India, Mauritius agree on JWG on Double Taxation

Amid growing concerns over flow of black money into the country, India and Mauritius have agreed on convening a meeting of Joint Working group to renegotiate 28-year-old Double Taxation Avoidance Agreement (DTAA) treaty between the two countries.

This was stated by President Pratibha Patil while talking to reporters on board the special plane during her return from the five-day visit to the Island nation.

While terming her visit to this country as a success which ensured "deeper, strengthened and more diverse partnership", the President said Mauritius expects India to play an important role "which we are ready to fulfil." Listing the highlights of the visit, she said her discussions focused on a diverse range of issues covering multi-sectoral and vibrant bilateral partnership.

"While expressing satisfaction over the current state of our relations, we did feel that the already considerable and growing opportunities could be exploited particularly in the area of trade and economic cooperation.

"It was agreed to convene the next meeting of the Joint Working Group on the Double Taxation Avoidance Convention," she said.

President's comments assume significance in the backdrop of growing demand from Finance Ministry to re-negotiate the 1983 tax treaty with Mauritius so that India could have access to banking details besides tax related information.

The move was also aimed at preventing generation of black money and to stop re-routing of funds through Mauritius.

The Finance Ministry had recently asked the External Affairs Ministry to tighten the Double Taxation Avoidance Agreement (DTAA) between the two countries.

Re-negotiation includes specific provision of sharing of banking information and also an article on assistance in collection of taxes. Mauritius accounts for nearly 44 per cent of Foreign Direct Investment (FDI) into the country.

Security agencies have been raising concerns over use of the Mauritian route to pump in black money into India especially in the telecom and real estate sectors.

About her visit, the President said she had sought further consolidation and expansion of bilateral cooperation.

"I am confident that my interactions with the leadership of Mauritius will provide a greater momentum and thrust to our partnership," she said.

"We have agreed to enhance exchanges in the fields of higher education, information technology, science and technology, tourism, hospitality, culture, rural development and Ayurveda," she said.

Why You Must File Tax Returns

There is a perception among several individuals that having paid taxes via TDS (tax deducted at source), filing of returns is not important, because after all, the government's main objective is to ensure that its tax kitty is getting the revenue due to it.

This is a misconception and it is essential to know that it is our constitutional obligation to file tax returns when required to do so. So your job does not end at paying taxes, filing returns is equally important. This brings you to the question:

When does it become essential to file returns?

It is essential to file returns when your income crosses/exceeds the basic exemption limit even if it means that on account of you investment planning, your tax obligation may be nil. So for FY 2009-10, filing of tax returns is essential if Individuals have taxable income exceeding Rs 160,000 p.a. Women have taxable income exceeding Rs 190,000 p.a. Senior Citizens have taxable income exceeding Rs 240,000 p.a.

Tax evasion

Income tax authorities allow you to self-assess your income and accordingly pay taxes. Many people tend to believe that his/her income tax return is a drop in the ocean for the Income Tax authorities and hence not declaring income or understating income may well be worth because it saves you a few bucks.

Deliberately hiding your income from the Income Tax authorities, to reduce your tax liability, amounts to tax evasion.

How does the I-T department catch tax evaders?
 
Some examples of tax evasion include not declaring interest received on bank fixed deposits or accepting income in cash and not routing it through the official system.

Methodology

In order to pick up cases of likely tax evasion, the tax department uses a computer-aided scrutiny system (CASS) that picks up cases by inputting various criteria.

You may just be the unlucky one and you can come under scrutiny which is inviting trouble for yourself as you will be required to furnish all details that he asks for which could include, bank account statements, list of all assets owned by you and your family, details of all family members who reside with the you, and then the Income Tax officer will do a match analysis of income and expenditure to figure out the amount of tax evasion.

The Income Tax officer can serve the scrutiny notice within one year from the end of the month in which you have filed your return. So, if you had filed your return of income for the FY ended March 31, 2008, on July 24, 2008, you may get a notice any time on or before July 31, 2009.

The notice will be in a fixed format with your name, address, PAN and the year in which it is issued and time and date when the taxpayer should appear before the Income Tax officer.

The taxpayer need not appear personally before the officer. He can authorise a representative to plead his case.

What is the impact of tax evasion?

Impact of tax evasion

Any individual found concealing income will be charged a penalty and that amount can be anywhere up to 3 times the amount of tax evaded.

So if your tax evasion amount is Rs 50,000 and your account is under scrutiny, you may have to pay a penalty of anywhere between Rs 50,000 and Rs. 150,000 on a case to case basis.

Coming under the taxman's scanner is certainly not a pleasant experience as it can be emotionally and mentally draining.

Hence, it makes sense to comply with the Income Tax regulations and file your returns correctly. In trying to save yourself a few bucks, you don't want to be in a situation where you have the taxmen chasing you, giving you sleepless nights.

Filing returns has advantages and hence it may make sense to file returns even if you're not needed to because it is an important document that has a lot of weightage.

Fulfilling proof requirements

Income tax papers are an important document that comes in very handy when you are applying for a loan or an insurance policy or even when you're applying for a visa to travel abroad. It is a proof of your income and other important details such as PAN card, address among other things are mentioned. This will ensure quick processing thus reducing hassles.

Not having the Income tax return proof can result in difficulty especially when it is a pre- requisite for may be a loan or an insurance policy or for completion of visa formalities.

Tax refunds

On the basis of the tax return filed, refund is paid at an interest of 8% p.a. with retrospective effect from April 1 of the year.

If you have not filed your return, but TDS has been deducted in excess by your company, unless you file your income tax return, you will not get a refund and hence you may end up losing money.

Income Official scanner

Filing accurate returns saves you from the hassles of getting caught by the income tax officials

If you come under the tax official's scanner, then you may end up having to pay tax with interest on the tax amount payable and penalty too. Besides, you will also be stressed as you need to fulfill all the needs of the income tax authorities in terms of documentation.

What documents do you need while filing returns?

Documents to be kept handy for filing returns

In order to calculate your tax liability and file accurate returns, it is essential that you keep all the documents, from which data is required, handy.

The documents required include:

Form 16: This document contains information on your salary and tax deducted by your employer. You need to obtain it from your employer

Form 16 A: This you need to obtain from the parties who have deducted tax while making payments to you during the year. This includes banks/ companies with whom you have a fixed deposit, parties to whom you have given loan among others.

Copy of bank statements: This will give an idea of all the income earned and expenditure incurred. This will ensure that you have not missed out on any details which should be part of your Income Tax return.

Proof for all the deductions claimed in the return filed, i.e. PPF, NSC, mutual funds, insurance, among others.

Documents concerning investment in property: If you have bought any property during the year, you will need details. In case the property has been purchased on loan, all the loan documents, along with a copy of the certificate of the payments made, is needed.

Documents on purchase and sale of investments/assets: Keep a track of all your investments in shares, debentures or any other instrument. Record the purchase date and sale date so that you can assess the profit/loss for the purpose of filing returns.

The taxpayer is not required to submit any documents at the time of filing returns.

However, it is essential that all the above mentioned documents/information should be preserved at least for a couple of years as they may be useful to substantiate the return filed if it is picked up for scrutiny.

What about tax refunds?

All about tax refunds

Declaration of proposed investments is an activity that organisations ask their employees to do at the beginning of the financial year.

Individuals tend to treat this exercise with little thought, not realizing its impact. So often, the employer ends up deducting more TDS (tax deducted at source) than needed.

This will come to light at the time of filing your returns, warranting a tax refund.

What is a tax refund?

A tax refund is a claim by taxpayers from the Income Tax authorities, for paying taxes in excess.

When can you claim the refund?

Tax refund can be claimed within one year of the last day of the assessment year. For the Assessment Year 2010-11, tax refunds can be claimed before March 21, 2012.

How should you claim refund?

The taxpayer can claim refund at the time of filing returns. If for some reason you were not able to file for refund at the time of filing the refund, you can file a revised return of income stating the amount of refund within the specified time frame.

How do I receive my refund?

How will you receive the refund?

The refund can either come in the form of a cheque directly to the address furnished by you while filing your tax returns, or -- if details are provided pertaining to the bank account such as bank name, account number and MICR code -- the tax refund can also be directly credited to your account.

Within what time frame should you receive tax refunds and when?

Tax refunds should actually come within a year of filing returns. However, the average time taken is around two years from the date of filing returns which is a marked improvement from the earlier time frame of three years plus.

Tax refunds tend to dry up during January to March, as Income Tax authorities need to meet their tax collection targets, so post this period is when the refunds are usually received.

What should you do if you don't get your refund for over a year?

What should I do if I have not received my tax refund for over a year?

The Income Tax authority has come up with an online facility for tracking the status of your tax refund. This is currently available in six cities and is being extended nationwide, in a phased manner.

You need to log on to the NSDL website, enter your PAN and the year for which you need to get a refund to figure out your status.

Those who do not have this access yet need to follow the steps outlined below.

Write a letter to the concerned Income Tax assessing officer providing details such as the amount of refund, PAN, the AY for which the refund has not been received, the date of filing returns and the acknowledgement number that you would have received while filing returns.

Make sure you receive an acknowledgement for the letter.

In case you do not receive a response for a month, you may write to the jurisdictional Chief Commissioner of the Income Tax with a copy to the assessing Income Tax Officer pointing out that you have not received refunds and have not received any correspondence on the subject in spite of a reminder.

Enclose the copies of your earlier communication. Make sure you get an acknowledgement for the letter.

If you do not receive a response after a month of sending the above letter, you then need to take up the matter with the Income Tax ombudsman. You need to send a letter to the ombudsman giving details of the refund due to you, and enclose your correspondence with the Income Tax authorities.

In most cases, you should receive your refund without any hassle because the ombudsman is very powerful and any communication from here is binding on the Income Tax authorities. Only in complicated cases, both, the taxpayer and the assessing officer will be called for a meeting.

The taxpayer can also file an application under Right To Information Act, 2005, to find out the status and to track his tax refund.

In order to avoid finding yourself in a situation where you need to file for a tax refund, make sure you provide appropriate information to your employer in time so that he does not deduct taxes in excess of what is required.

DTC Has The Good and the Bad for the Taxpayer by Sandeep Shanbhag

The revised discussion paper on the Direct Taxes Code (DTC) released by the Central Board of Direct Taxes (CBDT) has both good as well as bad news for the taxpayer.

First the good news: Public Provident Fund (PPF) and other employee provident funds will not be subjected to the much dreaded exempt-exempt-taxed (EET) system of taxation. In other words, your PPF and company PF will continue to remain tax-free as they are now. Also, EET would be applicable only prospectively, i.e. the maturity proceeds of any investment made under the current exempt-exempt-exempt (EEE) regime would remain tax-free.

In the case of house property, the original DTC bill had proposed to discontinue the Rs 1.50 lakh interest deduction on housing loans for self-occupied property. Also, rented properties were to be taxed on actual rent or a presumptive rent of 6% of ratable value, whichever was higher. Where no ratable value was available, 6% was to be calculated on cost of acquisition. In a move that will bring cheer to all taxpayers, both these provisions are proposed to be dropped.

Now for the flip side: There is an ad-hoc deduction proposed on long-term capital gains on equity and equity mutual funds. However, this deduction comes at a steep price. First, no indexation is to be allowed on cost. Secondly, the option of adopting the value as on April 1, 2000 instead of the actual cost is also not available. Thirdly, the Securities Transaction Tax (STT) that was proposed to be dropped has been retained — the rate may be modified but the fact is that STT would indeed be payable.

Lastly, the proposed Capital Gain Savings Scheme (CGSS) will also not be introduced. The original DTC bill had a provision where capital gains form sale of assets held for over one year could be saved by investing in CGSS within a period of 60 days from the date of sale.

One can’t help but think that investors would have been better off paying a capital gains tax of 10% without indexation or 20% with indexation. At least then, they could have indexed their acquisition cost to allow for the time value of money and would also have had more options to save this tax than just investing in another property, as allowed by DTC.

Also, the original problem of doing away with the current blanket exemption limit remains to be addressed. There is a very clear and present danger that when investors wake up to the reality that the long-term capital gains tax on equity and equity MFs is scheduled to be withdrawn and going ahead there would be no tax-saving mechanism, shares would be sold en masse before the DTC becomes operational.

Such a fire sale is bound to eventually lead to a stock market crash. And since the change of law affects not only domestic retail investors but even FIIs, NRIs etc. alike, this crash could well go on to be the mother of all crashes. And since such a situation is undesirable not only for investors but even the government, any preventive measures need to be thought of from now on.

Last but not the least, the original DTC bill had proposed to impose extremely liberal tax slabs. For income between Rs 1.6 lakh and Rs 10 lakh, the tax rate was just 10%. The 20% rate was applicable for income between Rs 10 lakh and Rs 25 lakh and only those earning above Rs 25 lakh were to pay 30%. This had indeed come as a pleasant surprise and exceeded, I am sure, every taxpayer’s expectation. But sadly, when something seems too good to be true, in all probability it is.

The revised Discussion Paper cryptically states that the indicative tax slabs and rates (as well as monetary limits for exemptions and deductions) proposed in the DTC will be decided while finalising the legislation. Translated, this means that the liberal limits proposed originally are going to be significantly toned down.

As of now, just the discussion paper has been released, the Bill containing the actual fine print is awaited. Watch this space for further details.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com.

Good & bad news for the taxpayer

Restoration of the Income Tax Act

The Direct Taxes Code (DTC) seems to be going the Income Tax (IT) Act, 1961 way even before it has become law.

The Code seeks to replace the Act, which remains beyond the comprehension of most taxpayers despite more than 3,000 amendments over the 50 years that it has been in vogue.

A draft DTC was first put in the public domain in August last year. Finance minister Pranab Mukherjee had said then, “The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base. The attempt is too simplify the language to enable better comprehension… The new code is designed to provide stability in the tax regime.”

Mark the emphasis on “stability” and “moderate”. Ironically, in the revised discussion paper on DTC released recently, these two words stand compromised.

The DTC released in August had proposed a basic income-tax exemption limit of Rs 1.6 lakh for a male aged less than 65 years. For taxable income between Rs 1.6 lakh and Rs 10 lakh, the code proposed a tax rate of 10%; for income between Rs 10 lakh and Rs 25 lakh 20%; and for income of Rs 25 lakh and above 30%. This was meant to introduce stability into our tax system where the limits are decided year on year.

But these slabs have now been done away with. “The indicative tax slabs and tax rates and monetary limits for exemptions and deductions proposed in the DTC will… be calibrated while… finalising the legislation,” says the revised discussion paper on DTC.

This means income tax rate will continue to be decided year on year. Also, the income tax rates will no longer be moderate, as the finance minister had originally suggested.

The finance minister had also hoped to simplify the tax regime. As a part of that process, the distinction between various kinds of income, such as salaried income and capital gains income, had been done away with. All kinds of income would have been lumped together and taxed at the marginal rate of tax.

The distinction between short term capital gain and long term capital gain had also been done away with in line with the focus on simplification. The revised paper on DTC reintroduces this distinction and in fact makes the calculation of long term capital gain a tad more complicated.

Let us say you sell shares bought four years ago for Rs 40,000 at Rs 1 lakh. You end up making a capital gain of Rs 60,000 (Rs 1 lakh - Rs 40,000). Under the current regulations, there would be no tax on this gain. But as per the revised DTC, you will be allowed a deduction allowed on this capital gain and the remaining gain will be lumped on to your income for the year and taxed at the marginal tax rate.

The revised paper does not specify this rate of deduction. But let us say this rate is at 50%. In your case, the deduction will be Rs 30,000, while the remaining Rs 30,000 (Rs 60,000 - Rs 30,000) will added to your income for the year and taxed accordingly. If you come in the 30% tax bracket, this would mean a tax of Rs 9,000 (30% of Rs 30,000).

Then, the rate of deduction too has not been specified and would be decided year on year, as the income tax rates currently are. This complicates the tax structure and makes it unstable as well.

“The proposed scheme is therefore specially beneficial to low and middle income category of taxpayers as they are to be taxed at their applicable marginal rate of 10 percent or 20 percent after the specified deduction for computing adjusted capital gains,” says the revised discussion paper.

But then, only a small proportion of low and middle income category of taxpayers invests in the stock market or has other kind of capital gains. Given this, the change ends up catering to people from the upper strata of the society who should actually be paying tax at the top rate.

What could offer relief to the low and middle income category tax payers is the continuation of housing rent allowance deduction, which the draft DTC had done away with. However, the discussion paper is silent on this.

We've not heard the last word on tax reforms yet by Vivek Mehra

The Direct Taxes Code Bill, 2009 (DTC), which was released in August 2009 raised many concerns on minimum alternate tax (MAT), capital gains tax, residency test for foreign companies, general anti avoidance rules (GAAR), treaty override, exempt-exempt-tax (EET) scheme of taxation etc.

Industry participants, professional circles and stakeholders provided their thoughts and suggestions and after ten months, a revised discussion paper has been released.

Proposals relating to resurrection of exempt-exempt-exempt (EEE) scheme for specified contributions and abolishing presumptive basis of taxation of house property provide relief to individuals. It is also proposed that wealth tax will be levied broadly on the same lines as is being currently levied. Provisions relating to non-profit organisations have been rationalised.

To an extent, the paper addresses some of the major concern areas for corporate India, a surprise in the form of controlled foreign corporation (CFC) provisions as an anti-avoidance measure has been introduced. Passive undistributed income earned by a foreign company (controlled directly/indirectly by an Indian resident) would be taxable in India in the hands of the resident shareholders. This would have far reaching impact on corporate India’s overseas investment plans.

The changes impacting corporate India, which have been clarified in the paper, are briefly discussed below.

The revised proposals for computing MAT with reference to ‘book profits’ is definitely a welcome move. The earlier DTC proposals for computing MAT with reference to ‘value of gross assets’ faced huge outcry from stakeholders, as even loss making companies, liaisonoffices and companies under liquidation would need to pay MAT. Though the revision provides a breather for corporate India, especially capital intensive companies, there is no clarity with reference to carry forward of MAT credit or rate of MAT.

Abolishing securities transaction tax (STT), the DTC proposed a uniform rate of tax for long-term and short-term capital gains. The exemption for long-term gains on listed shares was removed, resulting in taxation at rates upto 30%. Such a paradigm shift would have caused turbulence in the capital market.

The paper now proposes to compute capital gains on shares of listed companies or units of equity-oriented funds held for more than one year after allowing deduction at specified percentages, without any indexation. STT will continue at calibrated rates.

The controversy of characterisation of income earned by foreign institutional investors (FIIs) is now settled by deeming it as capital gains. Further, FIIs would discharge their taxes by paying advance tax and TDS provisions would not apply.

Under the DTC, a foreign company with control and management even partly situated in India would be treated as an Indian resident, subject to tax on its global income.

This created a fear that, several foreign companies would be treated as resident in India, adversely impacting foreign capital inflows.

Following internationally accepted practices, it is proposed that the residency of a foreign company would be determined by its ‘place of effective management’ i.e. if key management and commercial decisions necessary for the conduct of the entity’s business are taken in India, it would be considered as an Indian resident.

Though this is a welcome move from the earlier proposal, determining the place of effective management may be challenging, resulting in a tussle with the tax authorities.

In a single stroke that would have rendered all tax treaties entered into prior to DTC redundant, the DTC proposed that in case of its conflict with tax treaty provisions, the one that was notified later would prevail. This treaty override met with heavy criticism as being against the Vienna convention’s spirit.

As a positive development, the provisions more beneficial to the taxpayer would remain applicable, subject to certain anti-abuse measures (GAAR/CFC).

Sweeping DTC proposals introducing GAAR, seemingly giving discretionary powers to tax authorities created a furore. The paper attempts to dilute this by clarifying that GAAR will cover only those cases where the arrangement, besides obtaining a tax benefit (above specified threshold limits), is not at arms length, represents misuse or abuse of the DTC provisions, lacks commercial substance or is not for bona-fide business purposes.

Till operational guidelines are issued, it is difficult to gauge the extent to which the paper dilutes GAAR.

The DTC had grandfathering provisions for special economic zone (SEZ) developers, but not for units operating in SEZs. Now it is proposed that SEZ units coming into operation before 1.4.2011 (not thereafter) will only be entitled to tax holidays. Will SEZ developers be able to sell units after 1.4.2011 if they are not entitled to tax holidays?

Looking at the broader picture, the paper attempts to resolve most concerns raised by industry participants. However, introduction of CFC rules may spoil the party. It is now once again a wait and watch as to what form the DTC finally takes.

The writer is executive director, PricewaterhouseCoopers. Views are personal.

We've not heard the last word on tax reforms yet

Don't fall prey to these tax myths by Sandeep Shanbhag

Many investors seem to be under the impression that having a permanent account number (PAN) makes it mandatory to file the tax return. The issue has especially come up ever since PAN was made compulsory for investing in mutual funds. There are many who feel that now that they have been allotted a PAN, return filing would also be a must, no matter that they don’t have any taxable income.

On the other hand, there are those, especially the salaried class, who feel that as long as their monthly take home salary has been subject to TDS, they have no further obligation as far as the taxman is concerned. In other words, they feel that since their income is already subjected to tax, there is no further action needed on their part.

Both are misconceptions. Though a taxpayer needs to have a PAN to file the tax return, the reverse is not true. And similarly, even though TDS has been deducted on one’s income, filing a tax return could be obligatory.

Basically, the rule is that if one earns an income above the basic exemption limit, it is obligatory on such a person to file his or her tax return.

For FY 09-10, the basic exemption limits are Rs 1.60 lakh, Rs 1.90 lakh and Rs 2.40 lakh for men, ladies and senior citizens, respectively. So, if your income is lower, irrespective of whether you have been allotted a PAN or not, you need not file a tax return. And if your income is higher, then irrespective of the tax deducted at source, you have to file your tax return. Note that income in this context is your gross income i.e. before claiming any deduction.

Belated return

As we all know, the last date for filing the tax return is July 31. So what happens, if for any reason, you are unable to file your return in time? Even then, there is no cause to worry as such — the law allows you to file a belated return at any time before the end of one year from the end of the relevant assessment year. In other words, if you file a return after July 31, it will be termed as a belated return and the same can be submitted anytime up to March 31, 2012.

In terms of repercussions, an interest of 1% per month will be levied on any tax due. Also, the tax official has the option of imposing a penalty of Rs 5,000 on account of the late submission. So say you are a salaried employee who has not filed his or her return in time, however, the tax due from you has already been deducted at source in the usual course. In this case, the maximum downside even for a late filing would be the Rs 5,000 penalty amount. Since the tax due from you has already been paid (by way of the TDS), there would be no liability on account of interest. Remember, interest is levied only if you owe any tax to the government.

However, there is yet another drawback of not filing the tax return in time. If you have any business loss or capital loss (short-term or long-term), the same cannot be carried forward for set-off against future income, if the tax return is not filed in time.

So all in all, it is always advisable to submit your tax return in time — however, if you cannot do so due to unavoidable circumstances, then the consequences are as detailed above.

Revised return

There is yet another concept known as ‘revised return’. As the name suggests, if you were to discover any omission or wrong treatment of any income or deduction or a wrong statement in your originally filed return, then within one year from the end of the relevant assessment year, you may file a revised return.

Therefore, just like in the case of a belated return, you have time till March 31, 2012 for filing the revised return.

In terms of a real life example, DU Desai (name changed upon request) had originally filed his return for FY 08-09 well within the time limit of July 31, 2009. However, later on, somewhere around December 2009, while making his advance tax calculations, he realised that he had erroneously claimed an amount of Rs 2 lakh as tax exempt. What he thought was the maturity amount from an equity mutual fund was in fact, interest income from an old bond investment. After paying the requisite amount of tax with interest due thereon, Desai went on to file a revised return correcting the error in the previously filed return.

Again, note that a revised return can be filed if and only if the original return has been submitted in time.

To sum

Whether you pay in time or belated, if you owe it to the government, you have to pay the tax. There is no escaping this law. Ironical, especially when you consider the fact that a fine is a tax you pay for doing something wrong whereas a tax is a fine you pay for doing something right.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com

Don't fall prey to these tax myths

BankAm gets ITAT nod to set off losses against profits

March, 12th 2009

A Mumbai Income-Tax Appellate Tribunal (ITAT) has permitted Bank of America (BankAm) to set off losses related to securities transactions against profits gained in similar deals, despite the Income Tax department and the Commissioner (Appeals) disallowing such a set-off on grounds that such deals were in contravention of the Securities Contracts (Regulation) Act (SCR Act).

The losses sought to be set off against profits in other transactions were around Rs 13 lakh. The I-T and Commissioner (Appeals) held that the losses could not be set off as the broker had acted as a principal and not an agent. Section 15 of the SCR Act mandates the consent of the client, if the broker has to act as a principal.

BankAm argued that the transactions it had carried out with the broker as a principal had all the required consent, and pointed to the existence of bills and receipts as proof of such consent, besides its oral consent. The ITAT, after examining the point in detail, held that proofs for the same were not in existence.

Therefore, the ITAT held that the transactions were illegal. But this did not prevent the ITAT from examining the appeal of BankAm for allowing the losses incurred in such “illegal” transactions to be set off. The ITAT said in line with a ruling by the Supreme Court (SC) allowing losses in a similar case where the party involved incurred losses in transactions on heroin, that principles of morality are different from the views of the law.

The ITAT quoted the SC judgement in the case of Dr TA Qureshi versus CIT. The apex court had held, “We fully agree with the High Court that the assessee was committing a highly immoral act in illegally manufacturing and selling heroin. However, cases are to be decided on legal principles and not on one’s own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out.”

In the aforesaid case, the apex court clearly stated since heroin seized was part of the stock-in-trade, it has to be allowed as business loss. The ITAT held, “In the light of the above (SC ruling), we have examined the instant case, where the assessee executed security transactions may be in violation of Section 15 of the Securities Contract Act, and the loss generated out of the said transaction, when undisputedly borne out of the books of asessee, is an allowable loss. Therefore, the said loss is eligible for set-off as claimed by the assessee.”

What exactly is Corporate Tax Planning?

I have taught Corporate Tax Planning and here we try to find out what the subject is all about. This will be of use to my readers who are interested in the subject.


Corporate tax planning happens to be an important tool of business decision making. In the broader perspective of corporate taxation, corporate tax planning is managerial decision making. Finance students would be able to understand the thin line of difference between income tax, corporate taxation and corporate tax planning. Traditionally income tax happens to be a subject which is more into computation. Right from computation of income under the different and appropriate heads of income up to computation of advance tax for the respective quarter and income tax liability for the assessment year.

But corporate tax planning is not computation. It deals with decisions, business decisions to be precise. Students who have studied income tax at an earlier stage should not have any problem. As they know the basics of computation they need to fine tune their decision making ability. Management students should bear in mind the utility of corporate tax planning in business decisions. Corporate tax planning is a big parameter of corporate decision making. It deals with business decisions after taking into account the various case laws on the matter. Additionally it also looks into the scheme and scope of tax planning as well as tax management. Tax avoidance, tax evasion and their dire consequences are important things to think about before any retrograde step is taken by any decision. Compliance of law, double taxation relief, beneficial circulars and instructions and judicial rulings are some of the other important things which comprise the study of corporate tax planning.

Though a study of all the heads of income is always desirable corporate tax planning encompasses two heads in particular viz., Profits & gains of Business or Profession and Capital Gains. Other important things include deduction of tax at source (TDS), advance tax, filing the return of income, review of unfavourable orders, documentation and maintenance of records, a brief overview of taxation of foreign companies, important case laws on tax planning under Tax evasion, other relevant cases relating to companies, planning of corporate indirect taxes (including customs, excise, modvat, octroi, sales tax, stamp duty etc. tax planning through specific strategic exercises like amalgamation and merger.