auction or the sale price of such goods were fixed under the State Act. Further, while the Browse the Branch Website regularly to stay updated on Branch News scheme was applicable to buyers at the first point of sale from manufacturers/distillers, Finance Act, 2003 made it applicable to all buyers, except the consumer. It also extended the scheme of tax collection at source to dealers of scrap. All these amendments became effective from 1.6.2003. Representations have been received from various quarters including State Government authorities in the matter of various consequences flowing from the above amendments. It has been decided to postpone the date of coming into effect of the amendments made by Finance Act, 2003 in the matter of collection of tax at source from dealers in country liquor and scrap to 1st September, 2003.

• DATE FOR TAX COLLECTION AT SOURCE FOR LIQUOR AND SCRAP CHANGED

  Section 206C of the Income-tax Act provides for collection of tax at source from dealers of country liquor by the manufacturer/distiller at the time of purchase by the dealers and deposit of the same to the credit of Central Government. The scheme which came into effect vide Finance Act, 1988, however, excluded from the purview of the scheme, the buyers who do not obtain goods by way of auction and where the sale price of such goods to be sold by the buyer fixed by or under any State Act. Finance Act, 2003 removed the above condition from section 206C and made it applicable irrespective of whether the buyer obtained the goods by way of auction or the sale price of such goods were fixed under the State Act. Further, while the Browse the Branch Website regularly to stay updated on Branch News scheme was applicable to buyers at the first point of sale from manufacturers/distillers, Finance Act, 2003 made it applicable to all buyers, except the consumer. It also extended the scheme of tax collection at source to dealers of scrap. All these amendments became effective from 1.6.2003. Representations have been received from various quarters including State Government authorities in the matter of various consequences flowing from the above amendments. It has been decided to postpone the date of coming into effect of the amendments made by Finance Act, 2003 in the matter of collection of tax at source from dealers in country liquor and scrap to 1st September, 2003.

• UTI ARM DEPLOYED FOR PAN CARDS

  With effect form July 1, a part of the business process of Permanent Account Numbers (PAN) would be outsourced to UTI Investors Services Ltd (UTIISL), which is a Government company under the Companies Act. While the I-T Department would continue to allot PAN, UTIISL will supply applications, receive completed PAN applications and take responsibility for printing and delivering the PAN cards. From July 1, UTIISL would set up I-T PAN service centres in all cities or towns where income-tax offices are located. These centres would, from October 1, also receive and process grievances arising out of errors or requests for changes in PAN data. PAN numbers and cards already issued by the department will continue to remain valid and these holders need not apply again. If they prefer to hold a smart new PAN card with their photograph, then they can apply again. The PAN cards, in the first six months from July 1, would be despatched within a fortnight from receipt of application. UTIISL has been authorised to collect processing charges of Rs 60 per application. The new simplified PAN application form will cost Rs 5. In the first year, it is expected to process 50 lakh applications. In the case of individual applicants, the new PAN card will carry a coloured-photo image. The new card is tamper-proof and has built-in security features such as a hologram and UV line. The Income-Tax department currently has 3.40 crore assesses registered with them. While 2.86 crore PAN have so far been allotted and issued, the department has still about two lakh applications that are yet to be processed. The pending applications would be cleared by the department itself and only existing cards (not new cards) will be issued to them. The new PAN process would follow procedures conforming to ISO 9001-2000.

• PERQUISITE IN RESPECT OF EDUCATION FACILITIES FOR THE CHILDREN OF EMPLOYEES

  Section 17(2) of the Income Tax Act, 1961 defines perquisite to include amongst other things, the value of any benefit or amenity granted free of cost or at a concessional rate to the employee. Accordingly, provision of free/concessional education for the children of the employee would be a taxable perquisite in his hands and the employer would be required to take into account the value of perqusite while deducting tax at source. Once the issue of taxability of a perquiste is confirmed, the next step is to value it in accordance with the prescribed rules. The valuation of perquisites is to be made in accordance with the provisions of rule 3 of the Income Tax Rules, 1962. Rule 3(5) of the said rules govern the method of valuation of perquisite in respect of free/concessional education. The rule reads as under: The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees household are allowed in any other educational institution by reason of his being in employment of that employer, the value of perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered: Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employement of that employer, nothing contained in this sub-rule shall apply if cost of such education or the value of such benefit per child does not exceed Rs. 1,000/- p m. A focussed reading of the above rule provides scope for tax planning in the matter of employee compensation. The rule envisages three situations or modes by which benefit by way of free/concessional education can be provided by the employer to the employee. These three sitautions are: a) Where the provision for educational facilities is made or fee is reimbursed in an institution, not owned by the employer or where no arrangement exist between the employer and the institution. b) Where the employer owns the institution in which education is provided to the children of the employee. c) Where the employer does not own the institution, but there exist an arrangement between the employer and the institution, such that the member of the household of the employee is provided education in such institution for the reason of the employee being in the employment of the employer. The rule provides that in respect of cases covered by clause (a), the actual amount incurred by the employer in making the provision for education or reimbursement shall be the value of perquisite. The only deduction from the valuation so made shall be for the amount recovered from the employee. In respect of cases covered by the remaining two clauses, the valuation shall be made with reference to the cost of education in a similar institution located in the same or nearby locality. The rule is further qualified by a proviso, which provides exemption from valuation upto Rs. 1,000/- p.m. per child. Unlike Children Education Allowance u/s 10(14), there is no restriction on the number of children upto which the benefit extends. It can therefore be seen that employers can provide perquisite by way of free education to the children of the employees in an institution owned and maintained by them. Since this involves huge outlay and may not be feasable for all employers to own and manage educational institutions for the children of their employees, they have the option to enter into an agreement with some educational institution, under the terms of which, some seats may be kept reserved for the children of his employees. In such a case the valuation of perquisite in the hands of the employee will be with reference to the cost of education in a similar institution and the amount paid by the employer. Further, an amount of Rs. 1,000/- p m per child would be deductible from the valuation so arrived at.

• CLARIFICATION ON TCS AND REDUCTION IN RATE OF INTEREST UNDER INCOME TAX ACT.

  This is to inform you that the rate of interest on refund under section 132 B, 234 D, 244 A has been reduced from 8% per annum to 6% per annum and rate of interest leviable under section 115 P, 115 S, 158 BFA, 201, 206 C, 234 A, 234 B, 234 C, 220, 201 has been reduced from 15% to 12% per annum with effect from 8th September, 2003. Tax Collection at Source : Provision of tax collection at source has been modified by the ordinance issued on 8th September, 2003.

• Tax collection at source

  As per the ammended provisions the new rate for tax collection at source are as under : (1) Liquor 1% (2) Timber 2.5% (3) Scrap 1% (4) Tendu leaves 5% As per the ammendment tax collection at source shall not be applicable to that buyer who buys the above goods for utilisation for the purposes of manufacturing, processing or producing articles or things and not for trading purposes. For this the buyer i.e. manufacturer shall have to submit a declaration form to the seller. The earlier proposal to obtain a certificate from the Assessing Officer has been ammended. The buyer will have to submit only the declaration form in the prescribed form which will be notified soon by the Board. Further a copy of this declaration will be submited by the seller to the Commissioner by 7th of the next month in which such declaration is received (like Form 15G/15H). Further the period of 7 days prescribed under sub section 206 C (3) of depositing the amount collected and period of 10 days from the date of debit for issue of certificate under sub-section 206 C(4) has been substituted with the words “the period as may be prescribed.” This period will be prescribed by Rules later on. This amendment has been probably done to avoid deposit of tax and issue of certificate on daily basis. Further sale to public sector company, Centre, State Government, Embassy, foreign state and clubs have been exempted from levy of tax collection at source. As per the ammended provisions tax collection at source will be applicable on all trading sales at each stage except when one buys such goods for personal consumption. The exemption to buyer in the retail sale has been further restricted by adding the words for personal consumption. After the above ammendments people in industrial scrap may not be so hit as buyer of industrial scrap by and large are manufacturers though trader in scrap will be hit. However those in timber trade will continue to be seriously effected as timber by and large is a trading item. Tax rate on timber has been kept at 2.5% as against 1% for scrap. Moreover no distinction has been made on local timber or imported timber. All those engaged in importing timber will be required to collect tax at source @ 2.5% while making sales except when sales is made to direct consumer. This may lead to unhealthy practice of issuing bills in the name of consumer instead of distributors, traders to avoid tax collection at source provisions. Branch Administrator It has been further clarified that provision of section 206 C, during the period from 1st June, 2003 to 7th September, 2003 shall be applicable as were applicable before the ammendment carried by the Finance Act, 2003 i.e. old provision.

• PROCEDURE FOR SELECTION OF CASES FOR “SCRUTINY” FOR NON-CORPORATE ASSESSEES

  (INSTRUCTION NO 11/2003 F.No. 225/79/2003-ITA-II Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes ,New Delhi, October 17, 2003) Browse the Branch Website regularly to stay updated on Branch News The criteria and procedure for selection of cases of Non-corporate Assessees for scrutiny during the current financial year 2003-04, shall be as under : Compulsory Scrutiny The following categories of cases shall be compulsorily scrutinised 1) All cases wherein Addition / Disallowance of Rs one lakh and above has been sustained by the CIT (Appeal) in the preceding year. 2 ) All Search & Seizure Cases. 3 ) All Survey (u/s 133A) Cases. 4) Cases in respect of which information is received from other Agencies pointing out tax evasion. 5 ) In any other Case, where the Department receives information regarding credible evidence of tax evasion. 6) Cases where the value of International transaction (as defined u/s 92B of the IT Act 1961) entered Into by the assessee exceeds Rs five crore. Random Selection a) This will be applicable only to the non-corporate non-salary returns of income pertaining to A.Y 2002-03, filed upto 31/3/2003 and processed on AST software. b) Random selection of cases will be done by the CIT and monitored by the CCIT concerned. c) Taking a CIT charge as basis, all the cases of the CIT charge (not assessing officer wise or Range Wise) should he arranged In descending order of Income by running a query on AST as per procedure enclosed in the Annexure. It is clarified here that no separate lists for the cases related to each Assessing Officer or Range shall be prepared and only one consolidated list for all the cases of the CIT Charge should be prepared. 1) Out of the top 1000 cases of the charge, one out of three cases from the list so prepared should be selected, i.e serial no 1, 4, 7 etc. (ii) Out of the next 3000 cases, one out of five cases from the list so prepared should be selected, i.e. serial no 1001, 1006, 1011 etc (iii) Finally, out of the remaining cases, one out of hundred cases from the list so prepared should be selected, i.e. cases at serial no 4001, 4101, 4202, etc d) In case, the case so selected is a company or a salary case, or a case where the time limit for issue of notice has elapsed, the same should not be selected for scrutiny and ignored, irrespective of the fact that this may lead to reduction in the number of cases finally selected for scrutiny. e) The final list of cases so selected shall be certified by the CCIT concerend before the same is sent to the Assessing Officer for further action. f) The final list of cases so selected for scrutiny shall be segregated AO-wise by the 0/0 CIT concerned before the same is sent to the Assessing Officer for issue of notices and further necessary action, g) The above process must be completed by 31st October, 2003.

• DISCLOSURE OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES IN THE BALANCE SHEET OF A COMPANY

  Paragraph 30 of Accounting Standard (AS) 22, Accounting for Taxes on Income, provides as follows: “30. Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.” From the above, it may be noted that the deferred tax assets and deferred tax liabilities should be disclosed separately from current assets and current liabilities. Part I of Schedule VI to the Companies Act, 1956, does not contain a specific head for disclosure of deferred tax assets/liabilities. Section 211(1) of the Companies Act, 1956, provides that every balance sheet of a company shall be prepared in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit. It is, therefore, clear that format of balance sheet as set out in Part I of Schedule VI to the Companies Act, 1956, has in-built flexibility to accommodate necessary modifications. A deferred tax asset is normally more liquid (realisable) as compared to fixed assets and investments and less liquid as compared to current assets. Therefore, in case of a company, it is appropriate to present the amount of the deferred tax assets after the head ’Investments’. Similarly, keeping in view the nature of a ’deferred tax liability’, it is appropriate that the same is presented in the balance sheet of a company after the head ’Unsecured Loans’.

• STREAMLINING THE PROCEDURE FOR ISSUE OF INCOME TAX REFUND ORDERS

  Instruction No. 15/2003 Dated 06.11.2003 : With a view to improve taxpayer services, the Board have decided to simplify the procedure for issue of refunds by discontinuing the system of sending advice Note to the Bank separately in cases of refunds up to Rs. 9999/-. In present procedure for issue of refunds upto Rs. 999/- has been extended to refunds upto Rs. 9999/-. Further it has also been decided that, there would be no separate refund books for refunds upto Rs. 9999/- and refunds of Rs. 10, 000/- and above. The revised Refund Book in 1+3 from will be used for all refunds, irrespective of the monetary limits. As far as the procedure for issue of refunds upto Rs. 9999/- is concerned, it is identical to the existing procedure for issue of refunds upto Rs. 999/-. However, the existing procedure for issue of refunds amounting to Rs. 10, 000/- and above will continue without any change.

• RAISING THE MONETARY CEILINGS FOR WRITE-OFF OF IRRECOVERABLE DUES AND RECONSTITUTION OF COMMITTEES

  Instruction No. 14/2003 Dated 06.11.2003 : The Board have revised the prescribed monetary ceilings for write-off of irrecoverable dues of Direct Taxes by the various income-tax authorities. At the same time, the Board have reviewed and modified the existing structure of the Committees for recommending write-off.

• PROCEDURE FOR SELECTION OF CASES FOR SCRUTINY FOR CORPORATE ASSESSEES

  Instruction No. 13/2003 Dated 31.10.2003 :Procedure for selection of cases of Corporate Assessees being assessed with the Directorates of International Taxation during the current financial year 2003-2004 has been stated. Accordingly, cases are to be selected on random basis from the list of companies as contained in the Return Registers. These cases may be seggregated into two categories :- (i) companies whose paid up capital exceeds Rs. 1 crore; (ii) companies having a paid up capital of Rs. 1 crore and below

• APPLICABILITY OF SERVICE TAX ON ACTIVITY OF MUTUAL FUND

  Some doubts raised regarding application of service tax on the activity of Mutual Fund Distribution as to whether: Browse the Branch Website regularly to stay updated on Branch News 1) the commission received by distributors on mutual fund distribution as liable to Service Tax under the category of Business Auxiliary Services ? 2) the services provided is exempt from service tax in terms of Notification No. 13/2003 dated 20.6.2003? In this connection, it has been clarified that the services provided as referred above are primarily in nature of the services of commission agent in relation to clause (ii) and (iv) of the category of services mentioned in the definition of Business Auxiliary Services and hence should be leviable to service tax under this category. This activity does not get covered under exemption Notification No 13/20003-ST dt 20.6.2003 as this is not in relation to sale or purchase of goods. The exemption provided under Notification 13/2003-ST is applicable only for commission agents dealing in goods.