FINANCE MINISTER'S SPEECH DATED 7-5-2012 ON FINANCE BILL, 2012 : Part 4

Customs and Central Excise

16. A related proposal that has attracted public attention is the imposition of Central Excise duty on unbranded precious metal jewellery at the rate of 1%. Madam Speaker, I would like to reiterate that the levy was well-intentioned and introduced not so much for raising revenue as for rationalization and movement towards GST. However, the outpouring of sentiment both within and outside the House indicates that we are not ready for it. As such, the Government has decided to withdraw the levy on all precious metal jewellery, branded or unbranded, with effect from 17^th March, 2012.

17. The House would recall that certain amendments were proposed in the Customs and Central Excise Law in respect of the classification of offences as cognizable and non-bailable. In response to concerns expressed by Members that the proposal regarding grant of bail only after hearing the public prosecutor is too harsh, I propose to omit this provision entirely. In addition, only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs.50 lakh, shall be cognizable. However, all these offences shall be bailable.

18. There are a few other proposals relating to rationalization and adjustment of central excise and custom duties which I will place before the House while replying to the debate.

Service Tax

19. As Hon'ble Members are aware, taxation of services has undergone a paradigm shift with the introduction of a Negative List. This initiative has been widely welcomed.

20. The negative list has been drawn keeping in view the federal nature of the polity. Some of the States, through the Empowered Committee of State Finance Ministers, have expressed their concerns. I have decided to address their concerns by making changes in the definition of "service" which will exclude the activities specified in the Constitution as "deemed sale of goods". The definition of "works contract" has also been enlarged to include movable properties.

21. Exemption for specified services relating to agriculture in the Negative List has also been extended to agricultural produce enlarging the scope of the entry.

22. There are some other minor changes in the definitions based on the widespread feedbacks and suggestions that we have received from various stakeholders and are specified in the revised draft.

23. Notifications to give effect to these changes would be issued in due course and laid on the table of the House.

I would now like to hear the views of my colleagues from both sides of the House on the Budget proposals.

FINANCE MINISTER'S SPEECH DATED 7-5-2012 ON FINANCE BILL, 2012 : Part 3

11. It has been proposed in the Finance Bill that any consideration received by a closely held company in excess of the fair market value of its shares would be taxable. Considering the concerns raised by 'angel' investors who invest in start-up companies, I propose to provide an enabling provision in the Income Tax Act for exemption to a notified class of investors.

12. In order to augment long-term low cost funds from abroad for the infrastructure sector, Finance Bill proposes a lower rate of withholding tax of 5% for funding specific sectors through foreign borrowings. To further facilitate access to such borrowings, I propose to extend the lower rate of withholding tax to all businesses. This lower rate of tax would also be available for funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement.

13. The Reserve Bank of India is formulating a scheme for subsidiarisation of Indian branches of foreign banks to ring fence Indian capital and Indian operations from economic shocks external to the Indian economic scenario. To support this effort, I propose to provide tax neutrality for such subsidiarisation.

14. The Finance Bill proposes that every transferee of immovable property (other than agricultural land), at the time of making payment for transfer of the property, shall deduct tax at the rate of 1% of such sum. I have received a number of representations pointing out the additional compliance burden this measure would impose. I, therefore, propose to withdraw this provision for levy of TDS on transfer of immovable property.

15. To curb the flow of unaccounted money in the bullion & jewellery trade, the Finance Bill proposes the collection of tax at source (TCS) by the seller at the rate of 1 per cent of the sale amount from the buyer for all cash transactions exceeding Rs.2 lakh. Responding to the representations made by the jewellery industry that this would cause undue hardship, I propose to raise the threshold limit for TCS on cash purchases of jewellery to Rs.5 lakh from the present Rs.2 lakh. The threshold limit for TCS on cash purchase of bullion shall be retained at Rs.2 lakh. However, it is being clarified that bullion will not include any coin or other article weighing 10 gms or less.

FINANCE MINISTER'S SPEECH DATED 7-5-2012 ON FINANCE BILL, 2012 : Part 2

6. To provide more time to both taxpayers and the tax administration to address all related issues, I propose to defer the applicability of the GAAR provisions by one year. The GAAR provisions will now apply to income of Financial Year 2013-14 and subsequent years.

7. Hon'ble Members are aware that a provision in the Finance Bill which seeks to retrospectively clarify the provisions of the Income Tax Act relating to capital gains on sale of assets located in India through indirect transfers abroad, has been intensely debated in the country and outside. I would like to confirm that clarificatory amendments do not override the provisions of Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA .

8. The retrospective clarificatory amendments now under consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalized. I have asked the Central Board of Direct taxes to issue a policy circular to clearly state this position after the passage of the Finance Bill.

9. Currently, long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors is taxed at the rate of 10% while other non-resident investors, including Private Equity investors are taxed at the rate of 20%. In order to give parity to such investors, I propose to reduce the rate in their case from 20% to 10% on the same lines as applicable to FIIs.

10. To promote further depth of the capital markets through listing of companies, I propose to extend the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer. For this purpose, I propose to provide the levy of Securities Transaction Tax (STT) at the rate of 0.2 per cent on such sale of unlisted securities.

FINANCE MINISTER'S SPEECH DATED 7-5-2012 ON FINANCE BILL, 2012 : Part 1

Madam Speaker,

I presented the Budget for the year 2012-13 on 16^th of March, 2012. Since then I have received a large number of suggestions both from within the House and outside. Most of these pertain to tax proposals and range from seeking modification of some proposals to reconsideration or review of certain others. Requests have also been received for granting some fresh reliefs. I express my sincere gratitude to everyone for the interest they have shown in appraising my Budget proposals. I appreciate the valuable suggestions they have made and understand the concerns they have expressed.

2. While I propose to address some of these through amendments to the Bill, a number of concerns relating to indirect taxes can be addressed through notifications. I shall now take up the significant amendments to the Budget proposals.

Direct Taxes

3. I thank the members of the Standing Committee for examining the Direct Taxes Code Bill (DTC) and making valuable suggestions. Some of the proposals in the DTC such as removal of the cascading effect of the Dividend Distribution Tax, allowing Venture Capital to invest in all sectors, introduction of Advance Pricing Agreements and raising the threshold limit for audit and presumptive taxation to Rs. 1 crore which have been endorsed by the Standing Committee, have already been included in the Finance Bill. However, I could not consider all the recommendations of the Committee as the Report was received on 9^th of March, after most of the proposals of the Finance Bill, 2012 had been finalized.

4. In addition, certain provisions relating to a General Anti-Avoidance Rules (GAAR) have also been proposed in the Finance Bill, 2012. After examining the recommendations of the Standing Committee on GAAR provisions in the DTC Bill 2010, I propose to amend the GAAR provisions as follows:

 (i)  Remove the onus of proof entirely from the taxpayer to the Revenue Department before any action can be initiated under GAAR.

(ii)  Introduce an independent member in the GAAR approving panel to ensure objectivity and transparency. One member of the panel now would be an officer of the level of Joint Secretary or above from the Ministry of Law.

(iii)  Provide that any taxpayer (resident or non-resident) can approach the Authority for Advance Ruling (AAR) for a ruling as to whether an arrangement to be undertaken by her is permissible or not under the GAAR provisions.

5. To provide greater clarity and certainty in the matters relating to GAAR, a Committee has been constituted under the Chairmanship of the Director General of Income Tax (International Taxation) to give recommendations for formulating the rules and guidelines for implementation of the GAAR provisions and to suggest safeguards so that these provisions are not applied indiscriminately. The Committee has already held several rounds of discussion with various stakeholders including the Foreign Institutional Investors. The Committee will submit its recommendations by 31^stMay 2012.

Proposed changes in Finance Bill, 2012

1) Withdrawal of TDS on purchase of Immovable Property

2) Retrospective amendment to Sec. 9 not applicable where assessment order already passed

3) GAAR : Provisions postponed, now effective from 01-04-2014

4) GAAR : Provisions as to onus of proof shifted to revenue

5) GAAR : Advance Ruling applicable to GAAR cases

6) GAAR : Constitution of approving panel changed

7) STT on sale of unlisted securities at 0.2%

8) No excise duty on purchase of jewellery upto Rs. 5 lakhs

Nursing Home - When would it be a business or a profession

Even if a doctor carries out his activities on a large scale by hiring other doctors in his nursing home, his activity will be 'profession' and not 'business' unless he becomes a passive entrepreneur in relation to services. The fact that physicians/doctors have been hired is not relevant. What is relevant and crucial is the nature of the services rendered by them (hired doctors), whether facilitative or substantially so, or on independent, standalone basis, or substantially so. It is only in the latter case that the nursing home acquires the character of a business enterprise -SUNIL CHANDAK v. ITO [2012] 21

'Double deduction' admissible to trust in respect of capital expenditure - Chennai ITAT

Section 11 provides that the income of the Trust is to be computed on commercial basis, i.e., as per normal accounting principles. Normal Accounting Principles clearly provide for deducting depreciation to arrive at income. Therefore capital expenditure as well as depreciation is to be considered as application of Income for the purpose of Section 11 - GKR CHARITIES v. DDIT [2012] 21

CBDT clarifies "Vodafone was warned"

Opposing the contention of the Vodafone that Income-tax Department didnâ?Tt warn the Vodafone about the possible tax burden from the Vodafone-Hutch deal, the CBDT has issued a press release and clarified that:

a) A notice had been issued to the parties asking for the relevant details about the transactions;

b) Subsequently, a notice was issued on 23rd March, 2007, in which it was clearly mentioned that the capital gains arising from the said transaction were chargeable to tax in India;

c) It was further mentioned that in case parties to the transaction proposed to advance any other view, they were at liberty to approach the Assessing Officer;

d) It was also explained that the payer (Vodafone Group) as well as the payee (Hutchison Telecom Group) could make an application to the AO under sections 195(2) and 197, respectively, for determining the exact tax liability arising from the said transaction.

The CBDT emphasized that Vodafone could not say that it had received no communication from the tax department, about the chargeability of the transaction to tax in India.

Prosecuting director in cheque bouncing case, without arraigning the issuer-company, is unjustified

In case of dishonour of cheques issued by the company, prosecution under section 141 of the Negotiable Instrument Act, 1882 against directors (vicarious liability) is possible subject to arraigning of company as an accused. If directors are prosecuted without arraigning of company as an accused, prosecution order against directors is liable to be quashed.

However, directors can be proceeded against with or without arraigning company as an accused where company cannot be arraigned as accused due to some legal impediment which attracts lex non cogit ad impossiblia rule (law does not recognize that which is impossible) - ANEETA HADA v. GODFATHER TRAVELS & TOURS (P.) LTD. [2012] 21

CLB members suffering from 'copy and paste' disease: Calcutta HC

Calcutta High Court has passed strictures against CLB members for 'copy and paste disease', 'non-application of mind' and criticizing of 'outsourcing of judicial work' to tribunals manned by bureaucrats and non-judicial members. The High Court, on the ruling pronounced by CLB, held that:

a) Various paras of the impugned CLB judgment appear to have been physically lifted from a previous decision of the same member of the CLB which was taken up on appeal before the Delhi High Court which set aside the judgment and order;

b) The impugned judgment portrayed a total non-application of mind and still worse - DHARAM GODHA v. UNIVERSAL PAPER MILLS LTD. [2012] 21

Retirement benefits from foreign employer received by 'Not Ordinarily Resident' employee not taxable in India

Payment received by assessee towards retirement benefit/severance/vacation engagement from the 'Non Resident' employer based in USA on termination of its employment in USA cannot be taxed in India as the status of the assessee during the year in question was that of 'Not Ordinary Resident'.

In other words, where the recipient employee is 'Not Ordinarily Resident' in India, in terms of proviso to section 5(1)(c), read with section 9(1)(ii), the retirement benefit received for the services rendered outside India cannot be taxed in India - CIT v. ANANT JAIN [2012] 21

Notional interest on loan given to non-resident AE taxable under transfer pricing provisions

The Mumbai Tribunal in the instant case held that the lending or borrowings between two associated enterprises comes within the ambit of international transaction and whether the same is at arm's length price has to be considered. The question of rate of interest on the borrowings is an integral part of arm's length price determination in this context.

Therefore, in case interest-free loan is given to the non-resident associated enterprise, the provisions of transfer pricing regime shall be applied and the notional interest on such loan shall be taxable in the hands of the lender -TATA AUTOCOMP SYSTEMS LTD. v. ACIT [2012] 21

SC: Benami transactions also cover a transaction where part of the consideration is paid by some other person

The Supreme Court held that even if a part of the consideration for the property had been paid/provided by the person in whose name the property was purchased, the transaction would be a 'benami transaction' as per section 2(a) of the Benami Transactions (Prohibition) Act,1988 ('the 1988 Act'). It is not necessary that entire consideration should be paid /provided by another person(s) before a transaction can be termed as benami transaction.

However, the transaction in the instant case was saved from the mischief of Sec. 4 of the 1988 Act by reason of the same falling under the exception provided in Sec. 4(3)(b) i.e. the parties were closely related to each other, lend considerable support to the case of the respondents and the appellant held the tenancy rights and the ostensible title to the suit property in a fiduciary capacity vis-à-vis his siblings. - MARCEL MARTINS v. M. PRINTER [2012] 21

For a contribution to be a 'Voluntary contribution' and to avail exemption u/s 11(1)(d), identity of donors need to be established

To avail exemption under section 11(1)(d) in respect of Voluntary contributions made with a specific direction that they shall form part of the corpus of the trust/institution, identity of donor(s) must be established. If identity of donors not established, there is no question of the donations having been received with such a direction - ITO v. SMT. VIDYAWANTI LABHURAM FOUNDATION FOR SCIENCE RESEARCH & SOCIAL WELFARE [2012] 20