Jul 31, 2012

Due date for filing income tax return is extended to 31 August

7:07 PM
Due date for filing income tax return is extended to 31 August
Income tax department has extended the due date for filing income tax return for individual and H.U.F. Earlier the due date is 31 July which is extended to 31 August. Income tax department hasn't given any reason but the power failure may be a big reason in the north and east India for which income tax department needs to extend the due date for filing income tax return for the assessment year 2012-13. 

CBDT, in exercise of powers conferred under section 119 of the Income Tax Act, 1961, has extended the ‘due date’ of filing of returns of income for the A Y 2012-13 to 31st August 2012 in respect of assesses who are liable to file such returns by 31st July 2012 as per section 139 of IT Act, 1961.
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Relaxation from compulsory e-filing of return for assessment year 2012-13

3:23 PM
Relaxation from compulsory e-filing of return for assessment year 2012-13
Income tax department has made some relaxation in the rules of income tax. The relaxation comes with the e-filing of income tax return for the assessment year 2012-13. Income tax rule 12 says that either an individual or H.U.F, if the total income in the previous year exceeds ten lakh rupees, he needs to e-file the income tax return. But income tax made some relaxation to the representative of non resident and in case of private discretionary trusts. Income tax department issue a press release which is as under.



PRESS RELEASE
Subject: Relaxation from compulsory e-filing of return of income for assessment year 2012-13 - for representative assesses of non-residents and in the case of private discretionary trusts -reg 

Rule 12 of the Income-tax Rules, 1962 mandates that an individual or Hindu undivided family, if his or its total income or the total income in respect of which he is or it is assessable under the Act, during the previous year, exceeds ten lakh rupees, shall furnish the return electronically for the assessment year 2012-13 and subsequent assessment years. 

2. It has been brought to the notice of the Board that the agents of non-residents, within the meaning of section 160(1) (i) of the Income –tax Act, are facing difficulties in electronically furnishing the returns of non-residents. This is because there may be more than one agent of the non-resident in India for different transactions or a person in India may be an agent of more than one non-resident. Such situations are not covered by the existing e-filing software which functions on the principle of one assessee-one PAN-one return. 
   
3. It has also been brought to the notice of the Board that ‘private discretionary trusts’ having total income exceeding ten lakh rupees are facing problems in filing their return of income electronically in cases where they are filing their return in the status of an individual. This is because status of a private discretionary trust has been held in law as that of an ‘individual’. The existing e-filing software does not accept the return of a private discretionary trust in the status of an ‘individual’.  

4. Accordingly it has been decided by the Board that:  
(i)  it will not be mandatory for agents of non-residents, within the meaning of section 160(1) (i) of the Income –tax Act, if his or its total income  exceeds ten lakh rupees, to electronically furnish the return of income of non-residents for assessment year 2012-13; 

(ii)  it will not be mandatory for ‘private discretionary trusts’, if its total income exceeds ten lakh rupees, to electronically furnish the return of income for assessment year 2012-13.  
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Monetary policy of first quarter of 2012-13

3:11 PM
Monetary policy of first quarter of 2012-13
Reserve bank of India has issued monetary policy for the first quarter of 2012-13. In this policy, RBI hasn't changed any interest rate or repo rate which was expected to tab inflation. Full monetary policy is as under.



Introduction
Since the Monetary Policy Statement for 2012-13 in April 2012, macroeconomic conditions have deteriorated. Much of the global economy is in a synchronised slowdown, having lost the upward momentum seen in the early months of the year. Despite the slowing global economy, the outlook for commodity prices is uncertain. The situation in the euro area continues to cause concern even as the prospects of immediate default have been averted. While exports of emerging and developing economies (EDEs) have been dented by the weak global economic activity, capital flows into them have declined markedly because of the strains in the euro area financial market conditions.

2.  Domestically, the macroeconomic situation continues to raise concerns. While growth has slowed down significantly, inflation remains well above the comfort zone of the Reserve Bank. The large twin deficits, viz. current account deficit (CAD) and fiscal deficit, pose significant risks to macroeconomic stability. Against this backdrop of heightened global uncertainty and domestic macroeconomic pressures, the challenge for monetary policy is to maintain its priority of containing inflation and lowering inflation expectations. At the same time, monetary policy has also to be sensitive to risks to growth and financial stability.

3.  In the above context, this Statement should be read and understood together with the detailed review in Macroeconomic and Monetary Developments released yesterday by the Reserve Bank.

4. This Statement is organised in four Sections: Section I provides an overview of global and domestic macroeconomic developments. Section II sets out the outlook and projections for growth, inflation and monetary aggregates. Section III explains the stance of monetary policy. Section IV specifies the monetary and liquidity measures.
I. The State of the Economy
Global Economy
5. The global economy is slowing down. In its latest update of the World Economic Outlook (WEO), the International Monetary Fund (IMF) has revised its projection for global growth in 2012 marginally downwards to 3.5 per cent, but has emphasised further downside risks to growth. In the US, output growth decelerated to 1.5 per cent (seasonally adjusted annualised rate) in Q2 from 2.0 per cent in Q1 of 2012. In the euro area, growth was flat in Q1 after a contraction by 1.2 per cent in the previous quarter. In the UK, growth contracted by 2.8 per cent in Q2 of 2012 and 1.3 per cent in Q1. Output in Japan expanded by 4.7 per cent in Q1 after a low growth of 0.1 per cent in the previous quarter, supported by reconstruction related demand. The global manufacturing purchasing managers’ index (PMI) fell below the neutral level of 50.0 to 48.9 in June 2012 - the lowest in 3 years - suggesting contraction in manufacturing activity. The global composite (manufacturing and services) PMI at 50.3 in June 2012 suggests near stagnation.

6. The decisions by the European Commission (EC) Summit on July 2, 2012 improved market confidence, but only temporarily. Without a sustained recovery in growth or moderation in sovereign debt stress, which are highly inter-linked, fiscal and financial stability pressures in the euro area remain the most significant source of systemic global risk. In recent weeks, renewed concerns about Greece and the need for greater collective support to Spain and Italy have amplified these risks. Consequently, the potential for negative spillovers to the euro area core countries and to the rest of the world have also increased.

7. Importantly, risks to global growth, which stem from persistent weakness in advanced economies, have increased with EDEs also exhibiting moderation in growth. Among the BRICS countries, growth in China fell from 8.1 per cent in Q1 of 2012 to 7.6 per cent in Q2. Growth also moderated significantly in Brazil and South Africa in Q1. According to the IMF, growth in a number of major EDEs turned out to be lower than forecast by it earlier.

8. Inflationary pressures softened across advanced and emerging economies, reflecting both weaker growth prospects and moderation in commodity prices. International (Brent) crude oil prices declined from an average of about US$ 125 per barrel in March 2012 to an average of about US$ 95 per barrel in June 2012. In July, however, the average price increased to above US$ 100 per barrel. In advanced economies, spare capacity in both product and labour markets limits risks to core inflation. Among the BRICS countries, inflation fell significantly in China and Russia. It also eased in Brazil and South Africa. Even as growth in India is slowing, it is clearly an outlier insofar as inflation is concerned.

Domestic Economy
9. Gross Domestic Product (GDP) growth decelerated over four successive quarters from 9.2 per cent in Q4 of 2010-11 to 5.3 per cent in Q4 of 2011-12. Significant slowdown in industrial growth as well as deceleration in services sector activity pulled down the overall GDP growth to 6.5 per cent for 2011-12, below the Reserve Bank’s baseline projection of 7 per cent.

10. On the expenditure side, significant weakness in investment activity was the main cause of the slowdown. Gross fixed capital formation, which grew by 14.7 per cent in Q1 of 2011-12, moderated to 5.0 per cent in Q2 and then contracted by 0.3 per cent in Q3 before recovering to a growth of 3.6 per cent in Q4. Growth in private consumption also decelerated in 2011-12, even as it remained the key driver of growth. The positive impact of the rupee depreciation on exports is yet to be seen.

11.  Growth in the index of industrial production (IIP) decelerated from 8.2 per cent in 2010-11 to 2.9 per cent in 2011-12. Further, IIP growth during April-May 2012, at 0.8 per cent, was significantly lower than the expansion of 5.7 per cent registered in the corresponding period of last year. The PMI rose marginally to 55.0 in June 2012 from 54.8 in May. The composite (manufacturing and services) PMI also rose to 55.7 in June from 55.3 in May.

12.  During the ongoing monsoon season, rainfall up to July 25, 2012 was 22 per cent below its long period average (LPA). The Reserve Bank’s production weighted rainfall index (PWRI) showed an even higher deficit of 24 per cent. Further, the distribution of rainfall was very uneven, with the North-West region registering the highest deficit of about 39 per cent of LPA. If the rainfall deficiency persists, agricultural production could be adversely impacted.

13.  Capacity utilisation levels in Q4 of 2011-12 as reflected in the results of the Reserve Bank’s order book, inventories and capacity utilisation survey (OBICUS) revealed the usual seasonal improvement over the previous quarter. However, lead information from the Reserve Bank’s industrial outlook survey (IOS) indicates that capacity utilisation dropped in Q1 and Q2 of 2012-13. Moreover, overall business sentiment also moderated in both the quarters.

14.  Headline Wholesale Price Index (WPI) inflation increased from 7.5 per cent in April to 7.6 per cent in May before moderating to 7.3 per cent in June 2012. The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during Q1 of 2012-13 due to an unusual spike in vegetable prices and sustained high inflation in protein items.

15. Fuel group inflation moderated from 12.1 per cent in April 2012 to 11.5 per cent in May and further to 10.3 per cent in June on account of decrease in non-administered fuel prices, which in turn was due to decline in global crude oil prices. However, the reversal in crude oil prices in recent weeks may add to domestic inflationary pressure.

16. Non-food manufactured products inflation was at 4.8 per cent in May and June 2012. The momentum indicator of non-food manufactured products inflation (seasonally adjusted 3-month moving average annualised inflation rate), however, showed an upturn. Moreover, input price pressures persist due to both exchange rate movements and supply side constraints. Going forward, further pressure on non-food manufactured products inflation cannot be ruled out.

17. The Consumer Price Index (CPI new series) inflation remained in double-digits in Q1 of 2012-13, driven by both food and non-food prices. The divergence between WPI and CPI inflation was on account of two factors. First, there are differences in the composition and weights of commodities, especially of food items in the two indices. Second, even in respect of similar items, inflation was higher in CPI than in WPI, suggesting that besides the incidence of higher service taxes, moderation in non-food manufactured products prices has not yet been transmitted to the retail level. The rate of increase in the prices of services, which is included in CPI but not in WPI, was also high.

18.  Among other factors, urban households’ inflation expectations, as per the latest survey conducted by the Reserve Bank, increased slightly in Q1 of 2012-13 after a decline in the previous quarter. Notwithstanding some moderation, wage inflation in rural and urban areas remains relatively high.

19. An analysis of corporate performance in 2011-12, based on a common sample of 2,273 non-government non-financial companies, indicates that the sales growth remained positive for the year even after adjusting for inflation. However, earnings decelerated due to an increase in expenditure, indicating decline in pricing power. Early results for Q1 of 2012-13 suggest that pricing power remained subdued.

20.  While the money supply (M3) growth, at 14.3 per cent in mid-July, was marginally lower than the indicative trajectory of 15 per cent, non-food credit growth at 17.4 per cent was slightly above the indicative projection of 17 per cent. If we include banks’ investment in commercial paper and other instruments, non-food credit growth was even higher at 17.7 per cent.

21. The flow of resources to the commercial sector, from both bank and non-bank sources, increased to `1.9 trillion in 2012-13 so far (up to July 13, 2012) as compared with `1.4 trillion during the corresponding period of last year. Amongst non-bank sources, resources raised through commercial paper increased significantly.

22. Following the reduction in the repo rate in April, several commercial banks reduced their lending rates. The modal base rate of  scheduled commercial banks (SCBs) declined by 25 bps to 10.50 per cent during April-June 2012. Significantly, on the basis of the weighted average lending rate (WALR) of commercial banks, adjusted for inflation, real rates are now lower than they were during the high growth five-year period of 2003-08. Banks’ actions on deposit rates, however, were muted due to the slowdown in deposit growth.

23. Liquidity conditions have eased considerably since the April Policy. The average daily net borrowing under the liquidity adjustment facility (LAF), which was 2.2 per cent of average net demand and time liabilities (NDTL) in Q4 of 2011-12, declined sharply to 1.3 per cent in Q1 of 2012-13 and further to 0.7 per cent in July 2012 (up to July 26, 2012). The turnaround in liquidity conditions was due to a decline in government cash balances with the Reserve Bank, injection of liquidity of about `860 billion by way of open market operation (OMO) purchases of securities and increased use of the export credit refinance facility by banks after the increase in the limit effected in the June Mid-Quarter Review. Reflecting the improvement in the liquidity situation, the weighted average call money rate, which is the operating target of the Reserve Bank, stayed close to the policy repo rate.

24. During Q1 of 2012-13, yields on government securities softened reflecting an improvement in liquidity, moderation in inflation and concerns about weakening of domestic and global growth. The 10-year benchmark yield was significantly lower at 8.11 per cent on July 26, 2012 as compared with 8.63 per cent at end-March 2012.

25. Housing prices continued to rise despite the decline in volume of transactions. The Reserve Bank’s quarterly housing price index suggests that prices increased in Q4 of 2011-12 in most of the 9 cities for which the index is compiled.

26.  During April-May 2012, while food subsidies were lower, fertiliser subsidies were more than twice the previous year’s level. Clearly, if the target of restricting the expenditure on subsidies to under 2 per cent of GDP in 2012-13, as set out in the Union Budget, is to be achieved, immediate action on fuel and fertiliser subsidies will be required.

27. In 2011-12, the CAD rose to US$ 78 billion (4.2 per cent of GDP) from US$ 46 billion (2.7 per cent of GDP) in the previous year, largely reflecting a higher trade deficit on account of subdued external demand and relatively inelastic imports of petroleum, oil and lubricants (POL) as well as gold and silver. As capital inflows fell short of the CAD, there was a net drawdown of reserves (on a BoP basis) to the extent of US$ 13 billion in contrast to a net accretion to reserves of more or less of the same order in the previous year.

28.  Reflecting the fragile global situation, India’s merchandise exports declined by 1.7 per cent to US$ 75 billion during Q1 of 2012-13. However, imports declined even more sharply, by 6.1 per cent, to US$ 115 billions led by a decline in imports of non-oil non-gold commodities. As a result, the trade deficit was lower at US$ 40 billion in Q1 of 2012-13 as compared with US$ 46 billion in the corresponding period of the previous year. Based on preliminary data, services exports rose moderately by 3 per cent to US$ 35 billion, while services imports surged by 19 per cent to US$ 21 billion in Q1. Accordingly, net services exports of US$ 14 billion in Q1 of 2012-13 were lower by 12 per cent as compared with Q1 of 2011-12.

29.  During 2012-13 so far (July 20, 2012), the 6-, 30- and 36-currency trade weighted real effective exchange rates (REER) depreciated in the range of 7-10 per cent, primarily reflecting the nominal depreciation of the rupee against the US dollar by around 9 per cent. The depreciation was mainly on account of the slowdown in capital inflows, the large current account deficit, domestic economic uncertainty and growing apprehensions about the euro area problem.

30. Exchange rate depreciation in Q1 of 2012-13 was not specific to India; most EDE currencies also depreciated. However, among the EDEs with large current account deficits, the depreciation of the Indian rupee was relatively large, reflecting moderation in capital inflows.

II. Domestic Outlook and Projections
Growth
31. In the April Policy, the Reserve Bank had projected GDP growth for 2012-13 at 7.3 per cent on the assumption of a normal monsoon and improvement in industrial activity. Both theses assumptions did not hold. The monsoon has been deficient and uneven so far. Also, data on industrial production for April-May suggest that industrial activity, despite some recovery, remains weak. In addition, several risks to domestic growth have intensified. First, global growth and trade volume are now expected to be lower than projected earlier. Given the greater integration of the Indian economy with the global economy, this will have an adverse impact on growth, particularly in industry and the services sector. However, the lagged impact of depreciation of the exchange rate could partly offset this. The impending “fiscal cliff” in the US in 2013, when temporary tax concessions expire and automatic spending cuts take effect, also entails additional risks to the growth outlook. Second, reflecting the lagged impact of weak industrial activity and global slowdown, the services sector growth is also expected to slow down. On the basis of the above considerations, the growth projection for 2012-13 is revised downwards from 7.3 per cent to 6.5 per cent (Chart 1).
Inflation
32.  In the April Policy, the Reserve Bank made a baseline projection of WPI inflation for March 2013 of 6.5 per cent. This was based, in part, on an assumption of normal monsoon. The deficient and uneven monsoon performance so far will have an adverse impact on food inflation. Notwithstanding some moderation, international crude oil prices remain elevated. This, coupled with the pass-through of rupee depreciation to import prices, continues to put upward pressure on domestic fuel price inflation. In addition, with the adjustment of domestic prices of petroleum products to international price changes still incomplete, embedded risks of suppressed inflation could also impact fuel prices in India going forward. The decline in non-food manufactured products inflation has not been commensurate with the moderation in growth. Input price pressures on account of exchange rate movements and infrastructural bottlenecks in coal, minerals and power may exert upside pressure on non-food manufactured products inflation.

33. Keeping in view the recent trends in food inflation, trends in global commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2013 is now raised from 6.5 per cent, as set out in the April Policy, to 7.0 per cent (Chart 2).
34. Although inflation has remained persistently high over the past two years, it averaged around 5.5 per cent during the 2000s, both in terms of WPI and CPI, down from its earlier trend rate of about 7.5 per cent. Given this record, the conduct of monetary policy will continue to condition and contain perception of inflation in the range of 4.0-4.5 per cent. This is in line with the medium-term objective of 3.0 per cent inflation consistent with India’s broader integration into the global economy.

Monetary Aggregates
35. With nominal growth remaining broadly at the level envisaged in the April Policy, monetary aggregates are expected to move along the trajectories projected in the Monetary Policy Statement 2012-13. Accordingly, M3 growth projection for 2012-13 has been retained at 15 per cent and the growth in non-food credit of SCBs at 17 per cent. As always, these numbers are indicative projections and not targets.

Risk Factors
36.  The projections of growth and inflation for 2012-13 are subject to a number of risks as indicated below:
i) External risks to the outlook for the Indian economy are intensifying. Adverse feedback loops between sovereign and financial market stress in the euro area are resulting in increased risk aversion, financial market volatility, and perverse movements in capital flows. With the deteriorating macroeconomic situation in the euro area interacting with a loss of growth momentum in the US and in EDEs, the risks of potentially large negative spillovers have increased. India’s growth prospects too will be hurt by this.

ii)  Reflecting the setback to the global recovery as also weather-related adversities in several parts of the world, the outlook for food and commodity prices, especially crude oil, has turned uncertain. These developments have adverse implications for domestic growth and inflation.

iii) While inflation in protein items remains elevated due to structural demand supply imbalances, additional risks to food inflation have emerged from the deficient and uneven monsoon. This has the potential of aggravating inflation and inflation expectations.

iv) At current levels of the CAD and the fiscal deficit, the Indian economy faces the “twin deficit” risk. Financing the latter from domestic saving crowds out private investment, thus lowering growth prospects. This, in turn, deters capital inflows, making it more difficult to finance the former. Failure to narrow twin deficits with appropriate policy actions threatens both macroeconomic stability and growth sustainability.

III. The Policy Stance
37. Keeping in view the slowdown in growth, the Reserve Bank front-loaded the policy rate reduction in April with a cut of 50 basis points. Subsequent developments suggested that even as growth moderated, inflation remained sticky. Keeping in view the heightening risks to inflation, the Reserve Bank decided to pause in the Mid-Quarter Review (MQR) of June 2012, even in the face of slowing growth.

38. Against the backdrop of global and domestic macroeconomic conditions, outlook and risks, the policy stance in this review is shaped by three major considerations.

39.  First, after moderating for a short period during December-January, headline WPI inflation edged up again beginning February 2012 and has remained sticky, above 7 per cent, on account of increase in food prices, increase in input costs, and upward revision in prices of some administered items such as coal. Headline inflation has persisted even as demand has moderated and the pricing power of corporates weakened. Non-food manufactured products inflation has also not declined to the extent warranted by the growth moderation. This reflects severe supply constraints and entrenchment of inflation expectations.

40. Second, growth decelerated significantly to 6.5 per cent in 2011-12. Although more recent data suggest some pick up, overall economic activity remains subdued. Importantly, the current growth performance has to be seen in reference to the trend rate of growth in order to assess its inflationary implications. In this context, investment activity has remained subdued over the last two years. External demand has also remained weak due to the slowdown in global growth. Consequently, the post crisis trend rate of growth, which was earlier estimated at 8.0 per cent, has dropped to 7.5 per cent. While the current rate of growth is clearly lower than trend, the output gap will remain relatively small. Under these conditions, demand pressures on inflation can re-emerge quite quickly, exacerbating the existing supply pressures.

41.  Third, liquidity conditions play an important role in the transmission of monetary policy signals. Although the situation has eased significantly in the recent period, it is necessary to ensure that liquidity pressures do not constrain the flow of credit to productive sectors of the economy.

42.  Against this backdrop, the stance of monetary policy is intended to:
  • contain inflation and anchor inflation expectations;
  • support a sustainable growth path over the medium-term; and
  • continue to provide liquidity to facilitate credit availability to productive sectors.
IV. Monetary and Liquidity Measures
43. On the basis of the current assessment and in line with the policy stance outlined in Section III, the Reserve Bank announces the following policy measures.

Repo Rate
44. It has been decided to retain the repo rate under the liquidity adjustment facility (LAF) at 8.0 per cent.

Reverse Repo Rate
45. The reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, stands at 7.0 per cent.

Marginal Standing Facility (MSF) Rate
46. The MSF rate, determined with a spread of 100 basis points above the repo rate, stands at 9.0 per cent.

Bank Rate
47. The Bank Rate stands at 9.0 per cent.

Cash Reserve Ratio
48. The cash reserve ratio (CRR) of scheduled banks  has been retained at 4.75 per cent of their net demand and time liabilities (NDTL).

Statutory Liquidity Ratio
49. It has been decided to:
  • reduce the statutory liquidity ratio (SLR) of scheduled commercial banks from 24.0 per cent to 23.0 per cent of their NDTL with effect from the fortnight beginning August 11, 2012.
Guidance
50. The primary focus of monetary policy remains inflation control in order to secure a sustainable growth path over the medium-term. While monetary actions over the past two years may have contributed to the growth slowdown – an unavoidable consequence – several other factors have played a significant role. In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth. As the multiple constraints to growth are addressed, the Reserve Bank will stand ready to act appropriately.

51. Meanwhile, managing liquidity within the comfort zone remains an objective and the Reserve Bank will respond to liquidity pressures, including by way of OMOs.

52. In a turbulent global environment, the risks of external shocks are high and the Reserve Bank stands ready to respond to any such shocks swiftly, using all available instruments.

Expected Outcomes
53. The policy actions taken are expected to:
  • anchor inflation expectations based on the commitment of monetary policy to inflation control; and
  • maintain liquidity to facilitate smooth flow of credit to productive sectors to support growth.
Mid-Quarter Review of Monetary Policy 2012-13
54. The next Mid-Quarter Review of Monetary Policy for 2012-13 will be put out through a press release on Monday, September 17, 2012.

Second Quarter Review of Monetary Policy 2012-13
55. The Second Quarter Review of Monetary Policy for 2012-13 is scheduled for Tuesday, October 30, 2012
Mumbai
July 31, 2012

Jul 30, 2012

Interest accrued but not due is not taxable in income tax

4:08 PM
Interest accrued but not due is not taxable in income tax

Facts
• The respondent-bank incorporated in and tax resident of Cyprus was, at the relevant time, registered in India with SEBI as an approved sub-account of Credit Suisse First Boston, a Foreign Institutional Investor (FII). SEBI had permitted the respondent to invest in India exclusively in debt-securities, including Government securities.

• The respondent followed the mercantile system of accounting.

• AO taxed Rs.1,21,57,517/- as interest accrued though not due on securities held by the respondent as on 31st March, 2007, being the last date of the financial year. The respondent contended that the same had not accrued to it as under the Government securities, the interest was not due on 31st March, 2007.

• The AO held Rs.40,53,62,518/-, being gains in transactions of Government debt-securities to be interest within the meaning of that term in Article 11(4) of the Indo-Cyprus DTAA and liable, therefore, to tax in India. The respondent contended that the income from sale of these securities constituted capital gains which falls within Article 14(4) and is, therefore, exempt from tax in India.

• CIT(A) allowed assessee's appeal and deleted the additions. ITAT upheld CIT(A)'s order. Hence, the present appeal filed to the High Court.

Held
• When an instrument or an agreement stipulates interest to be payable at a specified date, interest does not accrue to the holder thereof on any date prior thereto. Interest would accrue or arise only on the date specified in the instrument. That a creditor has a vested right to receive interest on a stated date in future does not constitute an accrual of the interest to him on any prior date.

• Whatever be the connotation of the term accruing in general parlance, for the purpose of the Income Tax Act, interest does not accrue during such periods to the creditor/assessee. For want of a better term, it may be said that during such periods interest keeps mounting or if we may use the expression interest keeps ticking.

• The assignee or purchaser of such a security does not stand on a different footing. He has, by virtue of the assignment or purchase, the right vested in him to receive the interest but only on the terms of the security and subject to all the incidents thereof as were applicable to the original owner.

• It cannot be contended that the difference between sales price of securities and their face value is necessarily the broken period interest. The securities or agreements do not regulate the price at which the holder is to sell the same to a third party. The holder is at liberty to sell the same at any price. The interest component for the broken period i.e. the period prior to the due date for interest is only one of the factors that may determine the sale price of the security. There are a myriad other factors, both personal as well as market driven, that can be and, in fact, are bound to be taken into consideration in such transactions.

• The appellant's (Revenue's) contention is also based on the erroneous presumption that what is paid for is the face value of the security and the interest to be paid for the broken period from the last date of payment of interest till the date of purchase. What, in fact, is purchased is the possibility of recovering interest on the date stipulated in the security. It is not unknown for issuers of securities, debentures and bonds, to default in payment of interest as well as the principal. The purchaser therefore hopes that on the due date he will receive the interest and the principal. The purchaser therefore, purchases merely the possibility of recovery of such interest and not the interest per se. It would be pointless to even suggest that in the case of Government securities, the possibility of a default cannot arise. The interpretation of law does not depend upon the solvency of the debtor or the degree of probability of the debts being discharged. There is nothing in the Act or in the DTAA that warrants the position in law being determined on the basis of such factors viz. the degree of probability of the particular issuer of the security, bond or debenture or such instruments, honouring the same. - [2012] 23 taxmann.com 424 (Bombay)
Tags-interest income tax rule,income tax rule on interest income,tds on interest,interest accrued income tax rule,income tax rule on interest accrued

Jul 29, 2012

Service tax on staff benefits and employment related transactions

4:40 PM
Service tax on staff benefits and employment related transactions
Service tax on manpower is not on negative list of the service tax but there is always confusion about some services in which service tax is applicable. Service tax department issue a notification about service tax on staff benefits and employment related services. Service tax issue circular  number 354 dated 27-07-2012. Full service tax circular is as follows.


Subsequent to the operationlisation of the Negative List, a number of issues have been raised in relation to the manpower supply or the services provided by the directors of a company or by the employer to the employees. These issues have been examined and are proposed to be clarified as follows:

A. Scope of manpower supply
2. After the operationlisation of the Negative List, the erstwhile definition of the manpower recruitment or supply agency is no more applicable. Thus, the words manpower supply would have to be given their natural meaning. The manpower supply is understood to mean when one person provides another person with the use of one or more individuals who are contractually employed or otherwise engaged by the first person. The essence of the employment should be that the individuals should be employed by the provider of the service and not by the recipient of the service.

3. There could be certain contracts in which such manpower is made available to execute another independent contract by the service provider. For example, a person may agree to carry out construction or a manufacture for another in which certain manpower may be engaged. As long as such manpower is not placed operationally under the superintendence or control of the recipient, it shall not be a case of manpower supply, though it will continue to be judged independently whether it comprises any other taxable service.

4. There are also cases of secondment whereby certain staff belonging to an organization is placed at the disposal of a subsidiary company or any other associate company. Such cases will be covered by the definition of manpower supply as the contractual employment continues to be with the parent company.

B. Joint Employment
5. There can also be cases where staff is employed by one or more employers who normally share the cost of such employment. The services provided by such employee will be covered by the exclusion provided in the definition of service. However, if the staff has been engaged by one employer and only made available to other for a consideration, it shall not be a case of joint employment.

6. Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later recouped from the other employers on an agreed bass on actuals. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement.

C. Directors
7. Services of a director on the board of a company have now become taxable. A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such an entity and not by the individual director. Thus in the case of Govt. nominees, the services shall be deemed to be provided by the Govt. and liable to be taxed under the exclusion sub- (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis.

D. Treatment of supplies made by the employer to employees
8. A number of activities are carried out by the employers for the employees for a consideration. Such activities fall within the definition of "service" and are liable to be taxed unless specified in the Negative List or otherwise exempted.

9. One of the ingredients for the taxation is that such activity should be provided for consideration. Where the employees pays for such services or where the amount is deducted from the salary, there does not seem to be any doubt. However, in certain situations, such services may be provided against a portion of the salary foregone by the employee. Such activities will also be considered as having been made for a consideration and thus liable to tax. Cenvat credit for inputs and input services used to provide such services will be eligible under extant rules. The said goods or services would now not be construed to be for personal use or consumption of an employee per se and rather shall be a constituent to the taxable service provided to an employee. The status of the employee would be as a service recipient rather than as a mere employee when consuming such output service. The valuation of the service so provided by the employer to the employee shall be determined as per the extant rules in this regard.

10. However, any activity available to all the employees free of charge without any reduction from the emoluments shall not be considered as an activity for consideration and will thus remain outside the purview of the service tax liability (facilities like crèche, gymnasium or a health club which all employees may use without any charge or reduction from the salary will be outside the tax net). However the Cenvat credit for such inputs and input services will be guided by the extant rules.

11. Moreover, it would need to be seen whether the services provided by the employer are otherwise covered by the Negative List or exempt. For example, the services of food and catering provided by the employer in a canteen would normally fall outside the tax net unless such canteen has both the facility of air-conditioning as well as license to serve liquor (S. No. 19 of the Mega exemption). Likewise, services provided by way of guest house will also not be liable to tax if the tariff for such unit of accommodation is below Rs.1000 per day or equivalent (S. No. 18 of the Mega exemption). Similarly, services of telephone and motorcar for personal use will be covered by the service tax.

E. Treatment of reimbursements made by the employer to the employee
12. Provision of service by an employee to the employer in the course of or in relation to his employment is excluded from the definition of the "service". Thus reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a "service" per se and hence are non-taxable.

F. Treatment of supplies and reimbursements made by the employer to ex-employees/ pensioners
13. The supplies made by the employer to the ex-employees or pensioners will be of same status as those to an employee and thus would accordingly attract taxability as per discussion in D above. The reimbursements to pensioners will also be treated at par with those of current employees when such reimbursements arise out of the initial employment contract or are in relation to that employment.

14. Chambers, trade, industry and field formations are requested to go through the draft Circular and offer their comments, views and suggestions. It is requested that comments, views and suggestions on the same may be forwarded to the undersigned on or before 24th August 2012. The same may also be emailed to shobhit.jain@nic.in
Tags-service tax on staff members,service tax on employment services,service tax rules

How to make application to public issue of debt securities

4:24 PM
How to make application to public issue of debt securities

1. Regulation 10 of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (the "SEBI Debt Regulations") provides that:
"An issuer proposing to issue debt securities to the public through the on-line system of the designated stock exchange shall comply with the relevant applicable requirements as may be specified by the Board."

2. Regulation 31(2) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 provides that:-
"In particular, and without prejudice to the generality of the foregoing power and provisions of these regulations, such orders or circulars may provide for all or any of the following matters, namely:
Electronic issuances and other issue procedures including the procedure for price discovery…."

3. In view of the above, in order to facilitate a system for making online applications for public issue of debt securities and to reduce the timelines of the issue process for public issue of debt securities, it has been decided to:
 a.  Extend ASBA facility to public issues of debt securities; and
 b.  Provide option for subscribing to debt securities through an online internet interface with a facility to make online payment.
 c.  Apply the timelines for the issue process as provided in SEBI Circular CIR/CFD/DIL/1/2011 dated April 29, 2011 or as notified by SEBI from time to time.

4. The detailed procedure for providing the above facilities is laid out in Annexure to this circular. The circular shall be applicable with immediate subject to putting in place necessary systems and infrastructure by the stock exchanges.

5. Recognized Stock Exchanges are directed to:
 a.  Comply with the conditions laid down in this circular.
 b.  Put in place necessary systems and infrastructure for implementation of this circular.
 c.  Make consequential changes, if any, to the bye-laws of the Exchange as may be applicable and necessary.
 d.  Communicate to member brokers/sub-brokers and create awareness amongst them about their roles and responsibilities in such issues.

6. Depositories, Merchant Bankers and Registrars are directed to:
 a.  Comply with the conditions laid down in this circular.
 b.  Put in place necessary systems and infrastructure for implementation of this circular.
 c.  Create awareness among issuers and investors about the various modes available for making applications.

7. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 31(2) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

8. This circular is available on SEBI website at www.sebi.gov.in under the category "Legal Framework" and under the drop down "Corp Debt Market".
ANNEXURE
1. Method of Application: Issuers shall provide the following options for making application to public issues of debt securities:
1.1. Direct Applications by using online interface to be provided by Stock Exchanges with Online Payment Facility
1.2. Applications through Lead Managers/Syndicate Members/Sub Syndicate Members/Trading Member of stock exchange(s) using ASBA facility
1.3. Applications through Banks using ASBA facility
1.4. Application through Lead Manager/Syndicate Member/Sub Syndicate Member/Trading Member of stock exchange(s) without use of ASBA facility.
1.5. Application through Lead Manager/Syndicate Member/Sub Syndicate Member/Trading Member of stock exchange(s) for applicants who intend to hold debt securities in physical form.

2. Procedure: The procedure to be followed for the above options shall be as detailed below:
2.1. Direct Applications by using online interface through stock exchange(s with Online Payment Facility
2.1.1. Issuer shall provide, through a recognized stock exchange which offers such facility, an online interface enabling direct application by investors to the public issue.
2.1.2. The online interface shall provide an online payment facility and ensure compliance with the requirements as specified in this section.
2.1.3. Only investors with demat account shall be permitted to make an application using the online interface.
2.1.4. The investor shall be required to log on to the stock exchange platform and provide requisite information as per the application form.
2.1.5. For compliance with KYC requirements, the interface shall rely on the Depository Participant ID, Beneficiary Owner Account No which shall be validated online from the Depositories.
2.1.6. The investor shall make payment for the debt securities through the payment gateway provided by the online interface. The exchange shall arrange to send SMS/email confirmation regarding receipt of funds to the investor.
2.1.7. On successful submission of the application form, a unique acknowledgement number shall be generated.
2.1.8. Investors shall be able to cancel their application based upon the unique acknowledgement number. This unique acknowledgement number shall be quoted by the applicant for their grievances, if any.
2.1.9. All online payments shall be routed to the Escrow Account of the issuer.
2.1.10. Upon allotment, the Registrar shall credit securities to the demat account of the applicant and in case of refund, the refund amount shall be credited directly to the investor's bank account.
2.1.11. Optional facility may be provided to the applicant for selecting broker name and broker code, if any, of the broker who referred the issue to the applicant.
2.1.12. As the application shall be made online, there shall no movement of any document from the Stock Exchange(s) to the Registrar.

2.2. Applications through Lead Manager/Syndicate Member/Sub Syndicate Member/Trading Member of stock exchange(s) using ASBA facility and Applications through Banks using ASBA facility
2.2.1. Issuers shall offer ASBA mechanism as an alternative method for making an application for public issue of debt securities. However, it shall not be compulsory to make application through ASBA.
2.2.2. In respect of ASBA applications, all existing rules, regulations and procedures as notified by SEBI from time to time shall be followed.
2.2.3. In addition, application for debt securities using ASBA facility may also be offered by Trading Member(s) of Stock Exchange(s) who are not empanelled as Syndicate/Sub-syndicate Members. All rules, regulations and procedures applicable to Lead Manager/Syndicate/Sub syndicate members shall mutatis mutandis be applicable to such Trading Member(s) of Stock Exchange(s).

2.3. Applications through Lead Manager/Syndicate/Sub Syndicate Member/Trading Member through Collecting Banks without using ASBA facility
2.3.1. Facility for making online applications through Lead Manager/Syndicate/Sub-syndicate Member/Trading Member using normal cheque payment method shall also be available.
2.3.2. Only investors with demat account shall be permitted to make such applications.
2.3.3. For such applications, the Lead Manager/Syndicate/Sub-syndicate Member/Trading Member shall upload details of applications on the online platform of the stock exchanges.
2.3.4. Lead Manager/Syndicate/Sub-syndicate Member/Trading Member shall also download the forms from stock exchanges platforms or use physical application forms and submit these forms along with cheques/drafts/payment instrument to the Collecting Banks.
2.3.5. The Collecting Banks shall realize the payments for these applications in the Escrow Account of the issuer and shall give details of the same to the Registrar. These application forms shall be forwarded to Registrar for procurement analysis and resolution of investor grievances as per procedure followed in equity securities issuances.
2.3.6. The Registrar shall match the application details captured in the electronic book as obtained from the stock exchanges and the payment received for the purpose of allotment and reconciliations of funds received.
2.3.7. The Registrar shall credit the securities in the demat account of successful allottees.
2.3.8. The Registrar shall give refund amount or excess application amount to the investor directly as per bank account details provided in the demat account of the applicant.

2.4. Applications for allotment in physical form through Lead Manager/Syndicate/Sub Syndicate Member or Trading Member
2.4.1. Issuer may also provide facility for making applications in physical form for investors who do not have demat accounts.
2.4.2. For allotment in physical mode, the applicant shall required to comply with KYC norms specified by SEBI by submitting documents for identity and address proof.
2.4.3. Such applications shall be collected by the Lead Manager, Syndicate/Sub Syndicate member or Trading member who shall
2.4.3.1. verify and check required KYC documents submitted by the investor along with the application
2.4.3.2. upload application details required for allotment on the stock exchange platform.
2.4.3.3. provide acknowledgment of the application to the investor.
2.4.4. The application along with payment instrument favoring the Escrow Account of the issuer shall be submitted by the Lead Manager, Syndicate/Sub Syndicate member or Trading member to the Collecting Bank.
2.4.5. The Collecting Bank shall realize the payment instrument and shall send details of such applications forms, along with KYC documents to the Registrar.
2.4.6. The Registrar shall match the application details with the application details received from Stock Exchanges, and carry out necessary checks and validations and reconciliation of funds received from the Collecting Banks.
2.4.7. The Registrar shall dispatch the physical certificate to the applicant as per address provided in the application. In case KYC documents are not proper, Registrar shall hold back physical certificate pending receipt of complete KYC documents from investor.
2.4.8. The Registrar shall send the refund amount or excess application amount to the applicant as per the bank account details provided in the application.

3. Roles and Responsibilities: While providing the options for making applications as detailed above, the obligations and responsibilities of various intermediaries shall be as under:

3.1. Issuer
3.1.1. The issuer shall use an on-line platform provided by stock exchange(s) for receiving applications in public issue of debt securities.
3.1.2. For this purpose, the issuer shall enter into an agreement with the stock exchange(s) which offer such system.
3.1.3. The agreement shall specify inter-alia, the inter se rights, duties, responsibilities and obligations of the issuer and stock exchange(s).
3.1.4. The agreement shall also provide for a dispute resolution mechanism between the issuer and the stock exchange(s).
3.1.5. The issuer shall maintain a single escrow account for collecting application money through all the methods.

3.2. Registrar
3.2.1. The registrar shall have an online or system driven interface with the Stock Exchange platform to get updated information pertaining to issues.
3.2.2. The Registrar shall collect aggregate applications details from the stock exchanges platform to decide the eligible applications and process the allotment as per applicable SEBI Regulations.
3.2.3. Where the issuer has signed agreements with multiple stock-exchanges, the Registrar shall ensure that the allotment is done on date time priority.
3.2.4. An application without valid application amount shall be treated as invalid application by the Registrar.
3.2.5. The Registrar shall credit securities/dispatch certificates to all valid allottees
3.2.6. The Registrar shall ensure refund of application amount or excess application amount in the bank account of the applicant as stated in its demat account.

3.3. Stock Exchange
3.3.1. Stock Exchanges shall provide a platform for making applications through
3.3.1.1. Syndicate Member/Sub Syndicate Member/Trading Member of stock exchange(s)
3.3.1.2. Web-enabled direct applications from investors with Online Payment Facility
3.3.2. The on-line web enabled platform shall provide
3.3.2.1. all appropriate fields, required for public issue of debt securities, as per SEBI Cir No. IMD/DF-1/19/2012 dated July 25, 2012.
3.3.2.2. issue opening/closing date.
3.3.2.3. facility for generation of acknowledgement number.
3.3.2.4. validation of DP ID, Client ID and PAN entered in the online system with the Depositories database.
3.3.2.5. generate an issue specific code from the on-line platform, so that participants on the online platform do not face any problem in segregating the ASBA issue-wise.
3.3.2.6. providing facilities of online payment by the investor through payment gateway or any other mechanism
3.3.3. The Stock Exchanges shall be responsible for
3.3.3.1. accurate, timely and secured transmission of the electronic application file uploaded by all participants on the online platform, to the registrar.
3.3.3.2. providing the necessary payment gateway interface for receipt of funds for direct interface to investors.
3.3.3.3. ensuring smooth movement of funds to the Escrow account of the issuer.
3.3.3.4. disseminating the issue information on Exchange web site on a real time basis across all categories and types of options.
3.3.3.5. ensuring that any Trading Member does not levy a service fee on his clients/investors in lieu of his services in this regard.
3.3.4. Notwithstanding the responsibility of the Lead Managers/Syndicate Members as laid down in SEBI regulations, the Stock Exchange shall be responsible for addressing investor grievances arising from applications submitted online through the stock exchange platform or through their Trading Members.

3.4. Lead Manager/Syndicate Member/Sub – syndicate Member/Trading Member
3.4.1. The Lead Manager/Syndicate/Sub-syndicate Member or Trading Member shall be responsible for addressing any investor grievances arising from the applications uploaded by them in respect of quantity, price or any other data entry or other errors made by them.
3.4.2. If the Lead Manager/Syndicate/Sub-syndicate member or Trading Member has not entered any details correctly on the stock exchanges platform and it results on the mismatch with the data obtained by the Registrar from the Depositories, the Lead Manager/Syndicate/sub-syndicate member or Trading Member shall be responsible for rejection of such applications.

3.5. Collecting Banks
3.5.1. The Collecting Bank shall be responsible for addressing any investor grievances arising from non confirmation of funds to the Registrar despite successful realization of the payment instrument in favour of the issuer's Escrow Account, or any delay or operational lapse by the Collecting Bank in sending the forms to the Registrar.