The author is enthused by the impending training programme for the Hon’ble Members of the Tribunal on “International Taxation and Transfer Pricing“. It is a step in the right direction he says and adds that the time is opportune for all stake-holders to contribute their thoughts on how to improve the functioning of the Tribunal. On his, part, the author cannot resist the temptation to list a few issues that need to be paid attention to for making the Tribunal’s functioning even better than it is today
Income-tax Appellate Tribunal which was founded on 25th January, 1941 has completed its 72 years of existence, and it is for the first time President of ITAT, has taken initiative to hold a Residential Refresher Course for Hon’ble Members from 11th August to 20th August, 2012 at Maharashtra Judicial Academy & Indian Mediation Centre & Training Institute, Bhayandar. I am pleased to know that the Hon’ble Members will be discussing in details the law relating to International Taxation issues and Transfer Pricing. The Hon’ble Members will also be learning Yoga as well as spiritual knowledge by the guidance of experts in the field. For this innovative Residential Refresher Course contribution of Hon’ble President and Vice-Presidents deserves to be acknowledged. According to me, this should be the annual feature.
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The author compliments Finance Minister Pranab Mukherjee for his deft handling of the Vodafone crises despite relentless pressure from all sides. However, now that the stage has shifted from the political arena to the legal arena, it is time to take stock of the options available to the warring parties, says the author as he evaluates the alternatives and identifies their pros and cons in a succinct manner
Vodafone, to its credit, tried very hard but, in the end, all its machinations were to no avail against Finance Minister Pranab Mukherjee’s steely resolve. Vodafone got people in very high places to put enormous pressure on the Indian government to scrap the retrospective amendments. On the political front, international heavy weights like Tom Geitherner, US Secretary of State, Gordon Brown, Finance Minister of UK and David Gauke, Chancellor of the Exchequer, expressed their strong disapproval of the amendments. On the commercial front, leading industrialists from Adi Godrej to Narayan Murthy and everyone else in between spoke out against the amendments. Even on the legal front, eminent senior counsel Soli Dastur and Dinesh Vyas expressed grave doubt about the constitutional validity of the amendments. Celebrated Senior Advocate Harish Salve lashed out at the Government in public and sent out the dire warning that the retrospective amendments would “ruin” India. Even noted economist Bibek Debroy jumped on the bandwagon and demanded that Pranab Mukherjee should “honourably” withdraw the amendments before it was too late. Pranab Mukherjee was attacked in Parliament as well by the members of the opposition.
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The author clears the misconception in the minds of the public that the verdict of the Supreme Court in Vodafone had delivered a body blow to the Government by deciding in favour of the assessee. Instead, large parts of the verdict, when stripped out of context, are in the tax department’s favour and the Government has shrewdly nullified the parts that were against it whilst retaining the parts that are in its favour says the author
When the judgement of the Supreme Court in Vodafone International vs. UOI 341 ITR 1 came out, a lot of people were shocked and thrown into despondency. How could billions of dollars earned from India be said to be tax-free only because the investments were routed through a shell company in a tax haven perplexed everybody.
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The verdict in B4U International has sent shock waves across the Country because it implies that the retrospective amendments in the Finance Act 2012 to the definition of the term “royalty” so as to rope in software income and equipment hire charges are infructuous in the absence of a corresponding amendment to the definition of that term in the DTAA. The author puts the issue in perspective and explores the way forward for the Government
The verdict of the ITAT Mumbai in B4U International must have come as a nasty shock to the mandarins of North Block because while these worthies thought that by amending s. 9(1)(vi) of the Income-tax Act with retrospective effect, they had accomplished the mission of taxing software receipts, they overlooked one minor detail – the Double Taxation Avoidance Agreement!
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The UK Govt’s not-so-subtle threats to India over the Vodafone retrospective amendments have irked the author. The author cites two controversial retrospective amendments effected in the UK to supersede well settled judicial precedents and fumes that a Government which itself indulges in questionable legislative practices has no moral right to preach to others.
The question whether the Vodafone retrospective amendment is the right thing or not is one issue. The question whether the UK Government has the moral authority to threaten the Indian Government to withdraw the retrospective amendments is a separate issue.
When UK’s Finance Minister Gordon Brown and Chancellor of the Exchequer George Osborne criticized India over the Vodafone retrospective amendments, a lot of people nodded sagely, agreeing with their dire prognosis that the amendments seeking to nullify the judgement of the Supreme Court were improper and ought to be withdrawn forthwith as it would otherwise “dampen enthusiasm about India’s investment climate“.
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The author dares to ask the question that has been troubling tax professionals across the Country. Why is the Government not appointing a President for the Tribunal? It’s been 23 months since the last President retired and the studied indifference of the Government towards filling the vacancy in this august Institution is sending a wrong message to the Members of the Tribunal and the litigating public, says the author. The author urges the Government to wake up from its slumber and get its act together before the prestige that this great Institution commands begins to erode.
The Income-tax Appellate Tribunal which was founded on 25th January 1941 has completed more than 72 years of its existence. In the 72 years of existence it is for the first time that the reasons best known to the Government the appointment of the President is not confirmed, the former senior vice president and Vice president has been appointed to act as officiating president. The former President Shri Vimal Gandhi retired on 3-6-2010, however, till date the Vice President is acting as Officiating President. It is for the first time that for more than 23 months Senior Vice President and Vice President have been functioning as Officiating President .Similarly, the vacant post of senior Vice-President and Vice Presidents have not yet been filled up. The appointment of President, senior Vice President and Vice presidents is done by the Committee headed by the senior Judge of Supreme Court considering the merit, integrity, conduct of members. It is the Ministry of Law and Justice, which has to send the proposal to the designated Judge of the Supreme Court, a list of eligible members for the consideration of Honourable Judge to be appointed as President, senior Vice-President and Vice-presidents and from the eligible candidates most eligible candidate is selected as President.
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The author, one of the innumerable victims of the department’s gross inefficiency in matters of TDS credit & refunds, sees a ray of hope in the High Court’s tough stand in seeking to rein in the department’s wayward ways. The author urges all affected tax payers to raise their voices against the department’s harassment and strengthen the Court’s hands.
“Courts are not meant only for the rich and the well-to-do, for the landlord and the gentry, for the business magnate and the industrial tycoon, but they exist also for the poor and the down-trodden the have-nots and the handicapped and the half-hungry millions of our countrymen” Bhagwati J. in Peoples Union for Democratic Rights v. Union of India (AIR 1982 SC 1473)
When Anand Parkash, FCA, wrote a letter dated 30.4.2012 to the High Court, he did so in a sense of utter helplessness and frustration. He was voicing the angst of millions of tax payers across the Country at the numerous difficulties faced by them due to the faulty processing of Income-tax returns and TDS credit. In heart-felt emotion but with a clarity that years of professional training as a Chartered Accountant had bestowed, Anand Parkash meticulously listed out his litany of woes. Anand Parkash pointed out that in processing the s. 143(1) intimation, there was invariably a mismatch between the TDS credit claimed and the TDS credit granted and demands were raised on this score. The department ignores the figure of TDS credit claimed and mechanically grants credit for the credit shown in the online computer records of Form No.26AS. If the assessee writes a letter to protest against the department’s action and produces proof of the TDS, he is ignored. Against the bogus demand so raised, future refunds are adjusted.
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The author compliments the Supreme Court for its sagacity in dealing with a potentially explosive communal issue in a sensible & mature manner whilst rapping the Government hard on its knuckles for perpetrating loot by the system of patronage and granting of favours in the guise of the “Goodwill Hajj Delegation”
It started as a political stunt with an eye on the powerful Muslim vote bank but over the years, the expenditure was ever-increasing and putting an enormous strain on the exchequer. Thanks to the burgeoning population and inflation, the number of pilgrims and cost for the Haj Pilgrimage soared from 21,035 pilgrims and Rs. 10.51 crores in 1994 to 125,000 pilgrims and Rs. 685 crores in 2011. While the air-fare was Rs.54,800, the pilgrims were charged Rs.16,000 and the balance of Rs.38,000 was borne by the State as a “subsidy”. One would have thought that in a secular State pledged to treating all religions equally, singling out one community for preferential treatment would smack of discrimination but surprisingly, in an earlier judgement in Prafull Garodia vs. UOI, the Supreme Court upheld the constitutional validity of the subsidy.
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In the blitzkrieg between Vodafone and the Government, the Government’s revelation that Vodafone was made aware by it, much before the transaction, of the obligation to deduct TDS on payments to Hutchison, has sent shock-waves amongst Vodafone’s supporters. The sympathy that Vodafone garnered from its’ carefully orchestrated plea that it was an innocent buyer which got caught in the crossfire stands eroded says the author.
The battle between Vodafone and the Government is as interesting off the field as it was on the field. After Vodafone lost two times before the High Court, everyone was complacent that its appeal would be thrown out by the Supreme Court. After all, how can you make billions of dollars of profit from Indian operations and claim that you are not liable to pay any tax in India only because you routed your investments through a paper company in the Cayman Islands? However, Lord Denning rightly said that litigation is a game of chance and the Supreme Court shocked everyone by deciding in favour of Vodafone. You must “look at” and not ‘look through” the transaction, the Court thundered, sinking the hopes of everyone in the Finance Ministry who was salivating at the prospect of Rs. 12000 crores in the kitty.
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The Negative List Taxation introduced by the Finance Bill 2012 substantially reinvents the law on Service Tax and will have a deep impact on service transactions. The authors, well known experts in the field of service-tax, have meticulously studied the entire law on the subject and have explained the implications of the proposed amendments in a succinct and clear manner. A pdf copy of the Guide is available for download
The Finance Minister has proposed paradigm shift in service tax law in Union Budget, 2012. From selective approach of levy of service tax on taxable services, this years budget has shifted to negative list of services. Until this year, the service tax was payable on 117 taxable services. Now it is proposed that barring 17 services in negative list, all services will become taxable from the date to be notified upon passage of the bill. A list of exempted services is also proposed. The levy specifically provides for “declared services” and definitions of these services are given. First time after introduction of service tax in 1994, definition of the term, “service” is provided in the law. The Negative List Taxation introduced by Service Tax substantially reinvents the law on Service Tax and will have a deep impact on service transactions. The introduction of the Negative List prior to the introduction of GST leads to significant gaps in relation to generation and use of tax credits. This anomaly will doubtless add to the real indirect tax cost of transactions in India.
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